<SUBMISSION>
<ACCESSION-NUMBER>0001047469-02-003131
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>5
<PERIOD>20020930
<FILING-DATE>20021114
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>INHALE THERAPEUTIC SYSTEMS INC
<CIK>0000906709
<ASSIGNED-SIC>2834
<IRS-NUMBER>943134940
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-24006
<FILM-NUMBER>02826430
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>150 INDUSTRIAL RD
<CITY>SAN CARLOS
<STATE>CA
<ZIP>94070
<PHONE>6506313100
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>150 INDUSTRIAL ROAD
<CITY>SAN CARLOS
<STATE>CA
<ZIP>94070
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>INHALE THERAPEUTIC SYSTEMS
<DATE-CHANGED>19940303
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>a2093292z10-q.htm
<DESCRIPTION>10-Q
<TEXT>
<HTML>
<HEAD>

</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#02PAL2354_1">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>

<!-- TOC_END -->
<HR NOSHADE>
<HR NOSHADE>
<P ALIGN="CENTER"><FONT SIZE=5><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION<BR>  </B></FONT><FONT SIZE=2><B>WASHINGTON, DC 20549  </B></FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">
<P ALIGN="CENTER"><FONT SIZE=5><B>FORM 10-Q  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="CENTER"><BR><FONT SIZE=3><FONT FACE="WINGDINGS">&#253;</FONT></FONT></TD>
<TD WIDTH="88%"><BR><FONT SIZE=3><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="CENTER"><BR><FONT SIZE=2><B>For the quarterly period ended September&nbsp;30, 2002</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2 ALIGN="CENTER"><FONT SIZE=2><B>or,</B></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="12%" ALIGN="CENTER"><BR><FONT SIZE=3><FONT FACE="WINGDINGS">&#111;</FONT></FONT></TD>
<TD WIDTH="88%"><BR><FONT SIZE=3><B>TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.</B></FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to
<U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B> Commission File Number: 0-23556  </B></FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">
<P ALIGN="CENTER"><FONT SIZE=5><B>INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.<BR>  </B></FONT><FONT SIZE=2>(Exact name of registrant as specified in its charter) </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="72%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>Delaware</B></FONT><FONT SIZE=2><BR>
(State of other jurisdiction of<BR>
incorporation or organization)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%" ALIGN="CENTER"><FONT SIZE=2><B>94-3134940</B></FONT><FONT SIZE=2><BR>
(IRS Employer Identification No.)</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2><B>150 Industrial Road<BR>
San Carlos, California 94070<BR>  </B></FONT><FONT SIZE=2>(Address of principal executive offices) </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>650-631-3100<BR>  </B></FONT><FONT SIZE=2>(Registrant's telephone number, including area code) </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><B>Not applicable<BR>  </B></FONT><FONT SIZE=2>(Former name, former address and former fiscal year, if changed since last report) </FONT></P>

<HR NOSHADE ALIGN="CENTER" WIDTH="120">

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

<P ALIGN="CENTER"><FONT SIZE=2>Applicable
Only to Corporate Issuers </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of outstanding shares of the registrant's Common Stock, $0.0001 par value, was 55,422,665 as of October&nbsp;31, 2002. </FONT></P>

<HR NOSHADE>
<HR NOSHADE>
<HR NOSHADE>
<!-- ZEQ.=1,SEQ=1,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=665787,FOLIO='blank',FILE='DISK027:[02PAL4.02PAL2354]BA2354A.;5',USER='ATOBAK',CD='12-NOV-2002;19:12' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_bg2354_1_2"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="bg2354_inhale_therapeutic_systems,_inc._index"> </A>
<A NAME="toc_bg2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.<BR>  INDEX    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="9%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TH>
<TH WIDTH="80%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="7%" ALIGN="CENTER"><FONT SIZE=1><B>PAGE</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=2><B>PART I: FINANCIAL INFORMATION</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 1.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Condensed Consolidated Financial Statements&#151;unaudited</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Condensed Consolidated Balance Sheets&#151;September&nbsp;30, 2002 and December&nbsp;31, 2001</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>3</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September&nbsp;30, 2002 and 2001</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>4</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Consolidated Statements of Cash Flows for the nine-month periods ended September&nbsp;30, 2002 and&nbsp;2001</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>5</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Notes to Unaudited Condensed Consolidated Financial Statements</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>6</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 2.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Management's Discussion and Analysis of Financial Condition and Results of Operations</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>16</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 3.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Quantitative and Qualitative Disclosures about Market Risk</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>36</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 4.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Evaluation of Disclosure Controls and Procedures</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>36</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD COLSPAN=3><BR><FONT SIZE=2><B>PART II: OTHER INFORMATION</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="7%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 1.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Legal Proceedings</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 2.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Changes in Securities and Use of Proceeds</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 3.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Defaults Upon Senior Securities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 4.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Submission of Matters to a Vote of Security Holders</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 5.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Other Information</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>37</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>Item 6.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Exhibits and Reports on Form 8-K</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>38</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Signatures</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>43</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="80%"><FONT SIZE=2>Certification</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="7%" ALIGN="RIGHT"><FONT SIZE=2>44</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>2</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=2,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=81705,FOLIO='2',FILE='DISK027:[02PAL4.02PAL2354]BG2354A.;7',USER='MWORTHY',CD='13-NOV-2002;01:50' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_de2354_1_3"> </A> </FONT></P>

<!-- TOC_END -->

<P><FONT SIZE=2><A
NAME="de2354_part_i__financial_information"> </A>
<A NAME="toc_de2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART I: FINANCIAL INFORMATION    <BR>  </B></FONT></P>

<P><FONT SIZE=2><A
NAME="de2354_item_1._financial_statements"> </A>
<A NAME="toc_de2354_2"> </A></FONT> <FONT SIZE=2><B>Item 1. Financial Statements    <BR>  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="de2354_inhale_therapeutic_systems,_in__inh04367"> </A>
<A NAME="toc_de2354_3"> </A></FONT> <FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS, INC.<BR>  CONDENSED CONSOLIDATED BALANCE SHEETS<BR>  (in thousands, except per share information)    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>September&nbsp;30, 2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December&nbsp;31, 2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=3 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>(unaudited)<BR> </B></FONT><BR></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>*<BR> </B></FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1><B>ASSETS</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Current assets:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Cash and cash equivalents</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>44,676</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>30,814</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Short-term investments</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>268,877</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>313,542</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Accounts receivable</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>3,710</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>4,487</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Other current assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>12,134</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>11,998</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="59%"><FONT SIZE=1>Total current assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>329,397</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>360,841</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Property and equipment, net</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>142,191</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>142,352</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Marketable equity securities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>53</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>721</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Goodwill</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>130,120</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>133,856</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Other intangible assets, net</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>16,596</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>19,977</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Deposits and other assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>8,177</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>9,494</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Total assets</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>626,534</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>667,241</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1><B>LIABILITIES AND STOCKHOLDERS' EQUITY</B></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Current liabilities:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Accounts payable</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>5,198</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>7,685</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Accrued research and development</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>7,933</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>10,776</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Accrued general and administrative</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>7,709</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>7,075</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Accrued compensation</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>6,371</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>5,977</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Accrued acquisition costs</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>2,046</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Other accrued liabilities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>605</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>3,172</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Interest payable</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>5,725</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>4,588</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Capital lease obligation &#151; current</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>956</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>807</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Deferred revenue</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>16,413</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>17,073</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="59%"><FONT SIZE=1>Total current liabilities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>50,910</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>59,199</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Capital lease obligation &#151; noncurrent</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>32,341</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>31,909</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Accrued rent</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>2,014</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>1,921</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Convertible subordinated notes and debentures</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>299,149</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>299,149</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Other long-term liabilities</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>5,471</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>4,750</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Commitments and contingencies</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Stockholders' equity:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Preferred Stock, 10,000 shares authorized</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Series&nbsp;A, $0.0001 par value: 3,100 shares designated; no shares issued or outstanding at September&nbsp;30, 2002 and December&nbsp;31, 2001.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Convertible Series&nbsp;B, $0.0001 par value: 40 shares designated; 40&nbsp;shares issued and outstanding at September&nbsp;30, 2002. No shares issued or outstanding at December&nbsp;31, 2001. Liquidation preference of
$40,000 at September&nbsp;30, 2002 and $0 at December&nbsp;31, 2001.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>40,000</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Common stock, $0.0001 par value; 300,000 authorized; 55,371 shares and 55,094 shares issued and outstanding at September&nbsp;30, 2002 and December&nbsp;31, 2001, respectively.</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>5</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Capital in excess of par value</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>713,737</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>712,039</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Deferred compensation</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>(358</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>(923</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Accumulated other comprehensive gain</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>1,535</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>1,069</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD COLSPAN=2><FONT SIZE=1>Accumulated deficit</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>(518,271</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>)</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>(441,877</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="59%"><FONT SIZE=1>Total stockholders' equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>236,649</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>270,313</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=3><FONT SIZE=1>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>626,534</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>$</FONT></TD>
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=1>667,241</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=3><FONT SIZE=1>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=1>(*)</FONT></DT><DD><FONT SIZE=1>The
balance sheet at December 31, 2001 has been derived from the audited financial statements at that date which are included in our Form 10-K for the year ended December 31, 2001 as
filed with the Securities and Exchange Commission. This balance sheet does not include all the information and footnotes required by accounting principles generally accepted in the United States for
complete financial statements. </FONT>
<P ALIGN="CENTER"><FONT SIZE=2>See accompanying notes. </FONT></P>

</DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>3</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=3,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=582820,FOLIO='3',FILE='DISK027:[02PAL4.02PAL2354]DE2354A.;18',USER='ATOBAK',CD='12-NOV-2002;19:17' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_dg2354_1_4"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dg2354_inhale_therapeutic_systems,_in__inh05210"> </A>
<A NAME="toc_dg2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS, INC.<BR>  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS<BR>  (in thousands, except per share information)<BR>  (unaudited)    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="93%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three-Months Ended September&nbsp;30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Nine-Months Ended September&nbsp;30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Revenue:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Contract research revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>18,800</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>17,236</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>58,929</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>48,132</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Product sales</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>4,418</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,169</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>13,286</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,169</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Total revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>23,218</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>22,405</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>72,215</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>53,301</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Operating costs and expenses:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Cost of goods sold</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,940</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,979</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>5,503</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,979</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Research and development</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>38,183</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>34,212</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>116,661</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>98,542</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>General and administrative</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>6,551</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,762</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>17,507</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14,200</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Purchased in-process research and development</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>146,260</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Amortization of other intangible assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,127</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>1,127</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>3,381</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,884</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="45%"><FONT SIZE=2>Amortization of goodwill</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>7,816</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14,594</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Total operating costs and expenses</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>47,801</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>50,896</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>143,052</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>277,459</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Loss from operations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(24,583</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(28,491</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(70,837</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(224,158</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Other income/(expense), net</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(420</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(263</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(1,107</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
(603</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Interest income</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>2,687</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>5,360</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>7,974</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>20,380</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Interest expense</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(4,205</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(3,527</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(12,424</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(9,375</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(26,521</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(26,921</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(76,394</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(213,756</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Basic and diluted net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(0.48</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(0.49</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1.38</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(4.07</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Shares used in computing basic and diluted net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>55,316</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>54,845</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>55,226</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>52,513</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>4</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=4,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=1036131,FOLIO='4',FILE='DISK027:[02PAL4.02PAL2354]DG2354A.;7',USER='ATOBAK',CD='12-NOV-2002;19:12' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_di2354_1_5"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="di2354_inhale_therapeutic_systems,_in__inh05356"> </A>
<A NAME="toc_di2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS, INC.<BR>  CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>  Increase/(Decrease) in Cash and Cash Equivalents<BR>  (in thousands)<BR>  (unaudited)    <BR>  </B></FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Nine-Months Ended<BR>
September&nbsp;30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH COLSPAN=2 ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Cash flows used in operating activities:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(76,394</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(213,756</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Adjustments to reconcile net loss to net cash used in operating activities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Depreciation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9,701</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>8,401</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Amortization of other intangible assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,381</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,885</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Amortization of goodwill</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>14,593</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Amortization of debt issuance costs</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>951</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,377</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Amortization of deferred compensation</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>430</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>695</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Issuance of common stock for retirement plans</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>863</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Stock-based compensation for services rendered</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>595</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>480</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Purchased in-process research and development</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>146,260</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Loss on impairment of marketable equity securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>392</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Changes in assets and liabilities:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>(Increase)/decrease in accounts receivable, other current assets, and other assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,975</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(1,273</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Increase/(decrease) in accounts payable and other accrued liablities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(4,336</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(2,393</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Increase in deferred revenue</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>162</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>715</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net cash used in operating activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(62,280</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(43,016</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Cash flows from investing activities:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Purchases of short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(197,855</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(413,201</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Sales of short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>83,605</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>88,446</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Maturities of short-term investments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>158,477</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>350,768</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Acquisition of Shearwater, net of cash acquired and purchase price adjustments</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>3,443</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(67,246</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Acquisition of Bradford, net of cash acquired</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(14,805</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Disposal of property and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>39</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Purchases of property and equipment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(12,076</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(26,559</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net cash provided by/(used in) investing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>35,633</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(82,597</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><B>Cash flows from financing activities:</B></FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Proceeds from loan and capital lease financing</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,146</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>15,119</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Payments of loan and capital lease obligations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(1,013</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(593</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Issuance of preferred stock</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>40,000</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>&#151;</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="2%">&nbsp;</TD>
<TD WIDTH="66%"><FONT SIZE=2>Issuance of common stock, net of issuance costs</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>376</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>5,075</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net cash provided by financing activities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>40,509</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>19,601</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Net increase/(decrease) in cash and cash equivalents</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>13,862</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(106,012</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2><BR>
Cash and cash equivalents at beginning of period</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
30,814</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2><BR>
136,012</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD COLSPAN=2><FONT SIZE=2>Cash and cash equivalents at end of period</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>44,676</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>30,000</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD COLSPAN=2><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>See
accompanying notes. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>5</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=5,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=716636,FOLIO='5',FILE='DISK027:[02PAL4.02PAL2354]DI2354A.;8',USER='MWORTHY',CD='13-NOV-2002;00:10' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_dk2354_1_6"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dk2354_inhale_therapeutic_systems,_in__inh04077"> </A>
<A NAME="toc_dk2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>INHALE THERAPEUTIC SYSTEMS,&nbsp;INC.<BR>  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS<BR>  September&nbsp;30, 2002<BR>  (unaudited)    <BR>  </B></FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;1&#151;Organization and Summary of Significant Accounting Policies  </B></FONT></P>

<P><FONT SIZE=2><B>Organization and Basis of Presentation  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are working to become the world's leading drug delivery company by providing a portfolio of technologies and expertise that will enable our pharmaceutical and
biotechnology partners to improve drug performance throughout the drug development process. To fulfill these needs, we are providing several technologies. The first technology enables inhalation of
delivery of a range of drugs, including peptides, proteins and small molecules for treatment of systemic and respiratory diseases. The second technology, advanced PEGylation, is designed to enhance
the efficacy and performance of most major drug classes, including macromolecules such as peptides and proteins and smaller sized molecular compounds, and other drugs. A third technology, solution
enhanced dispersion by supercritical fluids (SEDS&#153;), uses a proprietary processing method known as supercritical fluids processing to develop drug formulations for multiple types of drug
delivery. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
consolidated financial statements include the financial statements of our subsidiaries: Shearwater Corporation ("Shearwater"), Bradford Particle Design&nbsp;Ltd. ("Bradford"),
Inhale Therapeutic Systems Deutschland Gmbh ("Inhale Germany") and Inhale Therapeutic Systems, U.K. Limited ("Inhale UK"), as well as the financial statements of a real estate partnership lessor. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
expect to continue to incur substantial and potentially increasing losses over at least the next few years as we expand our research and development efforts and testing activities,
scale up manufacturing operations and further expand our late stage clinical and early commercial production facility. We plan
to continue to finance ourselves primarily through issuances of equity or debt securities, research and development contract revenue, and in the longer term, revenue from product sales and royalties. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
accompanying unaudited condensed consolidated financial statements of Inhale have been prepared by management in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form&nbsp;10-Q and Article&nbsp;10 of Regulation&nbsp;S-X. The condensed consolidated balance sheet as of
September&nbsp;30, 2002, the condensed consolidated statements of operations for the three-month periods and the nine-month periods ended September&nbsp;30, 2002 and 2001, and the
consolidated statements of cash flows for the nine-month periods ended September&nbsp;30, 2002 and 2001 have been prepared by us without audit, but include all adjustments (consisting
only of normal recurring adjustments) which we consider necessary for a fair presentation of the financial position at such dates and the operating results and cash flows for those periods. Although
we believe that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information normally included in financial statements and related
footnotes prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form&nbsp;10-K
for the year ended December&nbsp;31, 2001, as filed with the SEC. </FONT></P>

<P><FONT SIZE=2><B>Use of Estimates  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Results for any interim period presented are not necessarily indicative of results for any other interim period or for the entire year. The preparation of
financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>6</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=6,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=554233,FOLIO='6',FILE='DISK027:[02PAL4.02PAL2354]DK2354A.;8',USER='DPHAMA',CD='13-NOV-2002;19:10' -->
<A NAME="page_dk2354_1_7"> </A>
<BR>

<P><FONT SIZE=2>
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates. </FONT></P>

<P><FONT SIZE=2><B>Reclassifications  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain prior year amounts have been reclassified to conform to the 2002 presentation. </FONT></P>


<P><FONT SIZE=2><B>Principles of Consolidation  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our consolidated financial statements include the accounts of the parent company, Inhale Germany, Inhale UK, the financial statements of a real estate lessor
created to finance and manage construction
of our new lab and office facility, and the accounts of Bradford and Shearwater, acquired during the 2001 fiscal year. All significant intercompany accounts and transactions are eliminated in
consolidation. </FONT></P>

<P><FONT SIZE=2><B>Significant Concentrations  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash equivalents and short-term investments are financial instruments that potentially subject us to concentration of risk to the extent of the
amounts recorded in the consolidated balance sheet. We limit our concentration of risk by diversifying our investment amount among a variety of industries and issuers. Our professional portfolio
managers adhere to this investment policy as approved by our Board of Directors. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have not experienced significant credit losses from our accounts receivable or collaborative research agreements, and none are currently expected. We perform a regular review of our
customer activity and associate credit risks and do not require collateral from our customers. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we are dependent on our partners, vendors and contract manufacturers to provide raw materials, drugs and devices of appropriate quality and reliability and to meet
applicable regulatory requirements. Consequently, in the event that supplies are delayed or interrupted for any reason, our ability to develop our products could be impaired, which could have a
material adverse effect on our business, financial condition and results of operation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
are dependent on Pfizer as the source of a significant proportion of our revenue. In the event that this collaboration is terminated, our ability to develop and supply our products
could be impaired, which could have a material adverse effect on our business, financial condition and results of operation. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Should
the Pfizer collaboration be discontinued prior to the launch of inhaleable insulin, we will need to find alternative funding sources to replace the collaborative revenue and will
need to reassess the realizability of assets capitalized. Additionally, we may have contingent payments to our contract manufacturers to reimburse them for their capital outlay to the extent that they
cannot re-deploy their assets and may incur additional liabilities. </FONT></P>

<P><FONT SIZE=2><B>Recent Accounting Pronouncements  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.&nbsp;146, </FONT> <FONT SIZE=2><I>Accounting for Costs
Associated with Exit or Disposal Activities</I></FONT><FONT SIZE=2>. SFAS No.&nbsp;146 provides guidance related to accounting for costs associated with
disposal activities covered by SFAS No.&nbsp;144 or with exit or restructuring activities previously covered by Emerging Issues Task Force Issue No.&nbsp;94-3 ("EITF
94-3"), "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No.&nbsp;146 supersedes EITF 94-3 in its entirety. SFAS No.&nbsp;146 requires that costs
related to exiting an activity or to a restructuring not be recognized until the liability is incurred. SFAS No.&nbsp;146 will be applied prospectively to exit or disposal activities that are
initiated after December&nbsp;31, 2002. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>7</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=7,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=307187,FOLIO='7',FILE='DISK027:[02PAL4.02PAL2354]DK2354A.;8',USER='DPHAMA',CD='13-NOV-2002;19:10' -->
<A NAME="page_dk2354_1_8"> </A>
<BR>

<P><FONT SIZE=2><B>Cash, Cash Equivalents and Short-term Investments  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consider all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include
demand deposits held in banks, interest bearing money market funds and repurchase agreements. All other investments are classified as short-term investments. Short-term
investments consist of federal and municipal government securities, corporate bonds and commercial paper with A1 or P1 short-term ratings and A+ or better long-term ratings
with remaining maturities at date of purchase of greater than 90&nbsp;days and less than two years. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At
September&nbsp;30, 2002, all investments are designated as available-for-sale and are carried at fair value, with material unrealized gains and losses, if
any, reported in stockholders' equity as accumulated other comprehensive gain/loss. The amortized cost of securities is adjusted for amortization of material premiums and accretion of discounts to
maturity. Such amortization, if any, is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary on
available-for-sale securities, if any, are included in interest income. The cost of securities sold is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in interest income. </FONT></P>

<P><FONT SIZE=2><B>Inventories  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are included in other current assets on the balance sheet and consist primarily of raw materials, work-in-process and finished
goods of our Shearwater subsidiary. Inventory is stated at the lower of cost (first-in, first-out method) or market, and consists of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="60%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>September&nbsp;30,<BR>
2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December&nbsp;31,<BR>
2001</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Raw materials</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>1,919</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>1,805</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Work-in process</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>171</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>513</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Finished goods</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>2,905</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>883</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>4,995</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="15%" ALIGN="RIGHT"><FONT SIZE=2>3,201</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>Property and Equipment  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are stated at cost. Major improvements are capitalized, while maintenance and repairs are expensed when incurred. Laboratory and other
equipment are depreciated using the straight-line method over estimated useful lives of three to seven years. Vehicles are depreciated using the straight-line method over an
estimated useful life of five years. Leasehold improvements and buildings, which are subject to the terms of a build-to-suit lease, are depreciated using the
straight-line method over the shorter of the estimated useful life or the remaining term of the lease. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have expensed certain plant design, engineering and validation costs based on our evaluation that it is unclear whether such costs are ultimately recoverable. </FONT></P>

<P><FONT SIZE=2><B>Goodwill  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2002, in accordance with SFAS No 142, </FONT><FONT SIZE=2><I>Goodwill and Other Intangible Assets,</I></FONT><FONT SIZE=2> we stopped the
periodic amortization of goodwill and adopted a new policy for measuring goodwill for impairment. No impairment of goodwill was recognized in connection with the adoption of this new policy. We
currently operate as a single reporting unit and all of our goodwill is associated with the entire company. Under our new policy, goodwill is tested for impairment at least annually, or on an interim
basis if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of the reporting unit below its carrying value. Goodwill is
tested for impairment using a two-step approach. The first step is to compare the fair value of the reporting unit to its carrying amount, </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>8</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=3,SEQ=8,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=296148,FOLIO='8',FILE='DISK027:[02PAL4.02PAL2354]DK2354A.;8',USER='DPHAMA',CD='13-NOV-2002;19:10' -->
<A NAME="page_dk2354_1_9"> </A>
<BR>

<P><FONT SIZE=2>
including goodwill. If the fair value of the reporting unit is greater than its carrying amount, goodwill is not considered impaired and the second step is not required. If the fair value of the
reporting unit is less than its carrying amount, the second step of the impairment test measures the amount of the impairment loss, if any. The second step of the impairment test is to compare the
implied fair value of goodwill to its carrying amount. If the carrying amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess. The implied fair value
of goodwill is calculated in the same manner that goodwill is calculated in a business combination, whereby the fair value of the reporting unit is allocated to all of the assets and liabilities of
that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price. The
excess "purchase price" over the amounts assigned to assets and liabilities would be the implied fair value of goodwill. </FONT></P>


<P><FONT SIZE=2><B>Other Intangible Assets  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquired technology and other intangible assets with definite useful lives are amortized on a straight-line basis over a period of five years.
Intangible assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. If
impaired, the assets are recorded at fair value. Other intangible assets includes proprietary technology, intellectual property, and supplier and customer relationships acquired from third parties or
in business combinations. </FONT></P>

<P><FONT SIZE=2><B>Impairment of Long-Lived Assets  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not
be recoverable in accordance with SFAS No.&nbsp;144, </FONT><FONT SIZE=2><I>Accounting for the Impairment or Disposal of Long-lived Assets</I></FONT><FONT SIZE=2>. Recoverability of
assets to be held and used, including assets to be disposed of other than by sale, are measured by a comparison of the carrying amount of any asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets
to be sold are reported at the lower of the carrying amount or fair value less cost to sell. </FONT></P>

<P><FONT SIZE=2><B>Comprehensive Gain/Loss  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Comprehensive gain/loss is comprised of net loss and other comprehensive gain/loss for the three-month and nine-month periods ended
September&nbsp;30, 2002 and 2001. Other comprehensive gain/loss
included unrealized gains/losses on available-for-sale securities and translation adjustments (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="47%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Three-Month Period Ended<BR>
September&nbsp;30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Nine-Month Period Ended<BR>
September&nbsp;30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="47%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(26,521</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(26,921</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(76,394</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(213,756</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2>Change in net unrealized gains/losses on available-for-sale securities</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>308</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>90</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(49</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(6,907</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2>Net unrealized (gain)/loss reclassified into earnings</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(94</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(1</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>161</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(712</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2>Translation adjustment</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>31</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(41</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>354</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>9</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="BOTTOM">
<TD WIDTH="47%"><FONT SIZE=2>Comprehensive loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(26,276</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(26,873</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="8%" ALIGN="RIGHT"><FONT SIZE=2>(75,928</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(221,366</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="47%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>9</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=4,SEQ=9,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=935932,FOLIO='9',FILE='DISK027:[02PAL4.02PAL2354]DK2354A.;8',USER='DPHAMA',CD='13-NOV-2002;19:10' -->
<A NAME="page_dk2354_1_10"> </A>

<P><FONT SIZE=2><B>Stock-Based Compensation  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As permitted by the provisions of SFAS No.&nbsp;123, </FONT><FONT SIZE=2><I>Accounting for Stock-Based Compensation</I></FONT><FONT SIZE=2>, we account for our
employee stock options in accordance with Accounting Principles Board Opinion ("APB")
No.&nbsp;25, </FONT><FONT SIZE=2><I>Accounting for Stock Issued to Employees</I></FONT><FONT SIZE=2> and related interpretations. Under APB 25, if the exercise price of our employee stock options
equals or exceeds the fair market value of the underlying stock on the date of grant as determined by the closing price of our common stock as quoted on the Nasdaq Stock Market, no compensation
expense is recognized. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock
compensation expense for options granted to non employees has been determined in accordance with SFAS&nbsp;123 and Emerging Issues Task Force No.&nbsp;96-18 as the
fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. The fair value of options granted to non-employees is
remeasured as the underlying options vest. </FONT></P>

<P><FONT SIZE=2><B>Revenue Recognition  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract revenue from collaborative research agreements is recorded when earned based on the performance requirements of the contract. Revenue from
non-refundable upfront license fees and certain guaranteed payments where we continue involvement through collaborative development are deferred and recognized as revenue over the period
of continued involvement. Payments received from milestone achievements are deferred and recorded as revenue over the next period of continued development. Revenue from grants and feasibility
arrangements are recognized as the related costs are incurred and collection is assured. Our research revenue consists of reimbursement of development costs, reimbursement of certain expenses, payment
of clinical supplies and amortization of milestones. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs
of contract research revenue approximate such revenue and are included in research and development expenses. Product sales are recognized when there is persuasive evidence that an
arrangement exists, delivery has occurred, the price is fixed and determinable, and collectability is reasonably assured. Allowances, if any, are established for estimated product returns and
discounts. </FONT></P>

<P><FONT SIZE=2><B>Research and Development  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development costs are expensed as incurred and include salaries, benefits, and other operating costs. We perform research and development for others
pursuant to feasibility agreements and development and license agreements. Under these feasibility agreements, we are generally reimbursed for the cost of work performed. Feasibility agreements are
designed to evaluate the applicability of our technologies to a particular molecule and therefore are generally completed in less than one year. Under our development and license agreements, products
developed using our technologies are commercialized with a collaborative partner. Under these development agreements, we will be reimbursed for development costs, may also be entitled to milestone
payments when and if certain development milestones are achieved and are compensated for the manufacture and supply of clinical and commercial product. All of our research and development agreements
are generally cancelable by the partner without significant financial penalty. </FONT></P>


<P><FONT SIZE=2><B>Segment Reporting  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We report segments in accordance with SFAS No. 131 </FONT><FONT SIZE=2><I>Disclosures About Segments of an Enterprise and Related
Information.</I></FONT><FONT SIZE=2> SFAS&nbsp;131 requires the use of a management approach in identifying segments of an enterprise. We are organized and operate as one operating segment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
research revenue is derived primarily from clients in the pharmaceutical and biotechnology industries. Contract research revenue from one partner represented 63% and 54% of our
revenue for the three-months ended September&nbsp;30, 2002 and September&nbsp;30, 2001, respectively, and 62% and 65% </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>10</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=5,SEQ=10,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=921659,FOLIO='10',FILE='DISK027:[02PAL4.02PAL2354]DK2354A.;8',USER='DPHAMA',CD='13-NOV-2002;19:10' -->
<A NAME="page_dk2354_1_11"> </A>
<BR>

<P><FONT SIZE=2>
for the nine-months ended September&nbsp;30, 2002 and 2001, respectively. Product sales relate to sales by our Shearwater subsidiary of manufactured PEGylated products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
accounts receivable balance contains trade receivables from product sales, feasibility agreements and collaborative research agreements. At September&nbsp;30, 2002, two of our
partners represented 50% of our accounts receivable balance, and no one partner had a balance greater than 10% of accounts receivable balance at December&nbsp;31, 2001. </FONT></P>

<P><FONT SIZE=2><B>Net Loss Per Share  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted net loss per common share is computed in accordance with SFAS No.&nbsp;128, </FONT><FONT SIZE=2><I>Earnings Per
Share</I></FONT><FONT SIZE=2>. Accordingly, the weighted average number of common shares outstanding are used while common stock issuable upon the conversion of debt, outstanding preferred stock and
common stock equivalents for stock options and warrants are not included in the per share calculation as the effect of their inclusion would be antidilutive. </FONT></P>


<P><FONT SIZE=2><B>Note&nbsp;2&#151;Goodwill and Other Intangible Assets  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill and other intangible assets consist of the following (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="82%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="60%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>September 30,<BR>
2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>December 31,<BR>
2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Goodwill</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>152,958</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>156,694</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Accumulated amortization</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(22,838</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(22,838</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Net goodwill</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>130,120</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>133,856</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Other intangible assets:</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Core technology</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>8,100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>8,100</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Developed product technology</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,900</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>2,900</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Intellectual property</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>7,301</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>7,301</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Supplier and customer relations</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,140</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>5,140</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Total other intangible assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>23,441</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>23,441</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Accumulated amortization of other intangible assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(6,845</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>(3,464</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Net other intangible assets</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>16,596</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>19,977</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>Net goodwill and other intangibles</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>146,716</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="14%" ALIGN="RIGHT"><FONT SIZE=2>153,833</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="60%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
goodwill balance decreased from December&nbsp;31, 2001, due to certain purchase price adjustments, including income tax refunds received related to our acquisition of our
Shearwater subsidiary. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
expense related to other intangible assets totaled $1.1&nbsp;million for each of the three-months ended September&nbsp;30, 2002 and 2001. The estimated aggregate future
amortization expense for other intangible assets remaining as of September&nbsp;30, 2002 is as follows (in thousands): </FONT></P>

<!-- User-specified TAGGED TABLE -->
<DIV ALIGN="CENTER"><TABLE WIDTH="73%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%"><FONT SIZE=2>Remainder of 2002</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,126</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%"><FONT SIZE=2>2003</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,507</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%"><FONT SIZE=2>2004</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,507</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%"><FONT SIZE=2>2005</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>4,507</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="85%"><FONT SIZE=2>2006</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>1,949</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="85%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="85%"><FONT SIZE=2>Total</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>16,596</FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="85%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD COLSPAN=2 ALIGN="RIGHT"><HR NOSHADE SIZE=4></TD>
</TR>
</TABLE></DIV>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>11</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=6,SEQ=11,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=1016739,FOLIO='11',FILE='DISK027:[02PAL4.02PAL2354]DK2354A.;8',USER='DPHAMA',CD='13-NOV-2002;19:10' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_dm2354_1_12"> </A> </FONT> <FONT SIZE=2><B>Note&nbsp;3&#151;Business Acquisitions  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bradford's and Shearwater's results of operations included in the following pro forma financial information are derived from their unaudited financial statements
for the year ended December&nbsp;31, 2001. Bradford's financial statements have been adjusted, where appropriate, to present their financial position and results of operations in accordance with
accounting principles generally accepted in the United States. The unaudited pro forma net loss and loss per share amounts do not include the charges for purchased research and development of
approximately $146.3&nbsp;million, due to its non-recurring nature, but includes the amortization of other intangible assets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
unaudited pro forma results of our operations is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial positions that would
have occurred if the transactions had been consummated at the dates indicated, nor is it necessarily indicative of future operating results or financial position of the combined companies and should
not be construed as representative of these amounts for any future dates or periods. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following unaudited pro forma results of operations of Inhale for the nine-months ended September&nbsp;30, 2001 assumes the acquisition of Bradford and Shearwater has
been accounted for using the purchase method of accounting as of January&nbsp;1, 2001 and assumes the purchase price has been allocated to the assets purchased and the liabilities assumed based on
fair values at the date of acquisition. Pro forma results of operation include the adoption of SFAS&nbsp;142 as of January&nbsp;1, 2001 (unaudited, in thousands, except per share information). </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="70%" ALIGN="LEFT"><FONT SIZE=2>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=5 ALIGN="CENTER"><FONT SIZE=1><B>Nine-Months Ended<BR>
September 30,</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR VALIGN="BOTTOM">
<TH WIDTH="70%" ALIGN="LEFT"><FONT SIZE=1>&nbsp;</FONT><BR></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Actual<BR>
2002</B></FONT><HR NOSHADE></TH>
<TH WIDTH="2%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH COLSPAN=2 ALIGN="CENTER"><FONT SIZE=1><B>Pro Forma<BR>
2001</B></FONT><HR NOSHADE></TH>
<TH WIDTH="1%"><FONT SIZE=1>&nbsp;</FONT></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Total revenues</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>72,215</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>59,616</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>&nbsp;</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Net loss</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(76,394</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(56,289</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="70%"><FONT SIZE=2>Net loss per share</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="9%" ALIGN="RIGHT"><FONT SIZE=2>(1.38</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="2%"><FONT SIZE=2>$</FONT></TD>
<TD WIDTH="10%" ALIGN="RIGHT"><FONT SIZE=2>(1.07</FONT></TD>
<TD WIDTH="1%"><FONT SIZE=2>)</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->


<P><FONT SIZE=2><B>Note&nbsp;4&#151;Contingencies  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2000, we entered into supply agreements with two contract manufacturers to provide for the manufacturing of our inhalation device. Under the
terms of the agreements, we may be obligated to reimburse both parties for the actual undepreciated and unrecovered portion of any equipment procured or facilities established and the interest accrued
for their capital overlay in the event that inhaleable insulin does not gain FDA approval to the extent that the contract manufacturers cannot re-deploy the assets. At the present time, it
is not possible to estimate the loss that will occur should inhaleable insulin not be approved. </FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;5&#151;Preferred Stock  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has authorized 10,000,000 shares of Preferred Stock, each share having a par value of $0.0001. Three million one hundred thousand (3,100,000) shares
of Preferred Stock are designated Series&nbsp;A Junior Participating Preferred Stock (the "Series&nbsp;A Preferred Stock") and forty thousand (40,000) shares of Preferred Stock are designated as
Series&nbsp;B Convertible Preferred Stock (the "Series&nbsp;B Preferred Stock"). </FONT></P>


<P><FONT SIZE=2><B>Series&nbsp;A Preferred Stock  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;1, 2001 the Board of Directors of the Company approved the adoption of a Share Purchase Rights Plan (the "Plan"). Terms of the Plan provide for a
dividend distribution of one preferred share purchase right (a "Right") for each outstanding share of the Company's Common </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>12</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=12,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=587478,FOLIO='12',FILE='DISK027:[02PAL4.02PAL2354]DM2354A.;8',USER='JJORGE',CD='13-NOV-2002;19:29' -->
<A NAME="page_dm2354_1_13"> </A>
<BR>

<P><FONT SIZE=2>
Stock (the "Common Shares"). The Rights have certain anti-takeover effects and will cause substantial dilution to a person or group that attempts to acquire the Company on terms not
approved by the Company's Board of Directors. The dividend distribution was payable on June&nbsp;22, 2001 (the "Record Date") to the stockholders of record on that date. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of Series&nbsp;A Preferred Stock at a price of $225.00 per one one-hundredth of a share of
Series&nbsp;A Preferred Stock (the "Purchase Price"), subject to adjustment. Each one one-hundredth of a share of Series&nbsp;A Preferred Stock has designations and powers, preferences
and rights, and the qualifications, limitations and restrictions which make its value approximately equal to the value of a Common Share. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Rights are not exercisable until the Distribution Date (as defined in the Certificate of Designation for the Series&nbsp;A Preferred Stock). The Rights will expire on
June&nbsp;1, 2011, unless the Rights are earlier redeemed or exchanged by the Company. Each share of Series&nbsp;A Preferred Stock will be entitled to a minimum preferential quarterly dividend
payment of $1.00 but will be entitled to an aggregate dividend of 100 times the dividend declared per Common Share. In the event of liquidation, the holders of the Series&nbsp;A Preferred Stock
would be entitled to a minimum preferential liquidation payment of $100 per share, but would be entitled to receive an aggregate payment equal to 100 times the payment made per Common Share. Each
share of Series&nbsp;A Preferred Stock will have 100 votes, voting together with the Common Shares. Finally, in the event of any merger, consolidation or other transaction in which Common Shares are
exchanged, each share of Series&nbsp;A Preferred Stock will be entitled to receive 100 times the amount of consideration received per Common Share. Because of the nature of the Series&nbsp;A
Preferred Stock dividend and liquidation rights, the value of one one-hundredth of a share of Series&nbsp;A Preferred Stock should approximate the value of one Common Share. The
Series&nbsp;A Preferred Stock ranks junior to the Series&nbsp;B Preferred Stock and would rank junior to any other series of the Company's preferred stock. Until a Right is exercised, the holder
thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. </FONT></P>

<P><FONT SIZE=2><B>Series&nbsp;B Convertible Preferred Stock  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with a strategic alliance with Enzon,&nbsp;Inc., we entered into a Preferred Stock Purchase Agreement pursuant to which we sold to Enzon and Enzon
purchased from us forty thousand (40,000) shares of non-voting Series&nbsp;B Preferred Stock at a purchase price of one thousand dollars ($1,000) per share for an aggregate purchase
price of forty million dollars ($40,000,000). A Certificate of Designation filed with the Secretary of State of Delaware sets forth the rights, privileges and preferences of the Series&nbsp;B
Preferred Stock. Pursuant to the Certificate of Designation, the Series&nbsp;B Preferred Stock does not have voting rights. The Series&nbsp;B Preferred Stock is convertible, in whole or in part,
into that number of shares of the Company's Common Stock (the "Conversion Shares") equal to the quotient of $1,000 per share divided by the Conversion Price. The "Conversion Price" shall initially
be equal to $22.79 per share or 125% of the Closing Price and at no time can the Preferred Stock convert into shares of Common Stock at a discount to the Closing Price. The "Closing Price" equals
$18.23 per share and was based upon the average of the Company's closing bid prices as listed on the Nasdaq National Market for the twenty (20)&nbsp;trading days preceding the date of the closing of
the transaction. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Series&nbsp;B Preferred Stock is convertible at the option of the holder after the first anniversary of the original issuance of the Series&nbsp;B Preferred Stock (the "Original
Issue Date") or, if earlier, upon a Change in Control (as defined in the Certificate of Designation). Except with respect to an automatic conversion as described below, the Conversion Price shall be
equal to 125% of the Closing Price until the third anniversary of the Original Issue Date. Upon the third anniversary of the Original Issue Date, the Conversion Price shall be adjusted to be equal to
either (i)&nbsp;the Closing Price, in the event that the average of the closing bid prices of Inhale's Common Stock as quoted on the Nasdaq National Market </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>13</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=13,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=145971,FOLIO='13',FILE='DISK027:[02PAL4.02PAL2354]DM2354A.;8',USER='JJORGE',CD='13-NOV-2002;19:29' -->
<A NAME="page_dm2354_1_14"> </A>
<BR>

<P><FONT SIZE=2>
for the twenty (20)&nbsp;trading days preceding the third anniversary of the original issuance (the "Future Price") is less than or equal to the Closing Price; (ii)&nbsp;the Future Price (as
defined above) if the Future Price is greater than the Closing Price but less than 125% of the Closing Price; or (iii)&nbsp;125% of the Closing Price if the Future Price is equal to or greater than
125% of the Closing Price. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
the extent not previously converted, the Series&nbsp;B Preferred Stock will automatically convert into shares of Inhale Common Stock, based on the then effective Conversion Price,
upon the earliest of (i)&nbsp;the fourth anniversary of the Original Issue Date; (ii)&nbsp;immediately prior to an Asset Transfer or Acquisition (as defined in the Certificate of Designation); or
(iii)&nbsp;with the consent of the holders of a majority of the then outstanding Series&nbsp;B Preferred Stock immediately prior to a liquidation, dissolution or winding up of Inhale. In the event
of an automatic conversion pursuant to an asset transfer, acquisition or liquidation, the adjustment mechanism described above will be applied immediately prior to the automatic conversion. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of our Company's liquidation, dissolution or winding down, either voluntary or involuntary, following the payment of any distributions due the holders of any class of
capital stock or series of preferred stock that ranks senior to the Series&nbsp;B Preferred Stock, the holders of the Series&nbsp;B Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of our assets or surplus funds to the holders of our Common Stock or any class of capital stock or series of preferred stock that does not rank senior to or on
parity with the Series&nbsp;B Preferred Stock, an amount per share (as adjusted for any combinations, consolidations, stock distributions or stock dividends with respect to the Series&nbsp;B
Preferred Stock) equal to up to $1,000. </FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;6&#151;Agreement with Alliance Pharmaceutical  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2002, we announced the expansion of our agreement with Alliance Pharmaceutical Corp. regarding the PulmoSphere&reg; particle and particle
technology, aspects of which we initially acquired from Alliance in November&nbsp;1999. The PulmoSphere&reg; technology is a particle formation method designed to
enhance the performance of drugs delivered via the lung in propellant-based metered-dose inhalers and dry powder inhalers. As a result of the supplemental agreement we have paid to
Alliance $5.3&nbsp;million in exchange for rights beyond inhaleable applications and other considerations, which was recorded as an expense in the three-months ended March&nbsp;31, 2002. Under the
terms of the supplemental agreement, we have the right to use the PulmoSphere&reg; technology for alternative methods of delivery in addition to inhaleable applications. Further, Alliance
assigned five new patent applications covering methods of producing microparticles to us. Alliance retains the rights to use the technology on products to be instilled directly into the lung, and
obtains the rights to commercialize up to four products administered with inhalers, two of which will be royalty-free. We will pay Alliance future milestone or royalty payments on a
reduced number of products developed by us or our licenses utilizing the technology. In addition we have the right to purchase chemicals used in the production process for drugs using the
PulmoSphere&reg; technology. </FONT></P>


<P><FONT SIZE=2><B>Note&nbsp;7&#151;Cross Platform Strategic Alliance  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2002, we announced a strategic alliance with Enzon that includes an agreement making us solely responsible for licensing Enzon's PEG patents, an
option for Enzon to license our PEGylation patents, an agreement to explore the development of non-invasive delivery of single-chain antibody products via the pulmonary route and
settlement of a patent infringement litigation originally filed by Enzon against Shearwater. As part of this broad alliance, we entered into a collaboration to develop three products using our
Inhance&#153; inhaleables technology and/or SEDS&#153; technology. Under the terms of this collaboration, we will be responsible for the development of drug formulations for the agreed
upon pharmaceutical agents as well as clinical and commercial manufacturing of the drug formulation and device combination. Enzon will be responsible for the clinical development and worldwide
commercialization of the system. Inhale will receive research and development funding, milestone </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>14</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=3,SEQ=14,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=957597,FOLIO='14',FILE='DISK027:[02PAL4.02PAL2354]DM2354A.;8',USER='JJORGE',CD='13-NOV-2002;19:29' -->
<A NAME="page_dm2354_1_15"> </A>
<BR>

<P><FONT SIZE=2>
payments as the program progresses through further clinical testing, and royalty payments once the product is commercialized. As part of this alliance, Enzon made a $40.0&nbsp;million investment in
our preferred stock. </FONT></P>

<P><FONT SIZE=2><B>Note&nbsp;8&#151;Litigation Matters  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;30, 2002, a complaint was filed by David&nbsp;F. Kachensky in the Circuit Court of Madison County, Alabama, (the "Complaint") against
J.&nbsp;Milton Harris, James&nbsp;R. Hudson,&nbsp;Jr., Shearwater Corporation and Inhale Therapeutic Systems,&nbsp;Inc., as the successor corporation to Shearwater, (the "Defendants").
Dr.&nbsp;Harris is the president of our Shearwater subsidiary. Among other things, the Complaint alleges that the Defendants breached a stock purchase/employment agreement allegedly entered into by
and between certain of the Defendants and the Plaintiff prior to our acquisition of Shearwater, whereby the Defendants allegedly agreed to convey to the Plaintiff five percent (5%) of the capital
stock of Shearwater outstanding as of December&nbsp;1997. The Plaintiff seeks damages in the amount of approximately $15&nbsp;million. On October&nbsp;7, 2002, the Defendants filed answers to
the Complaint denying the allegations and asserting affirmative defenses. Discovery has commenced, and no trial date has been set. The Company denies the allegations in the Complaint and intends to
vigorously defend itself in the litigation. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>15</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=4,SEQ=15,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=87834,FOLIO='15',FILE='DISK027:[02PAL4.02PAL2354]DM2354A.;8',USER='JJORGE',CD='13-NOV-2002;19:29' -->
<BR>
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_do2354_1_16"> </A> </FONT></P>

<!-- TOC_END -->

<P><FONT SIZE=2><A
NAME="do2354_item_2._management_s_discussio__ite03663"> </A>
<A NAME="toc_do2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations    <BR>  </B></FONT></P>

<P><FONT SIZE=2><B>Overview  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are working to become the world's leading drug delivery company by providing a portfolio of technologies and expertise that will enable our pharmaceutical and
biotechnology partners to improve drug performance throughout the drug development process. We have been unprofitable since inception and expect to incur substantial operating losses over at least the
next few years as we expand testing activities and manufacturing operations, and as we further expand our late stage clinical and early commercial production facility. Nonetheless, we do anticipate a
decrease in unfunded research spending in the next three to five years, due to the combination of the completion of scale up and commercial readiness spending, the shifting of infrastructure spending
to cost of goods sold for commercial product sales, and the anticipated partnering of Inhale-funded projects. To date, except for sales from four products using our advanced PEGylation technology, we
have not sold any commercial products and do not anticipate receiving material revenue from product sales or royalties in the near future. For the period from inception through September&nbsp;30,
2002, we incurred a cumulative net loss of approximately $518.3&nbsp;million. The sources of our working capital have been equity offerings and convertible debt financings, financings of equipment
acquisitions and tenant improvements, interest earned on investments of cash, and revenues from short-term research and feasibility agreements and development contracts. To date we have
been primarily dependent upon equity and convertible debt financings to fund our working capital. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have generally been compensated for research and development expenses during initial feasibility work performed under collaborative arrangements. In a typical collaboration, our
partner will provide the drug, fund clinical and formulation development and market the resulting commercial product. We will supply the drug delivery approach and drug formulation. We will receive
revenues from drug formulation manufacturing and other manufacturing activities, as well as royalties from sales of most commercial products. In addition, for products using our Inhance&#153;
inhaleables technology, we expect to receive revenues from the supply of our device for the product along with any applicable drug processing. Partners that enter into collaborative agreements
generally fund research and development through expense reimbursements and /or payments as we achieve certain key development and regulatory milestones. To achieve and sustain profitable operations,
we, alone or with others, must successfully develop, obtain regulatory approval for, manufacture, introduce, market and sell products using our drug delivery and other drug delivery systems. There can
be no assurance that we can generate sufficient product or contract research revenue to become profitable or to sustain profitability. </FONT></P>


<P><FONT SIZE=2><B>Recent Developments  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2002, we announced two appointments to our board of directors. Chris&nbsp;A. Kuebler, chairman of the board of directors and chief executive
officer of Covance,&nbsp;Inc., and Michael Brown, chairman of the board of directors of Quantum Corporation, were elected to our board of directors, increasing the total number of board members to
nine. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2002, we announced that we had entered into a licensing, manufacturing and supply agreement with Celltech Group plc whereby Celltech will use Inhale's PEG technology
and services for three of its proprietary pipeline products. These products include CDP 860, a PEGylated antibody fragment drug in Phase II clinical trials for cancer, as well as PEGylated antibody
fragment products CDP 791 and CDP 484 in pre-clinical development for cancer and rheumatoid arthritis, respectively. Under the terms of the agreement, Inhale will provide exclusive
development and manufacturing for each activated PEG in exchange for milestone and manufacturing payments and royalties on sales of successfully commercialized products. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2002, we announced an agreement with InterMune to develop a PEGylated version of Infergen&reg; (Interferon alfacon-1) (PEG-Infergen) for
the treatment of chronic hepatitis C infections. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>16</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=16,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=832666,FOLIO='16',FILE='DISK027:[02PAL4.02PAL2354]DO2354A.;10',USER='ILEONG',CD='13-NOV-2002;19:46' -->
<A NAME="page_do2354_1_17"> </A>
<BR>

<P><FONT SIZE=2>
The agreement calls for Inhale to provide the PEGylation expertise and exclusive manufacturing for the reagent used in the PEGylation of Infergen. Infergen is a bio-engineered type I
interferon alpha that is FDA-approved for the treatment of patients with chronic hepatitis C infections. The terms of the agreement provide that InterMune will conduct
pre-clinical and clinical development of the product and commercialize it in North America and Inhale will receive milestones as the product progresses through the clinic and royalties on
product sales. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2002, we announced that F. Hoffmann-La Roche&nbsp;Ltd. ("Roche") received approval from the FDA for Pegasys&reg; for the treatment of adults with
chronic hepatitis C who have compensated liver disease and have not previously been treated with interferon alpha. In July&nbsp;2002, we had previously announced that the FDA had granted priority
review for Roche's combination therapy of Pegasys and Roche ribavirin tablets. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October 2002, we announced that Eli Lilly and Company, our collaborative partner with respect to an inhaleable product for the treatment of osteoporosis (Forteo&#153;), agreed
to terminate the program for such product. </FONT></P>

<P><FONT SIZE=2><B>Critical Accounting Policies  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in
conformity with accounting principles generally accepted in the United States. It requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
consider certain accounting policies related to revenue recognition, business combinations and accrued liabilities to be critical to our business operations and the understanding of
our results of operations: </FONT></P>

<P><FONT SIZE=2><B><I>Revenue Recognition  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Contract revenue from collaborative research agreements is recorded when earned based on the performance requirements of the contract. Revenue from
non-refundable upfront license fees and certain guaranteed payments where we continue involvement through collaborative development are deferred and recognized as revenue over the period
of continued involvement. Revenue from grants and feasibility arrangements are recognized as the related costs are incurred. Our research revenue is derived primarily from clients in the
pharmaceutical and biotechnology industries and consists of reimbursement of development costs, reimbursement of certain expenses, payment of clinical supplies and amortization of milestones. Payments
received for milestones achieved are deferred and recorded as revenue over the next period of continued development. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue
from product sales is recorded when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable and collectability is
reasonably assured. Allowances, if any, are established for estimated product returns and discounts. Because we have only recently begun selling a limited number of products through the acquisition of
our subsidiaries, we do not have substantial experience in establishing allowances for returns and discounts. </FONT></P>

<P><FONT SIZE=2><B><I>Business Combinations  </I></B></FONT></P>

<P><FONT SIZE=2><I>Purchased In-Process Research and Development ("IPR&amp;D")  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IPR&amp;D expense is determined based on an analysis using risk-adjusted cash flows expected to be generated by products that may result from
in-process technologies purchased in connection with acquisitions or business combinations. This analysis includes forecasting future cash flows that are </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>17</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=17,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=982053,FOLIO='17',FILE='DISK027:[02PAL4.02PAL2354]DO2354A.;10',USER='ILEONG',CD='13-NOV-2002;19:46' -->
<A NAME="page_do2354_1_18"> </A>
<BR>

<P><FONT SIZE=2>
expected to result from the progress made on each in-process project prior to the purchase dates. Cash flows are estimated by first forecasting, on a
product-by-product basis, net revenues expected from the sales of the first generation of each in-process project and risk adjusting these revenues to reflect the
probability of advancing to the next stage of the FDA approval process. The forecast data in the analysis is based on internal product level forecast information maintained by management in the
ordinary course of managing the business. The inputs used by management in analyzing IPR&amp;D is based on assumptions, which management believes to be reasonable but which are inherently uncertain and
unpredictable. These assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Appropriate operating expenses are deducted
from forecasted net revenues or on a product-by-product basis to establish a forecast of net returns on the completed portion of the in-process technology. Finally,
net returns are discounted to a present value using discount rates that incorporate the weighted average cost of capital relative to the biotech industry and our company as well as product specific
risks associated with the purchased in-process research and development products. The product specific risk factors include the product's phase of development, type of molecule under
development, likelihood of regulatory approval, manufacturing process capability, scientific rationale, preclinical safety and efficacy data, target product profile, and development plan. In addition
to the product specific risk factors, a discount rate is used for the purchase valuation, which represents a considerable risk premium to our weighted average cost of capital. The valuations used to
estimate IPR&amp;D require us to use significant estimates and assumptions that if changed, may result in a different valuation for IPR&amp;D. </FONT></P>

<P><FONT SIZE=2><I>Impairment of Goodwill and Other Intangible Assets  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2001, the Financial Accounting Standards Board ("FASB") issued two statements as a result of its deliberations on the business combinations
project: Statement of Financial Accounting Standards ("SFAS") No.&nbsp;141 on </FONT><FONT SIZE=2><I>Business Combinations</I></FONT><FONT SIZE=2> and SFAS&nbsp;142 on </FONT> <FONT SIZE=2><I>Goodwill and Other Intangible Assets.</I></FONT><FONT
SIZE=2> SFAS&nbsp;141 was effective for any business combinations initiated after June&nbsp;30, 2001 and also include
the criteria for the recognition of intangible assets separately from goodwill. SFAS&nbsp;142 was effective for fiscal years beginning after December&nbsp;15, 2001 and requires that goodwill not
be amortized, but rather be subject to an impairment test at least annually. Separately identified and recognized intangible assets resulting from business combinations completed before July&nbsp;1,
2001 that do not meet the new criteria for separate recognition of intangible assets will be subsumed into goodwill upon adoption. In addition, the useful lives of recognized intangible assets
acquired in transactions completed before July&nbsp;1, 2001 will be reassessed and the remaining amortization periods adjusted accordingly. Effective January&nbsp;1, 2002, consistent with the new
business combination accounting rules, assembled workforce was reclassified as goodwill and is subject to an impairment assessment. We periodically evaluate whether changes have occurred that would
require revision of the remaining estimated useful life of these assets or otherwise render the assets unrecoverable. If such an event occurred, we would determine whether the goodwill or other
intangible assets are impaired. To date, no such impairment losses have been recorded. The goodwill balance decreased from December&nbsp;31, 2001 due to certain purchase price
adjustments related to our acquisition of Shearwater. Other intangible assets have been amortized on a straight line basis for the three-months and nine-months ended September&nbsp;30,
2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
accordance with the new accounting standard adopted on January&nbsp;1, 2002, the totals for the three-month and the nine-month periods ended September&nbsp;30, 2002 do
not include amortization of goodwill and are comprised solely of amortization of other intangible assets. Had amortization of goodwill been continued beyond January&nbsp;1, 2002, we would have
recognized an additional $7.9&nbsp;million and $23.7&nbsp;million in amortization expense during the three-months and nine-months ended September&nbsp;30, 2002. The total for the
three-months and nine-months ended September&nbsp;30, 2001 includes $1.1&nbsp;million and $1.9&nbsp;million of amortization expense of other intangible assets and $7.8&nbsp;million
and $14.6&nbsp;million of amortization of goodwill. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>18</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=3,SEQ=18,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=528543,FOLIO='18',FILE='DISK027:[02PAL4.02PAL2354]DO2354A.;10',USER='ILEONG',CD='13-NOV-2002;19:46' -->
<A NAME="page_do2354_1_19"> </A>
<BR>

<P><FONT SIZE=2><B><I>Accrued Liabilities  </I></B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain accrued liabilities reflect management's best estimates based on our specific historical experience and understanding of industry practice. We record a
reserve for these matters when an adverse outcome is probable and the amount of the potential liability is reasonably estimable. </FONT></P>

<P><FONT SIZE=2><B>Results of Operations  </B></FONT></P>


<P><FONT SIZE=2><I>Three-Month and Nine-Months Ended September&nbsp;30, 2002 and 2001  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue for the three-months ended September&nbsp;30, 2002 was $23.2&nbsp;million compared to $22.4&nbsp;million for the three-months ended
September&nbsp;30, 2001, an increase of 4%. Revenue for the nine-months ended September&nbsp;30, 2002 was $72.2&nbsp;million compared to $53.3&nbsp;million for the
nine-months ended September&nbsp;30, 2001, an increase of 35%. The increase in revenue was primarily due to increased funding of partnered projects and the addition of PEGylation product
sales by our Shearwater subsidiary. Pfizer represented approximately 63% and 62% of our revenues for the three-months and nine-months ended September&nbsp;30, 2002. Product sales through
our Shearwater subsidiary accounted for 19% and 18% of revenues in the three-months and nine-months ended September&nbsp;30, 2002. Contract research revenue for the three-months and
nine-months ended September&nbsp;30, 2002 and 2001 also included reimbursed research and development expenses as well as the amortization of deferred up-front signing and
progress payments received from our collaborative partners. Contract revenues are expected to fluctuate from year to year, and future contract revenues cannot be predicted accurately. The level of
contract revenues depends in part upon future success in obtaining new collaborative agreements,
timely completion of feasibility studies, the continuation of existing collaborations and achievement of milestones under current and future agreements. Product sales are dependent upon regulatory
approval of new products for sale and adoption of current products in the market and cannot be accurately predicted. </FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost
of goods sold is associated with product sales and was $1.9&nbsp;million for the three-months ended September&nbsp;30, 2002 based on product sales of $4.4&nbsp;million from
our Shearwater subsidiary during the quarter. Cost of goods sold for the nine-months ended September&nbsp;30, 2002 was $5.5&nbsp;million based on product sales of $13.3&nbsp;million.
For the three-months and nine-months ended September&nbsp;30, 2001, costs of goods sold were $2.0&nbsp;million based on product sales of $5.2&nbsp;million, reflecting our acquisition
of Shearwater in June 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research
and development expenses were $38.2&nbsp;million for the three-months ended September&nbsp;30, 2002, as compared to $34.2&nbsp;million for the three-months ended
September&nbsp;30, 2001. The 12% increase in 2002 as compared to 2001 was primarily attributable to increased spending associated with partner-funded projects. Research and development expenses for
the nine-months ended September&nbsp;30, 2002 and 2001 were $116.7&nbsp;million and $98.5&nbsp;million, an increase of 18%. The additional expenses were attributable to the increased
spending on partner-funded programs and the operating expenses of our Shearwater subsidiary. In addition, we made a one-time payment of $5.3&nbsp;million to Alliance for the rights
beyond inhaleable applications for PulmoSphere&reg; technology and other considerations in the three-months ended March&nbsp;31, 2002. We expect unfunded research and development spending to
decrease over the next three to four years due to the combination of shifting of scale up of commercial operations and spending to cost of goods sold for inhaled insulin, and the anticipated
partnering of Inhale funded projects. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General
and administrative expenses were $6.6&nbsp;million for the three-months ended September&nbsp;30, 2002 as compared to $5.8&nbsp;million for the three-months ended
September&nbsp;30, 2001. The 14% increase in general and administrative expenses was primarily due to increased support associated with our manufacturing and development efforts, including
administrative staffing, business development and marketing. General and administrative expenses were $17.5&nbsp;million for the nine-months ended September&nbsp;30, 2002 as compared
to $14.2&nbsp;million for the nine-months ended September&nbsp;30, 2001. The </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>19</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=4,SEQ=19,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=519988,FOLIO='19',FILE='DISK027:[02PAL4.02PAL2354]DO2354A.;10',USER='ILEONG',CD='13-NOV-2002;19:46' -->
<A NAME="page_do2354_1_20"> </A>
<BR>

<P><FONT SIZE=2>
23% increase was primarily due to incremental support associated with our manufacturing and development efforts, including administrative staffing, business development and marketing, as well as the
operating expenses of our Shearwater subsidiary. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IPR&amp;D
represents that portion of the purchase price of an acquisition related to research and development activities which: (i)&nbsp;have not demonstrated their technological
feasibility, and (ii)&nbsp;have no alternative future uses. During the three-months and nine-months ended September&nbsp;30, 2002 we did not incur any IPR&amp;D charges. During the
nine-months ended September&nbsp;30, 2001, we incurred charges of $146.3&nbsp;million related to our acquisitions of Bradford and Shearwater. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
June&nbsp;2001, we completed our acquisition of Shearwater in exchange for approximately 4.0&nbsp;million shares or options to acquire shares of our common stock and cash of
$72.5&nbsp;million. Of the total purchase consideration of $192.2&nbsp;million, $108.6&nbsp;million was allocated to the assets acquired based on their fair value on the date of acquisition,
including $94.6&nbsp;million in goodwill and other intangible assets. Approximately $83.6&nbsp;million of the purchase price was allocated to IPR&amp;D, which was determined to have no alternative
future use and was charged as an expense during the three-months ended June&nbsp;30, 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
January&nbsp;2001, we acquired all of the outstanding share capital of Bradford Particle Design in exchange for approximately 3.75&nbsp;million in newly issued shares of our
common stock and approximately $20.4&nbsp;million in cash. Of the total purchase consideration of $152.1&nbsp;million, $89.4&nbsp;million was allocated to the assets acquired based on their fair
value on the date of acquisition, including $80.1&nbsp;million in goodwill and other intangible assets. Approximately $62.7&nbsp;million of the purchase price was allocated to IPR&amp;D, which was
determined to have no alternative future use and was charged as an expense in the three-months ended March&nbsp;31, 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization
of other intangible assets expenses were unchanged at $1.1&nbsp;million for the three-months ended September&nbsp;30, 2002 as compared to the three-months ended
September&nbsp;30, 2001. For the nine-months ended September&nbsp;30, 2002 and 2001, amortization of other intangible assets expenses were $3.4&nbsp;million and $1.9&nbsp;million,
respectively. The increase in amortization and other intangible assets expenses in the nine-month period ended September&nbsp;30, 2002 as compared to 2001, was associated with the
amortization of intangible assets in connection with the acquisition of our Shearwater subsidiary in the second half of 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
was no amortization of goodwill for the three-months and nine-months ended September&nbsp;30, 2002 as compared to $7.8&nbsp;million and $14.6&nbsp;million for the
three-months and nine-months ended September&nbsp;30, 2001. The decrease was associated with the adoption of new accounting standards on January&nbsp;1, 2002 with respect to business
combinations. Goodwill and certain other intangible assets are no longer amortized and are subject to an impairment test at least annually. The useful lives of recognized intangible assets acquired in
transactions will regularly be reassessed and the remaining amortization periods adjusted accordingly. Since January&nbsp;1, 2002, we have periodically evaluated whether changes have occurred that
would require revision of the remaining estimated useful life of these assets or otherwise render the assets unrecoverable. If such an event occurred, we would determine whether the goodwill or other
intangible assets are impaired. No impairment charges have been recorded for the three-months or nine-months ended September&nbsp;30, 2002. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
income/(expense), net, was ($0.4) million and ($0.3) million for the three-months ended September&nbsp;30, 2002 and 2001, respectively. For the nine-months ended
September&nbsp;30, 2002 and 2001, other income/(expense), net, was ($1.1) million and ($0.6) million, respectively. The increase from 2001 to 2002 can primarily be attributed to a ($0.4) million
realized loss on our marketable equity securities due to impairment. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
income was $2.7&nbsp;million for the three-months ended September&nbsp;30, 2002, as compared to $5.4&nbsp;million for the three-months ended September&nbsp;30, 2001.
Interest income was $8.0&nbsp;million during </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>20</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=5,SEQ=20,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=334113,FOLIO='20',FILE='DISK027:[02PAL4.02PAL2354]DO2354A.;10',USER='ILEONG',CD='13-NOV-2002;19:46' -->
<A NAME="page_do2354_1_21"> </A>
<BR>

<P><FONT SIZE=2>
the nine-months ended September&nbsp;30, 2002, compared to $20.4&nbsp;million earned during the nine-months ended September&nbsp;30, 2002. The 50% and 61% decrease in
interest income in the three-months and nine-months ended September&nbsp;30, 2002 from the same period in 2001, respectively, were primarily due to our lower cash and investment balances
and lower interest rates in the first nine-months of 2002 as compared to the same periods in 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest
expense was $4.2&nbsp;million for the three-months ended September&nbsp;30, 2002, as compared to $3.5&nbsp;million for the three-months ended September&nbsp;30, 2001.
Interest expense was $12.4&nbsp;million and $9.4&nbsp;million, respectively, for the nine-months ended September&nbsp;30, 2002 and 2001. The 19% and 33% increase in interest expense
for the three-months and nine-months ended September&nbsp;30, 2002, from comparable periods ended September&nbsp;30, 2001, relates primarily to the interest expense on our capital
lease obligation associated with our build-to-suit lease. </FONT></P>

<P><FONT SIZE=2><B>Liquidity and Capital Resources  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have financed our operations primarily through public and private placements of our debt and equity securities, revenues from development contracts and
short-term research and feasibility agreements, financing of equipment acquisitions and tenant improvements, and interest income earned on our investments of cash. We do not utilize
off-balance sheet financing arrangements as a source of liquidity or financing. At September&nbsp;30, 2002, we had cash, cash equivalents and short-term investments of
approximately $313.6&nbsp;million. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
operations used cash of $62.3&nbsp;million in the nine-months ended September&nbsp;30, 2002 as compared to $43.0&nbsp;million for the corresponding period in 2001.
The net operating loss for the nine-month period ended September&nbsp;30, 2002 as compared to the corresponding period in 2001, differed from cash used in operations due to several
factors. For the nine-months period ended September&nbsp;30, 2001, our net loss of $213.8&nbsp;million included non-cash expenses of $146.3&nbsp;million of purchased
in-process research and development associated with our acquisitions of Bradford and Shearwater. In addition we recorded $14.6&nbsp;million in amortization of goodwill expense for the
nine-month period ended September&nbsp;30, 2001. Depreciation expense increased to $9.7&nbsp;million for the nine-months ended September&nbsp;30, 2002 from
$8.4&nbsp;million for the nine-months ended September&nbsp;30, 2001, due to the inclusion of Shearwater and the build-to-suit lease with our real estate
partnership lessor. Amortization of other intangible assets increased to $3.4&nbsp;million for the nine-months ended September&nbsp;30, 2002 as compared to $1.9&nbsp;million for the
nine-months ended September&nbsp;30, 2001, due to the acquisition of Shearwater in the second half of 2001. The change in accounts receivable, other current assets and other assets for
the nine-month period ended September&nbsp;30, 2002 as compared to the nine-month period ended September&nbsp;30, 2001 is primarily due to the increase in inventory of our
Shearwater subsidiary. The change in accounts payable and other accrued liabilities for the nine-months ended September&nbsp;30, 2002, as compared to the corresponding period in 2001 was
primarily related to a $3.0&nbsp;million payment to Enzon to cover expenses incurred in connection with defending litigation involving our branched PEG patents. The change in deferred revenue for
the nine-months ended September&nbsp;30, 2002 as compared to the nine-months ended September&nbsp;30, 2001 was primarily due to the timing of partner payments in 2001. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
flows provided by investing activities were $35.6&nbsp;million for the nine-months ended September&nbsp;30, 2002 as compared to $82.6&nbsp;million cash used for
the nine-months ended September&nbsp;30, 2001. Cash flows for the nine-months ended September&nbsp;30, 2002, were generated primarily by the sale and maturity of investment securities.
These cash proceeds were either re-invested or used in operations. The change in cash flows relating to investing activities for the nine-months ended September&nbsp;30, 2002, compared
to the nine-months ended September&nbsp;30, 2001 was primarily attributable to an increase in cash requirements to support the acquisitions of Shearwater and Bradford in 2001. For the
nine-months ended September&nbsp;30, 2002, we received $3.4&nbsp;million in income tax refunds related to Shearwater, which has been treated as an adjustment to purchase price. In
connection with our </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>21</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=6,SEQ=21,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=221669,FOLIO='21',FILE='DISK027:[02PAL4.02PAL2354]DO2354A.;10',USER='ILEONG',CD='13-NOV-2002;19:46' -->
<A NAME="page_do2354_1_22"> </A>
<BR>

<P><FONT SIZE=2>
acquisition of Shearwater in September&nbsp;2001, we paid net cash of $67.2&nbsp;million for the nine-months ended September&nbsp;30, 2001, which represents cash paid to Shearwater
shareholders of $72.5&nbsp;million, net of Shearwater's cash balance of $5.3&nbsp;million. The remainder of the Shearwater acquisition was non-cash in nature. Also, in connection with
our acquisition of Bradford, we paid net cash of $14.8&nbsp;million for the nine-months ended September&nbsp;30, 2001, which represents cash paid to Bradford shareholders of
$20.4&nbsp;million, net of Bradford cash balance of $5.6&nbsp;million. The remainder of the Bradford acquisition was non-cash in nature. We purchased property and equipment of
approximately $12.1&nbsp;million and $26.6&nbsp;million during the nine-months ended September&nbsp;30, 2002 and 2001, respectively. The decrease in purchased property and equipment
in 2002 as compared to 2001, reflects completion of the second phase of construction of a new San Carlos lab and office facility, offset by continued investment in our commercial manufacturing
facilities, including device manufacturing at third-party contract manufacturers, and expansion of our San Carlos powder processing facilities. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash
flows provided from financing activities were $40.5&nbsp;million for the nine-months ended September&nbsp;30, 2002 as compared to $19.6&nbsp;million for the
nine-months ended September&nbsp;30, 2001. The cash inflow in 2002 was primarily related to our strategic alliance with Enzon that included a $40.0&nbsp;million investment in our
preferred stock (see Consolidated Financial Statements Note&nbsp;7&#151;Cross Platform Strategic Alliance). In 2001 we received $15.1&nbsp;million from the loan and capital lease financing
of our real estate lessor for the construction of our San Carlos lab and office facility. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
believe that research and development expenses should continue at current levels or higher through at least the next couple of years. Research and development expenses are associated
with three general categories: (i)&nbsp;collaborative agreements under which spending is reimbursed by our partners; (ii)&nbsp;spending attributed to internally funded programs, and
(iii)&nbsp;commercial readiness and infrastructure costs associated with commercial operations for our drug and third-party device manufacturing. We expect our cash requirements to continue at a
comparable rate due to expected activities in these areas. Research and development costs will be dependent upon the number of collaborative agreements we are engaged in, the number of Inhale funded
projects and the timing of our transition to commercial manufacturing of our San Carlos, Shearwater and Bradford operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Given
our current cash requirements, we believe that we will have sufficient cash to meet our operating expense requirements for the next three years. We plan to continue to invest in
our growth and the need for cash will be dependent upon the timing of these investments. Our capital needs will depend on many factors, including continued scientific progress in our research and
development arrangements,
progress with preclinical and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs of developing and the rate of scaling up each manufacturing operation of our
technologies, the timing and cost of our late stage clinical and early commercial production facility, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims,
the need to acquire licenses to new technologies and the status of competitive products. Of our convertible subordinated notes and debentures, $7.8&nbsp;million and $291.4&nbsp;million mature in
2006 and 2007, respectively. To satisfy our long-term needs, we intend to seek additional funding, as necessary, from corporate partners and from the sale of securities. Because we are an
early stage biotechnology company, we do not qualify to issue investment grade debt or have access to certain credit facilities. As a result, any financing we undertake will likely involve the
issuance of equity, convertible debt instruments or high-yield debt to fund our working capital. To date we have been primarily dependent upon equity and convertible debt financings for
capital and have incurred substantial debt as a result of our issuances of subordinated notes and debentures that are convertible into our common stock. Our substantial debt, the market price of our
securities and the general economic climate, among other factors, could have material consequences for the Company's financial position and could affect our sources of short-term and
long-term funding. There can be no assurance that additional funds, if and when required, will be available to us on favorable terms, if at all. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>22</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=7,SEQ=22,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=904077,FOLIO='22',FILE='DISK027:[02PAL4.02PAL2354]DO2354A.;10',USER='ILEONG',CD='13-NOV-2002;19:46' -->
<BR>
<!-- Generated by Merrill Corporation (www.merrillcorp.com) -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_dq2354_1_23"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="dq2354_risk_factors"> </A>
<A NAME="toc_dq2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>RISK FACTORS    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><FONT SIZE=2><I>The following risk factors should be read carefully in connection with evaluating our business. Any of the following risks could
materially and adversely affect our business, operating results or financial condition.</I></FONT></P>

<P><FONT SIZE=2><B>If our drug delivery technologies are not commercially feasible, then our revenues and results of operations will be impacted negatively.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are in an early stage of development with respect to most of our products. There is a risk that our technologies will not be commercially feasible. Even if
these drug delivery technologies are commercially feasible, they may not be commercially accepted across a range of large and small molecule drugs. We have tested 12 drug formulations using our
inhaleables technology in humans, but many of our potential formulations have not been tested in clinical trials. We are currently using our advanced PEGylation technology platform we recently
acquired through our acquisition of Shearwater in the development of 35 drugs. While we have incorporated our PEGylation technology in four products that the FDA approved for marketing and in one
product that our partner has submitted for approval to the FDA through an NDA, and there are two other products using our PEGylation technologies in pivotal trials, many of the drug formulations with
which we are incorporating this technology are in the early stages of feasibility or preclinical testing or in human clinical trials. Our SEDS&#153; supercritical fluids technology is also
primarily in an early stage of feasibility. This technology represents a new method of manufacturing drug particles and is still in research and development, with only one formulation having entered
human clinical testing. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other
companies have tested many of the underlying drug compounds contained in our drug formulations in humans using alternative delivery routes or technologies. Our potential products
require extensive research, development and preclinical and clinical testing. Our potential products also may involve lengthy regulatory reviews 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, accomplish the objectives that we and our collaborative partners are seeking through the use of our technologies, meet
regulatory standards or continue to meet such standards if already approved. There is a risk that we and our collaborative partners may not be able to produce any of our potential products in
commercial quantities at acceptable costs, or market them successfully. Failure to achieve commercial feasibility, demonstrate safety, achieve clinical efficacy, obtain regulatory approval or,
together with partners, successfully market products will negatively impact our revenues and results of operations. </FONT></P>

<P><FONT SIZE=2><B>If our research and development efforts are delayed or unsuccessful, then we may be delayed or unsuccessful in commercializing our products and our business will suffer.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except for our products that have already been approved by the FDA or submitted for approval by the FDA, our product candidates are still in research and
development, including preclinical testing and clinical trials. Preclinical testing and clinical trials are long, expensive and uncertain processes. It may take us or our collaborators several years
to complete this testing, and failure can occur at any stage in the process. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful. A
number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical trials, even after promising results in earlier trials. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
clinical trial may fail to produce results satisfactory to us, our collaborative partners or the FDA. Preclinical and clinical data can be interpreted in different ways, which could
delay, limit or prevent regulatory approval or commercialization. Negative or inconclusive results or adverse medical events during a clinical trial could cause a clinical trial to be repeated or a
program to be terminated. We typically rely on collaborative partners and third-party clinical investigators to conduct clinical trials of our products and, as a result, we may face additional
delaying factors outside our control. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>23</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=23,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=341303,FOLIO='23',FILE='DISK027:[02PAL4.02PAL2354]DQ2354A.;10',USER='JJORGE',CD='13-NOV-2002;19:30' -->
<A NAME="page_dq2354_1_24"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
do not know if any of our research and development efforts, including preclinical testing or clinical trials will adhere to our planned schedules or be completed on a timely basis or
at all. Typically, there is a high rate of attrition for product candidates in preclinical and clinical trials. </FONT></P>

<P><FONT SIZE=2><B>If our drug delivery technologies do not satisfy certain basic feasibility requirements, then our products may not be competitive.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not be able to achieve the total system efficiency for our products developed with our inhaleables technology needed to be competitive with alternative
routes of delivery or formulation technologies. We determine total system efficiency by the amount of drug loss during manufacture, in the delivery system, and in reaching the ultimate site at which
the drug exhibits its activity. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the case of pulmonary delivery for systemic efficiency, deep lung bioavailability is the percentage of a drug that is absorbed into the bloodstream when that drug is delivered
directly to the lungs as compared to when the drug is delivered by injection. Relative bioavailability is the initial screen for whether deep lung delivery using our inhaleables technology of any drug
is commercially feasible. We would not consider a drug to be a good candidate for development and commercialization using our inhaleables technology if drug loss is excessive at any one stage or
cumulatively in the manufacturing and delivery process. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
ability to efficiently attach PEG polymer chains to a drug molecule is the initial screen as to whether drug formulations using our advanced PEGylation technology are commercially
feasible. We would not consider a drug formulation using our advanced PEGylation technology if we could not efficiently attach a PEG polymer chain to such drug without destroying or impairing the
drug's activity. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
our supercritical fluids technology, solubility characteristics of a drug and the solvents, which may be incorporated in the manufacturing process, provide the initial screen for
whether drug formulations using this technology are commercially feasible. We would not consider a drug to be a good candidate for this technology if its solubility characteristics were such that the
application of our technology results in very low efficiency in manufacturing of drug powders. </FONT></P>

<P><FONT SIZE=2><B>If our drug formulations are not stable, then we will not be able to commercialize our products.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not be able to identify and produce powdered or other formulations of drugs that retain the physical and chemical properties needed to work effectively
with our delivery device for deep lung delivery using our inhaleables technology or through other methods of drug delivery using our other drug delivery technologies. Formulation stability is the
physical and chemical stability of the drug over time and under various storage, shipping and usage conditions. Formulation stability will vary with each drug formulation and the type and amount of
ingredients that are used in the formulation. Since our drug formulation technology is new and largely unproven, we do not know if our drug formulations will retain the needed physical and chemical
properties and performance of the drugs. Problems with formulated drug powder stability in particular would negatively impact our ability to develop and market products using our inhaleables or
SEDS&#153; technologies or obtain regulatory approval of such products. </FONT></P>

<P><FONT SIZE=2><B>If our drug delivery technologies are not safe, then we may not obtain regulatory approval of our products or adequately develop or market our products.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We or our collaborative partners may not be able to prove potential products using our drug delivery technologies are safe. Our products require lengthy
laboratory, animal and human testing. Most of our products are in preclinical testing or the early stage of human testing. Since most of our products are in an early stage of testing and have not
completed clinical trials, we cannot be certain that these products, and our technology that developed these products, are safe or will not produce unacceptable adverse side effects. The safety of our
formulations will vary with each drug and the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>24</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=24,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=1020293,FOLIO='24',FILE='DISK027:[02PAL4.02PAL2354]DQ2354A.;10',USER='JJORGE',CD='13-NOV-2002;19:30' -->
<A NAME="page_dq2354_1_25"> </A>
<BR>

<P><FONT SIZE=2>
ingredients used in our formulation. If any product is found not to be safe, the product will not be approved for marketing or commercialization. </FONT></P>

<P><FONT SIZE=2><B>If product liability lawsuits are brought against us, we may incur substantial liabilities.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The testing, marketing and sale of medical products entail an inherent risk of product liability. If product liability costs exceed our liability insurance
coverage, we may incur substantial liabilities. Whether or not we were ultimately successful in product liability litigation, such litigation would consume substantial amounts of our financial and
managerial resources, and might result in adverse publicity, all of which would impair our business. We may not be able to maintain our clinical trial insurance or product liability insurance at an
acceptable cost, if at all, and this insurance may not provide adequate coverage against potential claims or losses. </FONT></P>


<P><FONT SIZE=2><B>If our inhaleable drug delivery technologies do not provide consistent doses of medicine, then we will not be able to develop, obtain regulatory approval for and commercialize
our products.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not be able to provide reproducible dosing of stable formulations of drug compounds. 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 of drugs using our inhaleables technology requires the development
of: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>an
inhalation or other device that consistently delivers predictable amounts of dry powder to the deep lung;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>accurate
unit dose packaging of dry powder; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>moisture
resistant packaging. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since
our inhaleable drug delivery technologies are still in development and are yet to be commercialized, we cannot be certain that we will be able to develop reproducible dosing of any
potential product. The failure to do so means that we would not consider such a product as a good candidate for development and commercialization. </FONT></P>


<P><FONT SIZE=2><B>If our collaborative partners that we depend on to obtain regulatory approvals and commercialization of our products are not successful, or if such collaboration fails, then
our product development or commercialization of our products may be delayed or unsuccessful.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because we are in the business of developing technology for delivering drugs to the lungs and producing improved drug formulations for other routes of delivery,
and licensing these technologies to
companies that make and sell drugs, we do not have the people and other resources to do the following things: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>synthesize
bulk drugs to be used as medicines;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>design
and conduct large scale clinical studies;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>prepare
and file documents necessary to obtain government approval to sell a given drug product; or
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>market
and sell our products when and if they are approved. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When
we sign a collaborative development agreement or license agreement to develop a product with a drug or biotechnology company, the drug or biotechnology company agrees to do some or
all of the things described above. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>25</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=3,SEQ=25,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=811645,FOLIO='25',FILE='DISK027:[02PAL4.02PAL2354]DQ2354A.;10',USER='JJORGE',CD='13-NOV-2002;19:30' -->
<A NAME="page_dq2354_1_26"> </A>
<BR>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Reliance
on collaborative relationships poses a number of risks, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>we
will not be able to control whether and the extent to which our collaborative partners will devote sufficient resources to our programs or products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>disputes
may arise in the future with respect to the ownership of rights to technology and/or intellectual property developed with collaborative partners;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>disagreements
with collaborative partners could lead to delays in or termination of the research, development or commercialization of product candidates, or
result in litigation or arbitration;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>contracts
with our collaborative partners may fail to provide significant protection or may fail to be effectively enforced if one of these partners fails to
perform; collaborative partners have considerable discretion in electing whether to pursue the development of any additional products and may pursue alternative technologies or products either on
their own or in collaboration with our competitors;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>collaborative
partners with marketing rights may choose to devote fewer resources to the marketing of our products than they do to products of their own
development;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>there
are risks related to the ability of our distributors and corporate partners to pay us; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>collaborative
partners may have the unilateral right to terminate their agreements with us for any or no reason. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Given
these risks, there is a great deal of uncertainty regarding the success of our current and future collaborative efforts. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2001, Eli Lilly and Company, our collaborative partner with respect to a Phase I program for an inhaleable product for the treatment of osteoporosis,
Fort&eacute;o&#153;, notified us that the program will not be funded in 2002. Lilly further notified us earlier this year that it did not plan to fund program work in 2003 and both
companies mutually agreed to terminate the program in October 2002. In January&nbsp;2002, Biogen, our collaborative partner with respect to a Phase I program for an inhaleable product for the
treatment of multiple sclerosis, announced that it does not plan to further develop inhaleable Avonex&reg; for multiple sclerosis at this time and formally terminated the program for such
product effective as of September 2002. If other significant collaborations are suspended or terminated, our ability to successfully commercialize certain of our other proposed products would also be
negatively impacted. If these efforts fail, our product development or commercialization of products could be delayed. </FONT></P>

<P><FONT SIZE=2><B>If we fail to establish future successful collaborative relationships, then our financial results may suffer and our product development efforts may be delayed or unsuccessful.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We intend to seek future collaborative relationships with pharmaceutical and biotechnology partners to fund some of our research and development expenses and to
develop and commercialize potential products. Further, we anticipate that the timing of drug development programs under existing collaborative agreements with our partners will continue to affect our
revenues from such agreements. We may not be able to negotiate acceptable collaborative arrangements in the future, and any arrangements we do negotiate may not be successful. If we fail to establish
additional collaborative relationships, we will be required to undertake research, development, marketing and manufacturing of our proposed products at our own expense or discontinue or reduce these
activities. </FONT></P>

<P><FONT SIZE=2><B>If we or our partners do not obtain regulatory approval for our products on a timely basis, then our revenues and results of operations may be affected negatively.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is a risk that we or our partners will not obtain regulatory approval for our unapproved products on a timely basis, or at all. Our unapproved products must
undergo rigorous animal and </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>26</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=4,SEQ=26,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=671825,FOLIO='26',FILE='DISK027:[02PAL4.02PAL2354]DQ2354A.;10',USER='JJORGE',CD='13-NOV-2002;19:30' -->
<A NAME="page_dq2354_1_27"> </A>
<BR><BR>

<P><FONT SIZE=2>
human testing and an extensive FDA mandated or equivalent foreign authorities review process. This process generally takes a number of years and requires the expenditure of substantial resources and
the time required for completing such testing and obtaining such approvals is uncertain. The FDA and other U.S. and foreign regulatory agencies also have substantial discretion to terminate clinical
trials, require additional testing, delay or withhold registration and marketing approval and mandate product withdrawals including recalls. The FDA has approved for marketing four products with our
advanced PEGylation technology for specific uses in the United States. Further, one additional product with PEGylation has been approved in Europe and other countries. In addition, our partners have
submitted for approval to the FDA one NDA using our PEGylation technology and we plan to manufacture and market other potential products. Even though our partners have obtained regulatory approval for
four products, these products and our manufacturing processes are subject to continued review by the FDA and other regulatory authorities. Even if our partners receive regulatory approval of a
product, the approval may limit the indicated uses for which our partners may market the product. In addition, our partners' marketed products, our manufacturing facilities and we, as the manufacturer
in certain instances, will be subject to continual review and periodic inspections. Later discovery from such review and inspection of previously unknown problems may result in restrictions on our
partners' products or on us, including withdrawal of our partners' products from the market. The failure to obtain timely regulatory approval of our partners' products, any product marketing
limitations or a product withdrawal would negatively impact our revenues and results of operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
addition, we may encounter delays or rejections based upon changes in FDA regulations or policies, including policy relating to current good manufacturing practice compliance, or
"cGMP", during the period of product development. We may encounter similar delays in other countries. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October&nbsp;2002, Pfizer, our collaborative partner in the development of inhaleable insulin for the treatment of Type 1 and Type 2 diabetes announced that they will complete
additional long-term studies well underway for Exubera&reg;, their inhaled insulin development program, and that they are continuing discussions with the FDA regarding the timing
of a related NDA submission. Any delay in the filing of this NDA may result in a delay in the approval of the NDA by the FDA, if such approval is received at all. Any material delay in the regulatory
approval of this product or failure to receive regulatory approval of this product would negatively impact our results of operations. </FONT></P>

<P><FONT SIZE=2><B>If our technologies cannot be integrated successfully to bring products to market, then our ability to develop, and our partners' ability to obtain approval or market our
products, may be delayed or unsuccessful.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may not be able to integrate all of the relevant technologies to provide complete drug delivery and formulation systems. In particular, our development of
drugs using our inhaleables technology relies upon several different but related technologies: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>dry
powder formulations;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>dry
powder processing technology;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>dry
powder packaging technology; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>deep
lung delivery devices. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
other drug delivery development efforts may face similar challenges relating to the integration of drug formulation, processing, packaging and delivery device technologies. At the
same time we must: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>establish
collaborations with partners;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>perform
laboratory and clinical testing of potential products; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>scale-up
our manufacturing processes. </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>27</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=5,SEQ=27,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=548150,FOLIO='27',FILE='DISK027:[02PAL4.02PAL2354]DQ2354A.;10',USER='JJORGE',CD='13-NOV-2002;19:30' -->
<A NAME="page_dq2354_1_28"> </A>
<UL>
<UL>
</UL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, and our partners' ability to obtain approval or market products using our delivery and formulation technologies. </FONT></P>

<P><FONT SIZE=2><B>If we are not able to manufacture our products in commercially feasible quantities or at commercially feasible costs, then our products will not be successfully commercialized.  </B></FONT></P>


<P><FONT SIZE=2><I>Advanced PEGylation and SEDS&#153; Technologies  </I></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except for the four approved PEGylation products and one product pending approval with our advanced PEGylation technology, all of the drug formulations with which
we are incorporating the advanced PEGylation and SEDS&#153; technologies are in various stages of feasibility testing or human clinical trials. At this time, our existing facilities are large
enough for most commercial scale manufacturing to meet current demand. In the future, we may have to expand our facilities if we are not able to scale-up to large clinical trials or
commercial manufacturing for products incorporating either of these technologies in a timely manner or at a commercially reasonable cost. Our failure to solve any of these problems could delay or
prevent late stage clinical testing and commercialization of our products and could negatively impact our revenues and results of operations. </FONT></P>

<P><FONT SIZE=2><I>Inhaleables Technology  </I></FONT></P>

<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Powder Processing.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We have no experience manufacturing powder processing products for commercial purposes. With respect to
drugs using our inhaleables technology, we have only performed powder processing on the 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 some late stage clinical testing and commercialization of our products and could negatively impact our
revenues and results of operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
date, we rely primarily on one particular method of powder processing. There is a risk that this technology will not work with all drugs or that the cost of drug production will
preclude 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. </FONT></P>


<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Powder Packaging.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Our fine particle powders and small quantity packaging utilized for drugs using our inhaleables technology
require special handling. We have designed and qualified automated filling equipment for small and moderate 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 products using our inhaleables technology and would negatively impact our revenues and results of operations. </FONT></P>


<P><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inhalation Device.</I></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;We face many technical challenges in developing our inhalation devices 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. Our device is still in clinical testing and production scale-up work is
underway. Further design and development work is underway to enable commercial manufacturing and additional work may be required to optimize the device for regulatory approval, field reliability or
other issues that may be important to its commercial success. Additional design and development work may lead to a delay in regulatory approval, efforts to seek regulatory approval for any product
that incorporates the device or the time the device could be ready for commercial launch. In addition, we are attempting to develop a smaller inhalation device, which presents particular </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>28</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=6,SEQ=28,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=794405,FOLIO='28',FILE='DISK027:[02PAL4.02PAL2354]DQ2354A.;10',USER='JJORGE',CD='13-NOV-2002;19:30' -->
<A NAME="page_dq2354_1_29"> </A>
<BR>

<P><FONT SIZE=2>
technical challenges. There is a risk that we will not successfully achieve any of these challenges. Our failure to overcome any of these challenges would negatively impact our revenues and results
of operations. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
late stage clinical trials and initial commercial production, we intend to use one or more contract manufacturers to produce our drug delivery devices. There is a risk that we will
not be able to maintain arrangements with our contract manufacturers or effectively scale-up production of our drug delivery devices through contract manufacturers. Our failure to do so
would negatively impact our revenues and results of operations. Because our manufacturing processes and those of our contract manufacturers are very complex and subject to lengthy governmental
approval processes, alternative qualified production sources or capacity may not be available on a timely basis or at all. Disruptions or delays in our manufacturing processes or those of our contract
manufacturers for existing or new products could result in increased costs, loss of revenues or market share, or damage to our reputation. </FONT></P>


<P><FONT SIZE=2><B>We depend on sole or exclusive suppliers for our inhalation device, bulk drugs and PEG polymer chains and if such suppliers fail to provide when required, then our product
development efforts may be delayed or unsuccessful.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have agreed to subcontract the manufacture of our inhalation device before commercial production of our first inhaleable technology product. We have identified
contract manufacturers that we believe have the technical capabilities and production capacity to manufacture our inhalation device and which can meet the requirements of cGMP. We are not certain that
we will be able to maintain satisfactory contract manufacturing on commercially acceptable terms, if at all. Our dependence on third parties for the manufacture of our inhalation devices may
negatively impact our cost of goods and our ability to develop and commercialize products using our inhaleables technology on a timely and competitive basis. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
obtain the bulk drugs we use to manufacture the drugs using our drug delivery and formulation technologies from sole or exclusive sources of supply. For example, with respect to our
source of bulk insulin, we have entered into a collaborative agreement with Pfizer which has, in turn, entered into an agreement with Aventis Pharma to manufacture biosynthetic recombinant insulin.
Under the terms of their agreement, Pfizer and Aventis Pharma agreed to construct a jointly owned manufacturing plant in Frankfurt, Germany. Until needed, Pfizer will provide us with insulin from
Aventis Pharma's existing plant. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have also entered into an exclusive agreement with one supplier for a significant portion of the PEG polymer chains we use in our products that incorporate PEGylation technology. NOF
Corporation is our predominant supplier of pharmaceutical grade PEGylation materials pursuant to an exclusive supply agreement with NOF that provides for the supply of these materials. If our sole or
exclusive source suppliers fail to provide either bulk drugs or PEGylation materials in sufficient quantities when required, our revenues and results of operations will be negatively impacted. </FONT></P>

<P><FONT SIZE=2><B>If the market does not accept products using our drug delivery technologies, then our revenues and results of operations will be adversely affected.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 new drug delivery technologies and there is a risk that our potential products will not be accepted by the market. Market acceptance will
depend on many factors, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
safety and efficacy of products demonstrated in our clinical trials;
<BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>favorable
regulatory approval and product labeling;
<BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
frequency of product use; </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>29</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=7,SEQ=29,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=192825,FOLIO='29',FILE='DISK027:[02PAL4.02PAL2354]DQ2354A.;10',USER='JJORGE',CD='13-NOV-2002;19:30' -->
<A NAME="page_dq2354_1_30"> </A>
<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
availability of third-party reimbursement;
<BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
availability of alternative technologies; and
<BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>the
price of our products relative to alternative technologies. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is a risk that health care providers, patients or third-party payors will not accept product using our drug delivery and formulation technologies. If the market does not accept our
potential products, our revenues and results of operations would be significantly and negatively impacted. </FONT></P>

<P><FONT SIZE=2><B>If our products are not cost effective, then government and private insurance plans may not pay for them.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, such 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. Legislation and regulations
affecting the pricing of pharmaceuticals may change before regulatory agencies approve our proposed products for marketing. Adoption of such legislation and regulations could further limit
reimbursement for medical products. A government or third-party payor decision to not provide adequate coverage and reimbursements for our products would limit market acceptance of such products. </FONT></P>

<P><FONT SIZE=2><B>If our competitors develop and sell better drug delivery and formulation technologies, then our products or technologies may be uncompetitive or obsolete and our revenues and
results of operations will be adversely affected.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are aware of other companies engaged in developing and commercializing pulmonary drug delivery and formulation systems, as well as drug delivery technologies
similar to the SEDS&#153; technology and the advanced PEGylation technology we are developing. Some of our competitors with regard to inhaleables technology include AeroGen,&nbsp;Inc.,
Alkermes,&nbsp;Inc. and Aradigm Corporation. Aerogen and Aradigm are developing liquid drug delivery systems, and Alkermes is working on a dry powder delivery system. Our competitors with regard to
advanced PEGylation technology include Valentis,&nbsp;Inc., Mountain View Pharmaceuticals,&nbsp;Inc. and SunBio PEG-SHOP, as well as several pharmaceutical and biotechnology companies
with in-house PEGylation expertise. Some of our competitors with regard to SEDS&#153; technology include Alkermes, Battelle Memorial Institute, Ethypharm SA, Ferro Corp., Lavipharm
SA and RxKinetics. Some of these companies license or provide the technology to other companies, while others are developing the technology for internal use. 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 or
collaborations with competing drug delivery companies by large pharmaceutical or biotechnology companies could enhance our competitors' financial, marketing and other resources. Accordingly, our
competitors may succeed in developing competing technologies, obtaining regulatory approval for products or gaining market acceptance before us. Developments by others could make our products or
technologies uncompetitive or obsolete. Our competitors may introduce products or processes competitive with or superior to ours. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>30</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=8,SEQ=30,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=658914,FOLIO='30',FILE='DISK027:[02PAL4.02PAL2354]DQ2354A.;10',USER='JJORGE',CD='13-NOV-2002;19:30' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_ds2354_1_31"> </A> </FONT></P>

<!-- TOC_END -->

<P><FONT SIZE=2><B>If any of our patents are invalid or pending patents do not issue or following issuance are deemed not valid, then we may lose key intellectual property right protection. If
our products infringe on third-party's rights, then we will suffer adverse effects on our ability to develop and commercialize products as well as our revenues and results of operations.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed patent applications covering certain aspects of our inhalation devices, powder processing technology, powder formulations and deep lung route of
delivery for certain molecules as well as for our advanced PEGylation and SEDS&#153; supercritical fluids technologies, and we plan to file additional patent applications. We currently have 357
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 many of the patents applied for will not issue,
or that any patents that issue or have issued will not be held valid and enforceable. Enforcing our patent rights would be time consuming and costly. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
access or our partners' access to the drugs to be formulated using our technologies 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, and our drug formulation technologies are subject to issued and pending U.S. and foreign patents that may be owned by
competitors. We know that there are issued patents and pending patent applications relating to the formulation and delivery of large and small molecule drugs, including several for which we are
developing deep lung or other delivery formulations using our various technologies. This situation is highly complex, and the ability of any one company, including us, to commercialize a particular
drug is unpredictable. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
intend generally to rely on the ability of our partners to provide access to the drugs that we formulate for deep lung and other forms of delivery. There is a risk that our partners
will not be able to provide access to such drug candidates. Even if our partners provide such access, there is a risk that third parties will accuse, and possibly a court or a governmental agency will
determine, our partners or us to be infringing a third-party's patent rights, and we 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 to drug candidates or liability for damages would negatively impact our revenues and results of operations. </FONT></P>

<P><FONT SIZE=2><B>We may incur material litigation costs which may adversely affect our business and results of operations.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are party to various litigation matters including, several which relate to our patent and intellectual property rights. We cannot predict with certainty the
eventual outcome of any pending litigation or potential future litigation, and we might have to incur substantial expense in defending these or future lawsuits or indemnifying third parties with
respect to the results of such litigation. </FONT></P>

<P><FONT SIZE=2><B>If earthquakes and other catastrophic events strike, our business may be negatively affected.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our corporate headquarters, including a substantial portion of our research and development operations, are located in the Silicon Valley area of Northern
California, a region known for seismic activity. A significant natural disaster such as an earthquake could have a material adverse impact on our business, operating results, and financial condition.
Certain of our other facilities and our collaborative partners located elsewhere may also be subject to catastrophic events such as hurricanes and tornadoes, any of which could have a material adverse
effect on our business, operating results, and financial condition. </FONT></P>

<P><FONT SIZE=2><B>The recent energy crisis in California could disrupt our business and the businesses of our suppliers, contract manufacturers and collaborative partners, and could increase our
expenses.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the recent past, the western United States (and California in particular) has experienced episodes of diminished electrical power supply, and it is possible
that this situation could worsen in the </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>31</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=31,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=142000,FOLIO='31',FILE='DISK027:[02PAL4.02PAL2354]DS2354A.;7',USER='JJORGE',CD='13-NOV-2002;18:50' -->
<A NAME="page_ds2354_1_32"> </A>
<BR>

<P><FONT SIZE=2>
near future. As a result of these episodes, certain of our operations or facilities may continue to be subject to "rolling blackouts" or other unscheduled interruptions of electrical power. The
prospect of such unscheduled interruptions may continue for the foreseeable future, and we are unable to predict their occurrence or duration. Certain of our contract manufacturers and collaborative
partners are also located in this area and their operations may also be materially and adversely affected by such interruptions, which in turn could have a material adverse effect on our business or
results of operations. </FONT></P>

<P><FONT SIZE=2><B>Investors should be aware of industry-wide risks which are applicable to us and may affect our revenues and results of operations.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the risks associated specifically with us described above, investors should also be aware of general risks associated with drug development and the
pharmaceutical and biotechnology industries. These include, but are not limited to: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>changes
in and compliance with government regulations;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>handling
and disposal of hazardous materials;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>workplace
health and safety requirements;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>hiring
and retaining qualified people; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>insuring
against product liability claims. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2><B>If we fail to manage our growth effectively, our business may suffer.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our ability to offer commercially viable products, achieve our expansion objectives, manage our growth effectively and satisfy our commitments under our
collaboration agreements depends on a variety of factors, all of which must be successfully managed. Key factors include our ability to develop products internally, enter into strategic partnerships
with collaborators, attract and retain skilled employees and effectively expand our internal organization to accommodate anticipated growth including integration of any potential businesses that we
may acquire. If we are unable to manage some or all of these factors effectively, our business could grow too slowly or too quickly to be successfully sustained, thereby resulting in material adverse
effects on our business, financial condition and results of operations. </FONT></P>

<P><FONT SIZE=2><B>If we do not effectively integrate personnel and operations relating to our acquisitions of Bradford Particle Design and Shearwater, our business and management may suffer
disruptions.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our acquisitions of Bradford Particle Design and Shearwater may present unique risks related to our business. We may not be able to successfully assimilate the
additional personnel, operations, acquired technology and products into our business. In particular, we need to assimilate and retain key
management, research and engineering personnel. Key personnel from acquired companies such as Bradford Particle Design and Shearwater often decide to pursue other opportunities. In addition, there may
be complications if we attempt to integrate any of the technology acquired from these companies with our other technologies, and it is uncertain whether we may accomplish this easily or at all. These
integration difficulties could disrupt our ongoing business, distract management and employees or increase expenses. Acquisitions are inherently risky, and we may also face unexpected costs, which may
adversely affect operating results in any quarter. Additionally, because Bradford Particle Design is a UK company, we will face additional risks related to cross-border acquisitions and international
operations, including foreign legal and regulatory restrictions and potential economic instability. Due diligence conducted in connection with either acquisition may not have uncovered all the
potential problems or liabilities we may have assumed in these transactions. Any of these risks could have a </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>32</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=32,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=906614,FOLIO='32',FILE='DISK027:[02PAL4.02PAL2354]DS2354A.;7',USER='JJORGE',CD='13-NOV-2002;18:50' -->
<A NAME="page_ds2354_1_33"> </A>
<BR>

<P><FONT SIZE=2>
significant impact on our ability to continue our research and development efforts, and regulatory and commercialization efforts on a competitive and timely basis. </FONT></P>


<P><FONT SIZE=2><B>We cannot predict the impact of recent actions and comments by the Securities and Exchange Commission regarding valuation methodologies related to business combinations and as
such, we may need to restate our financial statements which may alter our operating results.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Securities and Exchange Commission has been reviewing registrants' valuation methodologies of in-process research and development related to
business combinations. The valuations we placed on Bradford Particle Design and Shearwater included certain assumptions about the technology, development and future operations of these businesses.
These assumptions also determined in large part how we reflected these acquisitions in our financial statements. While we believe that we are in compliance with all of the existing rules and related
guidance applicable to our business operations, if the SEC does not agree with our valuation methodologies, or if the assumptions taken at the time of the valuation are not achieved, we may be
required to restate our financial statements. In addition, the SEC may change these rules or issue new guidance applicable to our business in the future. There can be no assurance that the SEC will
not seek to reduce the amount of in-process research and development previously expensed by us or require us to make an adjustment related to our valuation assumptions. This would result
in the restatement of our previously filed financial statements and could have a material adverse effect on our operating results and financial condition for periods subsequent to the acquisitions. </FONT></P>

<P><FONT SIZE=2><B>If we acquire additional companies, products or technologies, we may face risks similar to those faced in our other acquisitions.  </B></FONT></P>


<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may continue to acquire or make investments in complementary companies, products or technologies. We may not realize the anticipated benefits of any other
acquisition or investment. If we acquire another company, we will likely face some or all of the same risks, uncertainties, earnings and disruptions as discussed above with respect to the Bradford and
Shearwater acquisitions. We may face risks relating to difficult integrations of personnel, technology and operations, uncertainty whether any integration will be successful and whether earnings will
be negatively affected, and potential distractions
to our management with respect to these acquisitions. In addition, our earnings may suffer because of acquisition-related costs. </FONT></P>

<P><FONT SIZE=2><B>We expect to continue to lose money for the next few years and may not reach profitability if our products do not generate sufficient revenue.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never been profitable and, through September&nbsp;30, 2002 we have an accumulated deficit of approximately $518.3&nbsp;million. We expect to continue
to incur substantial and potentially increasing losses over at least the next few years as we expand our research and development efforts, testing activities and manufacturing operations, and as we
further expand our late stage clinical and early commercial production facility. Most of our potential products are in the early stages of development. Except for the approved advanced PEGylation
technology products, we have generated no revenues from 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 drug delivery technologies. There is risk that we will not generate sufficient product or contract research revenue to become profitable or to sustain profitability. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>33</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=3,SEQ=33,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=783830,FOLIO='33',FILE='DISK027:[02PAL4.02PAL2354]DS2354A.;7',USER='JJORGE',CD='13-NOV-2002;18:50' -->
<A NAME="page_ds2354_1_34"> </A>
<BR>

<P><FONT SIZE=2><B>If we cannot raise additional capital our financial condition may suffer.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We anticipate that our existing capital resources will enable us to maintain currently planned operations through the next three
years</FONT><FONT SIZE=2><B>.</B></FONT><FONT SIZE=2> However, this expectation is based on our current operating plan, which may change as a result of certain factors, and may result in additional
funding requirements sooner than anticipated. In addition, we may choose to raise additional capital due to market conditions or strategic considerations, even if we believe we have sufficient funds
for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in
dilution to our stockholders. </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
have no material credit facility or other material committed sources of capital. To the extent operating and capital resources are insufficient to meet future requirements, we will
have to raise additional funds to continue the development and commercialization of our technologies. Such funds may not be available on favorable terms, or at all. In particular, our substantial
leverage may limit our ability to obtain additional financing. In addition, as an early stage biotechnology company, we do not qualify to issue investment grade debt and therefore any financing we do
undertake will likely involve the issuance of equity, convertible debt instruments or high-yield debt. These sources of capital may not be available to us in the event additional financing
is required. If adequate funds are not available on reasonable terms, we may be required to curtail operations significantly or to obtain funds by entering into financing, supply or collaboration
agreements on unattractive terms. Our inability to raise capital could negatively impact our business. </FONT></P>

<P><FONT SIZE=2><B>We expect our stock price to remain volatile.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our stock price is volatile. In the last twelve-month period ending October&nbsp;31, 2002, based on closing prices on the Nasdaq National Market, our stock
price ranged from $4.13 to $19.47. We expect it to remain volatile. A variety of factors may have a significant effect on the market price of our common stock, including: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>clinical
trial results or product development delays or delays in product approval or launch;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>announcement
or termination of collaborative relationships by us or our competitors;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>fluctuations
in our operating results;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>developments
in patent or other proprietary rights;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>announcements
of technological innovations or new therapeutic products;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>governmental
regulation;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>public
concern as to the safety of drug formulations developed by us or others; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>general
market conditions </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
litigation brought against us as a result of this volatility could result in substantial costs and a diversion of our management's attention and resources, which could negatively
impact our financial condition, revenues and results of operations. </FONT></P>

<P><FONT SIZE=2><B>If we do not generate sufficient cash flow through increased revenues or raising additional capital, then we may not be able to meet our debt obligations.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;30, 2002, we had approximately $339.0&nbsp;million in long-term obligations. Our substantial indebtedness has and will
continue to impact us by: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>increasing
our interest expense and related debt service costs;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>making
it more difficult to obtain additional financing; and </FONT></DD></DL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>34</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=4,SEQ=34,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=938174,FOLIO='34',FILE='DISK027:[02PAL4.02PAL2354]DS2354A.;7',USER='JJORGE',CD='13-NOV-2002;18:50' -->
<A NAME="page_ds2354_1_35"> </A>
<UL>
<UL>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>constraining
our ability to react quickly in an unfavorable economic climate. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently,
we are not generating sufficient cash flow to satisfy the annual debt service payments on our outstanding subordinated convertible notes and debentures. This may require us to
use a portion of the proceeds from the sales of these securities to pay interest or borrow additional funds or sell additional equity to meet our debt service obligations. If we are unable to satisfy
our debt service requirements, substantial liquidity problems could result, which would negatively impact our future prospects. As of September&nbsp;30, 2002 we had cash, cash equivalents and
short-term investments valued at approximately $313.6&nbsp;million. </FONT></P>

<P><FONT SIZE=2><B>Anti-takeover provisions in our charter documents and under Delaware law may make it more difficult to remove our management. Further, these provisions may make it
more difficult to acquire a large portion of our securities, to initiate a tender offer or a proxy contest or to acquire us, even though such events may be beneficial to our stockholders.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to remove our management. Further, these provisions may
make it more difficult to acquire a large portion of our securities, to initiate a tender offer or a proxy contest or acquire us, even if doing so would benefit our stockholders. Among other things,
these provisions: </FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>authorize
the issuance of "blank check" preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares and
thwart a takeover attempt; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>&#149;</FONT></DT><DD><FONT SIZE=2>limit
who may call a special meeting of stockholders. </FONT></DD></DL>
</UL>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
June&nbsp;1, 2001, our Board of Directors adopted a preferred share purchase rights plan, commonly known as a "poison pill." The provisions described above, our preferred share
purchase rights plan and provisions of the Delaware General Corporation Law relating to business combinations with interested stockholders may discourage, delay or prevent a third party from removing
our management. Further, they may discourage, delay or prevent a third party from acquiring a large portion of our securities, initiating a tender offer or proxy contest or acquiring us, even if our
stockholders might receive a premium for their shares in the acquisition over then current market prices. </FONT></P>

<P><FONT SIZE=2><B>This report includes forward-looking statements and if these statements are incorrect or inaccurate, our actual results may differ.  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This report includes "forward-looking statements" within the meaning of Section&nbsp;27A of the Securities Act and Section&nbsp;21E of the Exchange Act. All
statements other than statements of historical fact are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any
statements of the plans and objectives of management for future operations, any statements concerning proposed new products or services, any statements regarding future economic conditions or
performance and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "may," "will," "expects,"
"plans," "anticipates," "estimates," "potential," or "continue," or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking
statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct and actual results could differ
materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to
inherent risks and uncertainties, including but not limited to the risk factors set forth below and for the reasons described elsewhere in this prospectus. All forward-looking statements and reasons
why results may differ included in this report are made as of the date hereof and we do not intend to update any forward-looking statements except as required by law or applicable regulations. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>35</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=5,SEQ=35,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=1041465,FOLIO='35',FILE='DISK027:[02PAL4.02PAL2354]DS2354A.;7',USER='JJORGE',CD='13-NOV-2002;18:50' -->
<A NAME="page_ds2354_1_36"> </A>
<BR>

<P><FONT SIZE=2><A
NAME="ds2354_item_3._quantitative_and_quali__ite02633"> </A>
<A NAME="toc_ds2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>Item 3. Quantitative and Qualitative Disclosures about Market Risk    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been no material changes in reported market risks since December&nbsp;31, 2001. </FONT></P>

<P><FONT SIZE=2><A
NAME="ds2354_item_4._controls_and_procedures"> </A>
<A NAME="toc_ds2354_2"> </A>
<BR></FONT><FONT SIZE=2><B>Item 4. Controls and Procedures    <BR>  </B></FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Evaluation of Disclosure Controls and Procedures.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;Under the supervision and with the participation of our Chief Executive
Officer and our Chief Financial Officer, we have, as of a date within 90&nbsp;days before the filing date of this quarterly report (the "Evaluation Date") evaluated the effectiveness of our
"disclosure controls and procedures." Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or
submitted under the Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective in ensuring that information required to be
disclosed in such reports is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in Internal Controls.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;There were no significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their last evaluation. </FONT></P>

<P><FONT SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Limitations on the Effectiveness of Controls.</B></FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;The company's management, including the Chief Executive Officer and Chief
Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be
detected. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>36</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=6,SEQ=36,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=607550,FOLIO='36',FILE='DISK027:[02PAL4.02PAL2354]DS2354A.;7',USER='JJORGE',CD='13-NOV-2002;18:50' -->
<BR>
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->

<P><FONT SIZE=2><A
NAME="page_du2354_1_37"> </A> </FONT></P>

<!-- TOC_END -->

<P><FONT SIZE=2><A
NAME="du2354_part_ii__other_information"> </A>
<A NAME="toc_du2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>PART II: OTHER INFORMATION    <BR>  </B></FONT></P>

<P><FONT SIZE=2><A
NAME="du2354_item_1._legal_proceedings"> </A>
<A NAME="toc_du2354_2"> </A></FONT> <FONT SIZE=2><B>Item 1. Legal Proceedings    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;30, 2002, a complaint was filed by David F. Kachensky in the Circuit Court of Madison County, Alabama, (the "Complaint") against J. Milton
Harris, James R. Hudson, Jr., Shearwater Corporation and Inhale Therapeutic Systems,&nbsp;Inc., as the successor corporation to Shearwater, (the "Defendants"). Dr.&nbsp;Harris is the president of
our Shearwater subsidiary. Among other things, the Complaint alleges that the Defendants breached a stock purchase/employment agreement allegedly entered into by and between certain of the Defendants
and the Plaintiff prior to our acquisition of Shearwater, whereby the Defendants allegedly agreed to convey to the Plaintiff five percent (5%) of the capital stock of Shearwater outstanding as of
December&nbsp;1997. The Plaintiff seeks damages in the amount of approximately $15&nbsp;million. On October&nbsp;7, 2002, the Defendants filed answers to the Complaint denying the allegations
and asserting affirmative defenses. Discovery has commenced, and no trial date has been set. The Company denies the allegations in the Complaint and intends to vigorously defend itself in the
litigation. </FONT></P>

<P><FONT SIZE=2><A
NAME="du2354_item_2._changes_in_securities_and_use_of_proceeds"> </A>
<A NAME="toc_du2354_3"> </A>
<BR></FONT><FONT SIZE=2><B>Item 2. Changes in Securities and Use of Proceeds    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2002, we completed the second of two installment payments totaling an aggregate of $1,050,000 in cash and common stock to McKinsey&nbsp;&amp;
Company,&nbsp;Inc. United States ("McKinsey") in connection with certain consulting services (the "Consulting Services") provided to us by McKinsey from April through July&nbsp;2002. In
consideration for professional fees and expenses rendered in connection with the Consulting Services, we paid McKinsey an aggregate total of $525,000 in cash and issued an aggregate of 67,640 shares
of common stock to AFAC Equity L.P., ("AFAC") an affiliated partnership. Under the terms of the consulting arrangement, McKinsey and its affiliates also have certain registration rights whereby we may
be required to register the common stock acquired in the event that we file&nbsp;a registration statement with the SEC in connection with an underwritten public offering of its common stock. AFAC
relied upon the exemption from registration afforded by Regulation&nbsp;D and made certain representations and warranties regarding its intent to acquire the common stock for investment only and not
with a view to distribution, and also represented that it was an "accredited investor" as that term is defined under Rule&nbsp;501 of Regulation&nbsp;D. Appropriate legends are affixed to the
certificates representing the shares of common stock acquired. </FONT></P>

<P><FONT SIZE=2><A
NAME="du2354_item_3._defaults_upon_senior_securities_#151;none"> </A>
<A NAME="toc_du2354_4"> </A>
<BR></FONT><FONT SIZE=2><B>Item 3. Defaults upon Senior Securities&#151;None    <BR>  </B></FONT></P>


<P><FONT SIZE=2><A
NAME="du2354_item_4._submission_of_matters___ite02471"> </A>
<A NAME="toc_du2354_5"> </A></FONT> <FONT SIZE=2><B>Item 4. Submission of Matters to a Vote of Security Holders&#151;None    <BR>  </B></FONT></P>

<P><FONT SIZE=2><A
NAME="du2354_item_5._other_information"> </A>
<A NAME="toc_du2354_6"> </A></FONT> <FONT SIZE=2><B>Item 5. Other Information    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with Section&nbsp;10A(i)(2) of the Securities Exchange Act of 1934, as added by Section&nbsp;202 of the Sarbanes-Oxley Act of 2002,
we are responsible for listing the non-audit services approved by the Audit Committee of the Board of Directors to be performed by Ernst&nbsp;&amp; Young LLP, our external auditor.
Non-audit services are defined as services other than those provided in connection with an audit or a review of the financial statements of the company. The Audit Committee has approved
engagements of Ernst&nbsp;&amp; Young for the following non-audit services: (1)&nbsp;tax compliance services; (2)&nbsp;tax planning services; (3)&nbsp;tax consulting services;
(4)&nbsp;audit services related to the our employee benefit plans; and (5)&nbsp;accounting consulting services. </FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2>37</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=37,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=1035597,FOLIO='37',FILE='DISK027:[02PAL4.02PAL2354]DU2354A.;9',USER='JJORGE',CD='13-NOV-2002;18:53' -->
<A NAME="page_du2354_1_38"> </A>

<P><FONT SIZE=2><A
NAME="du2354_item_6._exhibits_and_reports_on_form_8-k"> </A>
<A NAME="toc_du2354_7"> </A>
<BR></FONT><FONT SIZE=2><B>Item 6. Exhibits and Reports on Form&nbsp;8-K    <BR>  </B></FONT></P>

<UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(a)</FONT></DT><DD><FONT SIZE=2>The
following exhibits are filed here with or incorporated by reference: </FONT></DD></DL>
</UL>
<BR>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="BOTTOM">
<TH WIDTH="12%" ALIGN="LEFT"><FONT SIZE=1><B>Exhibit Number<BR> </B></FONT><HR NOSHADE></TH>
<TH WIDTH="3%"><FONT SIZE=1>&nbsp;</FONT></TH>
<TH WIDTH="85%" ALIGN="CENTER"><FONT SIZE=1><B>Exhibit Index</B></FONT><HR NOSHADE></TH>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2.1(1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Agreement and Plan of Merger by and between Inhale Therapeutic Systems, a California corporation, and Inhale Therapeutic Systems (Delaware), Inc., a Delaware corporation.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2.2(15</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Recommended Offer, dated December 21, 2000, by Cazenove &amp; Co. on behalf of Inhale Therapeutic Systems, Inc. for Bradford Particle Design plc.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2.3(20</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Agreement and Plan of Merger and Reorganization, dated May 22, 2001, by and among Inhale Therapeutic Systems, Inc., Shearwater Corporation, Square Acquisition Corp., J. Milton Harris and Puffinus, L.P.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>2.4(20</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Amendment to Agreement and Plan of Merger and Reorganization, dated June 21, 2001, by and among Inhale Therapeutic Systems, Inc., Shearwater Corporation, Square Acquisition Corp., J. Milton Harris and Puffinus,
L.P.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3.1(1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Certificate of Incorporation of Inhale Therapeutic Systems, Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3.2(1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Bylaws of Inhale Therapeutic Systems, Inc.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3.3(13</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Certificate of Amendment of the Amended Certificate of Incorporation of Inhale Therapeutic Systems, Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3.4(19</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Certificate of Designation of Series A Junior Participating Preferred Stock of Inhale Therapeutic Systems, Inc.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>3.5(24</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Certificate of Designation of Series B Convertible Preferred Stock of Inhale Therapeutic Systems, Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.1</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Reference is made to Exhibits 3.1, 3.2, 3.3., 3.4 and 3.5.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.2(2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Restated Investor Rights Agreement, dated April 29, 1993, as amended October 29, 1993, by and among Inhale Therapeutic Systems, Inc. and certain other persons named therein.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.3(3</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Stock Purchase Agreement, dated January 18, 1995, by and between Inhale Therapeutic Systems, Inc. and Pfizer Inc.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.4(8</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form of Purchase Agreement, dated January 28, 1997, by and among Inhale Therapeutic Systems, Inc. and the individual Purchasers.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.5(9</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Stock Purchase Agreement, dated December 8, 1998, by and between Inhale Therapeutic Systems, Inc. and Capital Research and Management Company.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.6(11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Purchase Agreement, dated October 6, 1999, by and among Inhale Therapeutic Systems, Inc., Lehman Brothers Inc., Deutsche Bank Securities Inc. and U.S. Bancorp Piper Jaffray Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.7(11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Resale Registration Rights Agreement, dated October 13, 1999, by and among Inhale Therapeutic Systems, Inc., Lehman Brothers Inc., Deutsche Bank Securities Inc. and U.S. Bancorp Piper Jaffray Inc.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.8(11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Indenture, dated October 13, 1999, by and between Inhale Therapeutic Systems, Inc., as Issuer, and Chase Manhattan Bank and Trust Company, National Association, as Trustee.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.9(11</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form of Inhale Registration Rights Agreement, dated January 25, 2000, by and between Inhale Therapeutic Systems, Inc. and Selling Shareholder.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.10(12</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Purchase Agreement, dated February 2, 2000, by and among Inhale Therapeutic Systems, Inc., Merrill Lynch, Pierce, Fenner &amp; Smith Incorporated, Deutsche Bank Securities Inc., Lehman Brothers Inc. and U.S. Bancorp Piper
Jaffray Inc.</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER"><FONT SIZE=2>38</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=38,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=356221,FOLIO='38',FILE='DISK027:[02PAL4.02PAL2354]DU2354A.;9',USER='JJORGE',CD='13-NOV-2002;18:53' -->
<A NAME="page_du2354_1_39"> </A>
<!-- end of table folio -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.11(12</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Resale Registration Rights Agreement, dated February 8, 2000, by and among Inhale Therapeutic Systems, Inc., Merrill Lynch, Pierce, Fenner &amp; Smith Incorporated, Deutsche Bank Securities Inc., Lehman Brothers Inc. and
U.S. Bancorp Piper Jaffray Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.12(12</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Indenture, dated February 8, 2000, by and between Inhale Therapeutic Systems, Inc., as Issuer, and Chase Manhattan Bank and Trust Company, National Association, as Trustee.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.13(13</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Specimen common stock certificate.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.14(14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Specimen warrants to purchase shares of common stock.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.15(16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Purchase Agreement, dated October 11, 2000, by and among Inhale Therapeutic Systems, Inc., Merrill Lynch, Pierce, Fenner &amp; Smith Incorporated, Deutsche Bank Securities Inc., Lehman Brothers Inc. and U.S. Bancorp Piper
Jaffray Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.16(16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Resale Registration Rights Agreement, dated October 17, 2000, by and among Inhale Therapeutic Systems, Inc., Merrill Lynch, Pierce, Fenner &amp; Smith Incorporated, Deutsche Bank Securities, Inc., Lehman Brothers Inc. and
U.S. Bancorp Piper Jaffray Inc.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.17(16</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Indenture, dated October 17, 2000, by and between Inhale Therapeutic Systems, Inc., as Issuer, and Chase Manhattan Bank and Trust Company, National Association, as Trustee.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.18(19</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Rights Agreement, dated as of June 1, 2001, by and between Inhale Therapeutic Systems, Inc. and Mellon Investor Services LLC.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.19(19</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form of Right Certificate.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.20(24</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Stock Purchase Agreement, dated January 7, 2002, by and between Inhale Therapeutic Systems, Inc. and Enzon, Inc.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.21(27</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Common Stock Purchase Agreement, dated June 7, 2002, by and between Inhale Therapeutic Systems, Inc. and AFAC Equity L.P.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>4.22(27</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Common Stock Purchase Agreement, dated July 9, 2002, by and between Inhale Therapeutic Systems, Inc. and AFAC Equity L.P.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.1(6</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Inhale Therapeutic Systems, Inc.'s 1994 Non-Employee Directors' Stock Option Plan, as amended.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.2(2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Inhale Therapeutic Systems, Inc.'s 1994 Employee Stock Purchase Plan, as amended and restated.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.3(2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Standard Industrial Lease, dated September 17, 1992, as amended September 18, 1992, by and between Inhale Therapeutic Systems, Inc. and W.F. Batton &amp; Co., Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.4(2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Addendum IV to Lease dated September 17, 1992, dated April 1, 1994, by and among Inhale Therapeutic Systems, Inc., W.F. Batton and Marie A. Batton.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.5(5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Amendment Agreement Number One to Lease dated September 17, 1992, dated October 20, 1995, by and between Inhale Therapeutic Systems, Inc. and W.F. Batton &amp; Co., Inc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.6(5</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Amendment Agreement Number Two to Lease dated September 17, 1992, dated November 15, 1995, by and among Inhale Therapeutic Systems, Inc., W.F. Batton and Marie A. Batton, Trustees of the W.F. Batton and Marie A. Batton
Trust UTA dated January 12, 1998 ("Batton Trust").</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.7(10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Amendment Agreement Number Three to Lease dated September 17, 1992, dated February 14, 1996, by and between Inhale Therapeutic Systems, Inc. and Batton Trust.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.8(10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Amendment Agreement Number Four to Lease dated September 17, 1992, dated September 15, 1996, by and between Inhale Therapeutic Systems, Inc. and Batton Trust.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.9(2</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Sublicense Agreement, dated September 13, 1991, by and between Inhale Therapeutic Systems, Inc. and John S. Patton.</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER"><FONT SIZE=2>39</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=3,SEQ=39,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=354903,FOLIO='39',FILE='DISK027:[02PAL4.02PAL2354]DU2354A.;9',USER='JJORGE',CD='13-NOV-2002;18:53' -->
<A NAME="page_du2354_1_40"> </A>
<!-- end of table folio -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.10(4</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Stock Purchase Agreement, dated March 1, 1996, by and between Inhale Therapeutic Systems, Inc. and Baxter World Trade Corporation.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.11(7</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Sublease and Lease Agreement, dated October 2, 1996, by and between Inhale Therapeutic Systems, Inc. and T.M.T. Associates L.L.C. ("Landlord").</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.12(10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>First Amendment to Sublease and Lease Agreement dated October 2, 1996, dated October 30, 1996, by and between Inhale Therapeutic Systems, Inc. and Landlord.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.13(10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Letter Agreement amending Sublease and Lease Agreement dated October 2, 1996, dated April 9, 1997, by and between Inhale Therapeutic Systems, Inc. and Landlord.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.14(10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Third Amendment to Sublease and Lease Agreement dated October 2, 1996, dated April 16, 1997, by and between Inhale Therapeutic Systems, Inc. and Landlord.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.15(10</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Fourth Amendment to Sublease and Lease Agreement dated October 2, 1996, dated November 5, 1997, by and between Inhale Therapeutic Systems, Inc. and Landlord.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.16(12</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Sublease, dated November 3, 1999, by and between Webvan Group, Inc., as sublessor, and Inhale Therapeutic Systems, Inc., as sublessee.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.17(14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Inhale Therapeutic Systems, Inc.'s 2000 Equity Incentive Plan, as amended.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.18(14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Inhale Therapeutic Systems, Inc.'s Stock Option Agreement issued in accordance with Inhale Therapeutic Systems, Inc.'s 2000 Equity Incentive Plan, as amended.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.19(14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Agreement for the Contribution of 201 Industrial Road Project, made and entered into as of September 14, 2000, by and among Inhale Therapeutic Systems, Inc., Inhale 201 Industrial Road, L.P., a California limited
partnership and Bernardo Property Advisors, Inc., a California corporation.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.20(14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Agreement of Limited Partnership of Inhale 201 Industrial Road., L.P., a California limited partnership, made and entered into September 14, 2000, by and among SCIMED PROP III, Inc., a California corporation, as general
partner, 201 Industrial Partnership, a California general partnership, as limited partner and Inhale Therapeutic Systems, Inc., as limited partner.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.21(14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Build-To-Suit Lease, made and entered into as of September 14, 2000, by and between Inhale 201 Industrial Road, L.P., a California limited partnership, as Landlord, and Inhale Therapeutic Systems, Inc., as
Tenant.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.22(14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Amendment to Lease, dated October 3, 2000, by and between Inhale 201 Industrial Road, L.P., a California limited partnership, as Landlord, and Inhale Therapeutic Systems, Inc., as Tenant.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.23(14</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Parking Lease Agreement, entered into as of September 14, 2000, by and between Inhale 201 Industrial Road, L.P., a California limited partnership, as Landlord, and Inhale Therapeutic Systems, Inc., as Tenant.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.24(23</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Inhale Therapeutic Systems, Inc.'s 2000 Non-Officer Equity Incentive Plan.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.25(17</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Inhale Therapeutic Systems, Inc.'s Stock Option Agreement issued in accordance with Inhale Therapeutic Systems, Inc.'s 2000 Non-Officer Equity Incentive Plan.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.26+(18</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Manufacturing and Supply Agreement by and among Inhale Therapeutic Systems, Inc., Tech Group North America and Bespak Europe, LTD.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.27(21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>The Bradford Particle Design plc Approved Employee Share Option Scheme.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.28(21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form of The Bradford Particle Design plc Approved Employee Share Option Scheme Option Certificate.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.29(21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>The Bradford Particle Design plc Unapproved Employee Share Option Scheme.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.30(21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form of The Bradford Particle Design plc Unapproved Employee Share Option Scheme Option Certificate.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.31(21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form of Agreement Granting an Enterprise Management Incentives Option.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.32(21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Agreement Granting Options, dated November 5, 1999, by and between Mr. Joseph F. Bohan and Bradford Particle Design plc.</FONT></TD>
</TR>
</TABLE>
<!-- insert table folio -->
<P ALIGN="CENTER"><FONT SIZE=2>40</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=4,SEQ=40,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=599777,FOLIO='40',FILE='DISK027:[02PAL4.02PAL2354]DU2354A.;9',USER='JJORGE',CD='13-NOV-2002;18:53' -->
<A NAME="page_du2354_1_41"> </A>
<!-- end of table folio -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.33(21</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Agreement Granting Options, dated October 27, 2000, by and between Mr. Joseph F. Bohan and Bradford Particle Design plc.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.34(22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Shearwater Corporation 1996 Nonqualified Stock Option Plan.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.35(22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Amendment, effective May 22, 1998, to the 1996 Nonqualified Stock Option Plan of Shearwater Corporation.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.36(22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Second Amendment, effective February 26, 2000, to the 1996 Nonqualified Stock Option Plan of Shearwater Corporation.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.37(22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Third Amendment, effective October 5, 2000, to the 1996 Nonqualified Stock Option Plan of Shearwater Corporation.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.38(22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Fourth Amendment, effective June 22, 2001, to the 1996 Nonqualified Stock Option Plan of Shearwater Corporation.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.39(22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form of Shearwater Corporation Nonqualified Stock Option Agreement.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.40(22</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Form of June 2001 Amendment to Shearwater Corporation Nonqualified Stock Option Agreement.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.41(25</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Inhale Therapeutic Systems, Inc. 401(k) Retirement Plan.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.42(25</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Non-Standardized Adoption Agreement No. 001 for use with Inhale Therapeutic Systems, Inc. 401(k) Retirement Plan.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.43(26</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Inhale Therapeutic Systems, Inc., Employee Stock Purchase Plan, as amended and restated.</FONT></TD>
</TR>
<TR BGCOLOR="White" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>10.44+(27</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Letter Agreement, dated July&nbsp;31, 2002, by and between Inhale Therapeutic Systems, Inc., and Douglas H. Altschuler.</FONT></TD>
</TR>
<TR BGCOLOR="#CCEEFF" VALIGN="TOP">
<TD WIDTH="12%" ALIGN="RIGHT"><FONT SIZE=2>99.1 (27</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>)</FONT></TD>
<TD WIDTH="85%"><FONT SIZE=2>Certification of Officers Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE ALIGN="LEFT" WIDTH="120">
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>+</FONT></DT><DD><FONT SIZE=2>Confidential
treatment with respect to specific portions are omitted and filed separately with the SEC.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(1)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Quarterly Report on Form&nbsp;10-Q for the
quarter ended June&nbsp;30, 1998.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(2)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-1
(No.33-75942), as amended.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(3)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-1
(No.33-89502), as amended.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(4)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Quarterly Report on Form&nbsp;10-Q for the
quarter ended March&nbsp;31, 1996.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(5)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Annual Report on Form&nbsp;10-K for the
year ended December&nbsp;31, 1995.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(6)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Quarterly Report on Form&nbsp;10-Q for the
quarter ended June&nbsp;30, 1996.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(7)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Quarterly Report on Form&nbsp;10-Q for the
quarter ended September&nbsp;30, 1996.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(8)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-3
(No.&nbsp;333-20787).
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(9)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-3
(No.&nbsp;333-68897), as amended.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(10)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Quarterly Report on Form&nbsp;10-Q for the
quarter ended June&nbsp;30, 1999. </FONT></DD></DL>
<P ALIGN="CENTER"><FONT SIZE=2>41</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=5,SEQ=41,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=46980,FOLIO='41',FILE='DISK027:[02PAL4.02PAL2354]DU2354A.;9',USER='JJORGE',CD='13-NOV-2002;18:53' -->
<A NAME="page_du2354_1_42"> </A>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(11)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-3
(No.&nbsp;333-94161), as amended.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(12)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Annual Report on Form&nbsp;10-K for the
year ended December&nbsp;31, 1999.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(13)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Quarterly Report on Form&nbsp;10-Q for the
quarter ended June&nbsp;30, 2000.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(14)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Quarterly Report on Form&nbsp;10-Q for the
quarter ended September&nbsp;30, 2000.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(15)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Current Report on Form&nbsp;8-K, filed on
January&nbsp;11, 2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(16)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-3
(No.&nbsp;333-53678), filed on January&nbsp;12, 2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(17)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-8
(No.&nbsp;333-54078), filed on January&nbsp;19, 2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(18)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Annual Report on Form&nbsp;10-K, as amended, for the year ended
December&nbsp;31, 2000.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(19)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Current Report on Form&nbsp;8-K, filed on June&nbsp;4, 2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(20)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Current Report on Form&nbsp;8-K, filed on July&nbsp;10, 2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(21)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-8
(No.&nbsp;333-55032), filed on February&nbsp;6, 2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(22)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-8
(No.&nbsp;333-67342), filed on August&nbsp;10, 2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(23)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-8
(No.&nbsp;333-71936), filed on October&nbsp;19, 2001.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(24)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Current Report on Form&nbsp;8-K, filed on January&nbsp;8, 2002.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(25)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to Inhale Therapeutic Systems,&nbsp;Inc.'s Registration Statement on Form&nbsp;S-8
(No.&nbsp;333-76638), filed on January&nbsp;11, 2002.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(26)</FONT></DT><DD><FONT SIZE=2>Incorporated
by reference to the indicated exhibit in Inhale Therapeutic Systems,&nbsp;Inc.'s Quarterly Report on Form&nbsp;10-Q for the
quarter ended June&nbsp;30, 2002.
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>(27)</FONT></DT><DD><FONT SIZE=2>Filed
herewith.
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>(b)</FONT></DT><DD><FONT SIZE=2>Reports
on Form&nbsp;8-K for the three-month period ending September&nbsp;30, 2002: </FONT></DD></DL>
</DD></DL>
<UL>
<UL>
<UL>

<P><FONT SIZE=2>None. </FONT></P>

</UL>
</UL>
</UL>
<P ALIGN="CENTER"><FONT SIZE=2>42</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=6,SEQ=42,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=912317,FOLIO='42',FILE='DISK027:[02PAL4.02PAL2354]DU2354A.;9',USER='JJORGE',CD='13-NOV-2002;18:53' -->
<UL>
<UL>
</UL>
</UL>
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="page_jc2354_1_43"> </A> </FONT></P>

<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="jc2354_signatures"> </A>
<A NAME="toc_jc2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>SIGNATURES    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Carlos, County of San Mateo, State of California on November&nbsp;14, 2002. </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2>By:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>AJIT S. GILL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Ajit S. Gill<BR></FONT> <FONT SIZE=2><I>Chief Executive Officer, President and
Director</I></FONT></TD>
</TR>
<TR VALIGN="TOP">
<TD WIDTH="45%"><FONT SIZE=2><BR>
&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="5%"><FONT SIZE=2><BR>
By:</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2><BR>&nbsp;</FONT></TD>
<TD WIDTH="45%"><FONT SIZE=2><BR>
/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>BRIGID A. MAKES</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Brigid A. Makes<BR></FONT> <FONT SIZE=2><I>Vice President, Finance and Administration,<BR>
Chief Financial Officer and Assistant Secretary</I></FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<P ALIGN="CENTER"><FONT SIZE=2>43</FONT></P>

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=43,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=230974,FOLIO='43',FILE='DISK027:[02PAL4.02PAL2354]JC2354A.;6',USER='ILEONG',CD='13-NOV-2002;01:12' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<!-- TOC_END -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="je2354_officer_certification_pursuant__off02746"> </A>
<A NAME="toc_je2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>OFFICER CERTIFICATION<BR>  PURSUANT TO SECTION 302(A)<BR>  OF THE SARBANES-OXLEY ACT OF 2002    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I, Ajit S. Gill, certify that: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>I
have reviewed this quarterly report on Form&nbsp;10-Q of Inhale Therapeutic Systems,&nbsp;Inc. ("registrant");
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-14 and 15d-14) for the registrant and we have:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>designed
such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this quarterly report is being prepared;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>evaluated
the effectiveness of the registrant's disclosure controls and procedures as of a date within 90&nbsp;days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>c)</FONT></DT><DD><FONT SIZE=2>presented
in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>all
significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses in internal controls; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>6.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I have indicated in the quarterly report whether or not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. </FONT></DD></DL>

<P><FONT SIZE=2>Date:
November&nbsp;14, 2002 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>AJIT S. GILL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Ajit S. Gill<BR>
Chief Executive Officer, President and Director</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=44,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=655544,FOLIO='blank',FILE='DISK027:[02PAL4.02PAL2354]JE2354A.;7',USER='ATOBAK',CD='12-NOV-2002;21:06' -->
<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="je2354_officer_certification_pursuant__off02746_1"> </A>
<A NAME="toc_je2354_2"> </A>
<BR></FONT><FONT SIZE=2><B>OFFICER CERTIFICATION<BR>  PURSUANT TO SECTION 302(A)<BR>  OF THE SARBANES-OXLEY ACT OF 2002    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I, Brigid A. Makes, certify that: </FONT></P>

<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>1.</FONT></DT><DD><FONT SIZE=2>I
have reviewed this quarterly report on Form&nbsp;10-Q of Inhale Therapeutic Systems,&nbsp;Inc. ("registrant");
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>2.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>3.</FONT></DT><DD><FONT SIZE=2>Based
on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>4.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules&nbsp;13a-14 and 15d-14) for the registrant and we have:
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>designed
such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this quarterly report is being prepared;
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>evaluated
the effectiveness of the registrant's disclosure controls and procedures as of a date within 90&nbsp;days prior to the filing date of this quarterly report (the "Evaluation
Date"); and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>c)</FONT></DT><DD><FONT SIZE=2>presented
in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>5.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
<BR><BR></FONT>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>a)</FONT></DT><DD><FONT SIZE=2>all
significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses in internal controls; and
<BR><BR></FONT></DD><DT style='margin-bottom:-11pt;'><FONT SIZE=2>b)</FONT></DT><DD><FONT SIZE=2>any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and </FONT></DD></DL>
</DD></DL>
<UL>
<BR>
</UL>
<DL compact>
<DT style='margin-bottom:-11pt;'><FONT SIZE=2>6.</FONT></DT><DD><FONT SIZE=2>The
registrant's other certifying officers and I have indicated in the quarterly report whether or not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. </FONT></DD></DL>

<P><FONT SIZE=2>Date:
November&nbsp;14, 2002 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>BRIGID A. MAKES</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Brigid A. Makes<BR>
Vice President, Finance and Administration,<BR>
Chief Financial Officer and Assistant Secretary</FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE>
<!-- ZEQ.=2,SEQ=45,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1",CHK=13569,FOLIO='blank',FILE='DISK027:[02PAL4.02PAL2354]JE2354A.;7',USER='ATOBAK',CD='12-NOV-2002;21:06' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<BR>
<P><br><A NAME="02PAL2354_1">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_bg2354_1">INHALE THERAPEUTIC SYSTEMS, INC. INDEX</A></FONT><BR>

<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_de2354_1">PART I: FINANCIAL INFORMATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_de2354_2">Item 1. Financial Statements</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_de2354_3">INHALE THERAPEUTIC SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except per share information)</A></FONT><BR>

<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dg2354_1">INHALE THERAPEUTIC SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share information) (unaudited)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_di2354_1">INHALE THERAPEUTIC SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Increase/(Decrease) in Cash and Cash Equivalents (in thousands) (unaudited)</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dk2354_1">INHALE THERAPEUTIC SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2002 (unaudited)</A></FONT><BR>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_do2354_1">Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_dq2354_1">RISK FACTORS</A></FONT><BR>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_ds2354_1">Item 3. Quantitative and Qualitative Disclosures about Market Risk</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_ds2354_2">Item 4. Controls and Procedures</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_du2354_1">PART II: OTHER INFORMATION</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2354_2">Item 1. Legal Proceedings</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2354_3">Item 2. Changes in Securities and Use of Proceeds</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2354_4">Item 3. Defaults upon Senior Securities&#151;None</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2354_5">Item 4. Submission of Matters to a Vote of Security Holders&#151;None</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2354_6">Item 5. Other Information</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_du2354_7">Item 6. Exhibits and Reports on Form 8-K</A></FONT><BR>
</UL>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_jc2354_1">SIGNATURES</A></FONT><BR>
<!-- TOC_BEGIN -->
<FONT SIZE=2><A HREF="#toc_je2354_1">OFFICER CERTIFICATION PURSUANT TO SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002</A></FONT><BR>
<FONT SIZE=2><A HREF="#toc_je2354_2">OFFICER CERTIFICATION PURSUANT TO SECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002</A></FONT><BR>
<!-- SEQ=,FILE='QUICKLINK',USER=DROCCON,SEQ=,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="1" -->
<!-- TOCEXISTFLAG -->
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.21
<SEQUENCE>3
<FILENAME>a2093292zex-4_21.htm
<DESCRIPTION>EX-4.21
<TEXT>
<HTML>
<HEAD>

</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>

<div style="font-family:'Times New Roman';">

<p align="right" style="margin:12.0pt 0in .0001pt;text-align:right;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit
4.21</font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">INHALE
THERAPEUTIC SYSTEMS, INC.</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">AND</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">AFAC </font></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">EQUITY<font style="text-transform:uppercase;">, L.P.</font></font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<div align="center">

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="100%" valign="top" style="border:none;border-top:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:100.0%;">
  <p align="center" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="100%" valign="top" style="padding:0in .7pt 0in .7pt;width:100.0%;">
  <p align="center" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="100%" valign="top" style="padding:0in .7pt 0in .7pt;width:100.0%;">
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">COMMON
  STOCK PURCHASE AGREEMENT</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="100%" valign="top" style="padding:0in .7pt 0in .7pt;width:100.0%;">
  <p align="center" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="100%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:100.0%;">
  <p align="center" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
</table>

</div>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">June 7, 2002</font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=1,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=1039558,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">INHALE
THERAPEUTIC SYSTEMS, INC.</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">COMMON
STOCK PURCHASE AGREEMENT</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">&nbsp;</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">THIS COMMON STOCK PURCHASE AGREEMENT </font></b><font size="2" style="font-size:10.0pt;">(this
&#147;Agreement&#148;) is made as of June 7, 2002, by and between <b><font style="font-weight:bold;text-transform:uppercase;">Inhale
Therapeutic Systems, Inc.</font></b>, a Delaware corporation with its principal
office at 150 Industrial Road, San Carlos, California 94070 (the &#147;Company&#148;),
and <b><font style="font-weight:bold;text-transform:uppercase;">AFAC Equity L.P</font></b>.
a Delaware limited partnership with its offices c/o McKinsey &amp; Company,
Inc. United States at 55 East 52<sup>nd</sup> Street, 27<sup>th</sup> Floor,
New York, New York 10022 (&#147;AFAC&#148; or, the &#147;Purchaser&#148;).</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">RECITALS</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">WHEREAS</font></b><font size="2" style="font-size:10.0pt;">, the Company and McKinsey &amp; Company, Inc. United States, an
affiliate of AFAC (&#147;McKinsey&#148;) have entered into that certain Confidentiality
Agreement dated April 9, 2002 and that certain letter agreement dated May 23,
2002 with respect to the performance of certain consulting services by McKinsey
(collectively, the &#147;Related Agreements&#148;); and</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">WHEREAS</font></b><font size="2" style="font-size:10.0pt;">, in connection with the Related Agreements, the Company desires to
issue to AFAC and AFAC desires to acquire from the Company shares of common
stock of the Company, on the terms and subject to the conditions set forth in
this Agreement.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">NOW, THEREFORE</font></b><font size="2" style="font-size:10.0pt;">, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; PURCHASE
OF COMMON STOCK.</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Agreement
to Sell and Purchase.</font></b><font size="2" style="font-size:10.0pt;">&#160; At the Closing (as hereinafter
defined), the Company will sell to AFAC and AFAC will purchase from the Company
Thirty-Two Thousand Two Hundred Eighty-Eight (32,288) shares of the common
stock of the Company (the &#147;Common Stock&#148;) in exchange for services rendered by
McKinsey.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Closing;
Closing Date.&#160; </font></b><font size="2" style="font-size:10.0pt;">The completion of the sale and purchase
of the Common Stock (the &#147;Closing&#148;) shall be held at 9:00 a.m. (Pacific Time)
on the date hereof (the &#147;Closing Date&#148;), at the offices of Cooley Godward LLP,
3175 Hanover Street, Palo Alto, California, or at such other time and place as
the Company and the Purchasers may agree.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Delivery.&#160; </font></b><font size="2" style="font-size:10.0pt;">At the Closing, subject to the terms and conditions
hereof, the Company will deliver to AFAC a stock certificate dated as of the
Closing Date.</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=2,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=956394,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Except as otherwise
specifically disclosed to the Purchasers in writing on the date hereof, the
Company hereby represents and warrants to the Purchasers as follows:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Authorization.&#160; </font></b><font size="2" style="font-size:10.0pt;">All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement and the Registration Rights Agreement by and
between the Company and AFAC dated as of the date hereof in the form set forth
as Exhibit A (the &#147;Registration Rights Agreement&#148;) has been taken.&#160; The Company has the requisite corporate
power to enter into this Agreement and the Registration Rights Agreement and
carry out and perform its obligations under the terms of this Agreement and the
Registration Rights Agreement.&#160; At the
Closing, the Company will have the requisite corporate power to issue and sell
the Common Stock.&#160; This Agreement and
the Registration Rights Agreement have been duly authorized, executed and delivered
by the Company and, upon due execution and delivery by the Purchasers, this
Agreement and the Registration Rights Agreement will be valid and binding
agreements of the Company, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors&#146; rights generally or by equitable principles.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Organization,
Good Standing and Qualification. </font></b><font size="2" style="font-size:10.0pt;">&#160;The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.&#160; The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Valid
Issuance of Common Stock. </font></b><font size="2" style="font-size:10.0pt;">&#160;The Common
Stock, when issued, sold and delivered in accordance with the terms hereof will
be duly and validly authorized and issued, fully paid and nonassessable.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Offering.&#160; </font></b><font size="2" style="font-size:10.0pt;">Assuming the accuracy of the representations of the
Purchasers in Section 3.3 of this Agreement on the date hereof and on the
Closing Date, the offer, issue and sale of the Common Stock are and will be
exempt from the registration and prospectus delivery requirement of the
Securities Act and have been or will be registered or qualified (or are or will
be exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities laws.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; REPRESENTATIONS
AND WARRANTIES OF THE PURCHASERS.</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Purchaser hereby represents and warrants to the
Company as follows:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Legal
Power.</font></b><font size="2" style="font-size:10.0pt;">&#160; Purchaser has the requisite corporate power
and authority to enter into this Agreement and the Registration Rights
Agreement, to carry out and perform its obligations under the terms of this
Agreement and the Registration Rights Agreement.&#160; All action on Purchaser&#146;s part required for the lawful execution
and delivery of this Agreement and the Registration Rights Agreement have been
or will be effectively taken prior to the Closing.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Due
Execution.</font></b><font size="2" style="font-size:10.0pt;">&#160; This Agreement and the Registration Rights
Agreement have been duly authorized, executed and delivered by the Purchaser, and,
upon due execution and delivery by the Company, this Agreement and Registration
Rights Agreement will be valid and</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=3,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=277257,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">binding agreements
of Purchaser, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors&#146;
rights generally or by equitable principles.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Investment
Representations.</font></b><font size="2" style="font-size:10.0pt;">&#160; In connection with the sale and issuance of
the Common Stock, Purchaser makes the following representations to the Company:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Investment for Own Account.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser is acquiring the Common Stock for its own
account, not as nominee or agent, for investment and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Transfer Restrictions; Legends.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser understands that (i) the Common Stock has
not been registered under the Securities Act; (ii) the Common Stock is being
offered and sold pursuant to an exemption from registration and that the Common
Stock must be held by Purchaser indefinitely, and that Purchaser must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration; (iii) each certificate representing the Common
Stock will be endorsed with the following legends:</font></p>

<p align="left" style="margin:12.0pt .5in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE &#147;ACT&#148;), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.&#160; THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.&#160;
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.</font></p>

<p align="left" style="margin:12.0pt .5in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">and (iv) the
Company will instruct any transfer agent not to register the transfer of the
Common Stock (or any portion thereof) unless the conditions specified in the
foregoing legend are satisfied, until such time as a transfer is made, pursuant
to the terms of this Agreement, and in compliance with Rule 144 under the
Securities Act or pursuant to a registration statement or, if the opinion of
counsel referred to above is to the further effect that such legend is not
required in order to establish compliance with any provisions of the Securities
Act or this Agreement, or other satisfactory assurances of such nature are
given to the Company.&#160; Unless otherwise
required by applicable securities laws, the Company shall be obligated, at the
request of Purchaser, to cause the transfer agent to reissue unlegended
certificates with respect to the Common Stock if (A) Purchaser shall have
obtained an opinion of counsel reasonably acceptable to the Company to the
effect that the Common Stock with respect to which unlegended certificates are
to be issued may lawfully be disposed of without registration, qualification or</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=4,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=278467,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">legend; or (B) the
Common Stock can be sold without restriction as to the number of securities
sold under Rule 144(k).&#160; Further, the
Company will instruct the transfer agent to remove the legend on Common Stock
(A) upon the sale of such Common Stock pursuant to an effective registration
statement, provided the transfer agent and Company have received evidence or
assurances of such sale in a form satisfactory to the transfer agent and the
Company or (ii) upon the sale of such Common Stock pursuant to Rule 144 under
the Securities Act, provided the transfer agent and the Company have received
evidence or assurances from Purchaser of compliance with Rule 144 in a form
satisfactory to the transfer agent and the Company.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Financial Sophistication.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in connection with the transactions contemplated in
this Agreement.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (d)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Accredited Investor Status.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser is an &#147;accredited investor&#148; as such term is
defined in Rule 501(a) of the rules and regulations promulgated under the
Securities Act.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; No Brokers.
</font></b><font size="2" style="font-size:10.0pt;">&#160;No broker, finder or investment banker is
entitled to any brokerage, finder&#146;s or other fee or commission in connection
with the transactions contemplated by this Agreement based on arrangements made
by Purchaser.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; CONDITIONS
TO CLOSING.</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Conditions
to Obligations of Purchasers at Closing. </font></b><font size="2" style="font-size:10.0pt;">AFAC&#146;s obligation to purchase the Common Stock at the
Closing is subject to the fulfillment to the Purchaser&#146;s satisfaction, on or
prior to the Closing, of all of the following conditions, any of which may be
waived by Purchaser:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <b><font style="font-weight:bold;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Representations
and Warranties True; Performance of Obligations.&#160; </font></b>The representations and warranties made by the Company
in Section 2 hereof shall be true and correct in all material respects on the
Closing Date with the same force and effect as if they had been made on and as
of said date and the Company shall have performed and complied with all
obligations and conditions herein required to be performed or complied with by
it on or prior to the Closing.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (b) &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Registration Rights Agreement.&#160; </font></b><font size="2" style="font-size:10.0pt;">The Company shall have
executed and delivered the Registration Rights Agreement in the form attached
hereto as Exhibit A.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Qualifications,
Legal Investment. </font></b><font size="2" style="font-size:10.0pt;">&#160;All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful sale and issuance
of the Common Stock shall have been duly obtained and shall be effective on and
as of the Closing.&#160; No stop order or
other order enjoining the sale of the Common Stock shall have been issued and
no proceedings for such purpose shall be pending or, to the knowledge of the
Company, threatened by the SEC, or any commissioner of corporations or similar
officer of any state having jurisdiction over this </font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=5,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=651653,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">transaction.&#160; At the time of the Closing, the sale and
issuance of the Common Stock shall be legally permitted by all laws and
regulations to which Purchaser and the Company are subject.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Conditions
to Obligations of the Company.&#160; </font></b><font size="2" style="font-size:10.0pt;">The Company&#146;s obligation to issue and
sell the Common Stock at the Closing is subject to the fulfillment to the
Company&#146;s satisfaction, on or prior to the Closing of the following conditions,
any of which may be waived by the Company:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Representations and Warranties True. </font></b><font size="2" style="font-size:10.0pt;">&#160;The representations and warranties made by Purchaser in Section 3
hereof shall be true and correct in all material respects on the Closing Date
with the same force and effect as if they had been made on and as of said date.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <b><font style="font-weight:bold;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Performance
of Obligations.&#160; </font></b>Purchaser
shall have performed and complied with all agreements and conditions herein
required to be performed or complied with by them on or before the Closing.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Registration Rights Agreement.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser shall have
executed and delivered the Registration Rights Agreement in the form attached
hereto as Exhibit A.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(d)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Qualifications,
Legal Investment.&#160; </font></b><font size="2" style="font-size:10.0pt;">All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Common Stock shall have been duly obtained and shall be
effective on and as of the Closing.&#160; No
stop order or other order enjoining the sale of the Common Stock shall have
been issued and no proceedings for such purpose shall be pending or, to the
knowledge of the Company, threatened by the SEC, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction.&#160; At the time of the
Closing, the sale and issuance of the Common Stock shall be legally permitted
by all laws and regulations to which the Purchaser and the Company are subject.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; MISCELLANEOUS.</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Governing
Law. </font></b><font size="2" style="font-size:10.0pt;">&#160;This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to the choice of law provisions thereof, and the federal laws of the
United States.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Successors
and Assigns.&#160; </font></b><font size="2" style="font-size:10.0pt;">Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Entire
Agreement.&#160; </font></b><font size="2" style="font-size:10.0pt;">This Agreement, the Registration Rights
Agreement, the Related Agreements and the exhibits hereto and thereto, and the
other documents delivered pursuant hereto, constitutes the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and no party shall be liable or bound to any other party in any manner
by any representations, warranties, covenants, or agreements except as
specifically set</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=6,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=884205,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">forth herein or
therein.&#160; Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the
parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Severability.</font></b><font size="2" style="font-size:10.0pt;">&#160;
In the event any provision of this Agreement shall be invalid, illegal,
or unenforceable, it shall to the extent practicable, be modified so as to make
it valid, legal and enforceable and to retain as nearly as practicable the
intent of the parties, and the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Amendment
and Waiver.</font></b><font size="2" style="font-size:10.0pt;">&#160; Except as otherwise provided herein, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and Purchaser.&#160; Any amendment or waiver effected in
accordance with this Section shall be binding upon any holder of any securities
purchased under this Agreement, each future holder of all such securities, and
the Company.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.6.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Notices.&#160; </font></b><font size="2" style="font-size:10.0pt;">Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address first indicated for such party above, or at such other
address as such party may designate by ten (10) days&#146; advance written notice to
the other parties.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.7.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Fees
and Expenses. </font></b><font size="2" style="font-size:10.0pt;">&#160;The Company and Purchaser shall bear their
own expenses and legal fees incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby.&#160; Each party hereby agrees to indemnify and to hold harmless of and
from any liability the other party for any commission or compensation in the
nature of a finder&#146;s fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) for
which such indemnifying party or any of its employees or representatives are
responsible.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.8.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Counterparts.&#160; </font></b><font size="2" style="font-size:10.0pt;">This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=7,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=129413,FOLIO='1',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">In Witness Whereof</font></b><font size="2" style="font-size:10.0pt;">, the foregoing Common Stock Purchase Agreement
is hereby executed as of the date first above written.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">THE COMPANY:</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="16%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:16.58%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">INHALE
  THERAPEUTIC SYSTEMS, INC.</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="16%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:16.58%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.54%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="32%" colspan="5" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:32.26%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/&#160; AJIT S. GILL</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name: Ajit S. Gill</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title: Chief Executive Officer and President</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="16%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:16.58%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">150 Industrial Road</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">San Carlos, CA 94070</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="16%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:16.58%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="37%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="font-weight:bold;margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">THE PURCHASER:</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:16.58%;">
  <p align="left" style="font-size:12.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">AFAC
  EQUITY, L.P.</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="16%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:16.58%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="16%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:16.58%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.54%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By: </font></p>
  </td>
  <td width="32%" colspan="5" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:32.26%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/&#160; BRIAN M. FEUER</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="7%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name: </font></p>
  </td>
  <td width="30%" colspan="3" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:30.04%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Brian M. Feuer</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="6%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:6.64%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title: </font></p>
  </td>
  <td width="31%" colspan="4" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:31.16%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Attorney-in-Fact</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">c/o McKinsey &amp; Company</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">55 East 52<sup>nd</sup> Street, 27<sup>th</sup> Floor</font></p>
  </td>
 </tr>
 <tr>
  <td width="59%" valign="top" style="padding:0in .7pt 0in .7pt;width:59.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="4" valign="bottom" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="27%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:27.82%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">New York, NY 10022</font></p>
  </td>
 </tr>
 <tr height="0">
  <td width="433" style="border:none;"></td>
  <td width="16" style="border:none;"></td>
  <td width="40" style="border:none;"></td>
  <td width="8" style="border:none;"></td>
  <td width="8" style="border:none;"></td>
  <td width="16" style="border:none;"></td>
  <td width="48" style="border:none;"></td>
  <td width="153" style="border:none;"></td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=8,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=24407,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">EXHIBIT
A</font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">REGISTRATION RIGHTS AGREEMENT</font></b></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=9,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=256830,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p style="font-weight:bold;margin:12.0pt 0in 6.0pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">EXHIBIT
A</font></b></p>

<p style="font-weight:bold;margin:12.0pt 0in;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">REGISTRATION
RIGHTS AGREEMENT</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">THIS REGISTRATION
RIGHTS AGREEMENT is made as of the 7<sup>TH</sup> day of June, 2002, by and
between Inhale Therapeutic Systems, Inc., a Delaware corporation (the &#147;<b><font style="font-weight:bold;">Company</font></b>&#148;)
and AFAC Equity, L.P., a Delaware limited partnership (the &#147;<b><font style="font-weight:bold;">Investor</font></b>&#148;).</font></p>

<p style="margin:12.0pt 0in .0001pt;text-align:center;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">RECITALS</font></u></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">WHEREAS, the
Company and McKinsey &amp; Company, Inc. United States, an affiliate of the
Investor (&#147;<b><font style="font-weight:bold;">McKinsey</font></b>&#148;) are parties to a certain confidentiality agreement
effective as of April 9, 2002 and a letter agreement dated May 23, 2002
(collectively, the &#147;<b><font style="font-weight:bold;">Consulting Agreement</font></b>&#148;); and</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">WHEREAS, the
Company and Investor are parties to that certain Common Stock Purchase
Agreement dated as of the date hereof the &#147;<b><font style="font-weight:bold;">Purchase
Agreement</font></b>&#148;) pursuant to which the Company shall issue Thirty-Two
Thousand Two Hundred Eighty-Eight (32,288) shares of Company common stock (the
&#147;Shares&#148;) to the Investor in partial consideration of services provided by
McKinsey to the Company; and</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">WHEREAS, the
Purchase Agreement provides that the Company and the Investor will enter into a
registration rights agreement in form and substance reasonably satisfactory to
both parties;</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">NOW, THEREFORE, in
consideration of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Registration
Rights</u>.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.1 <u>Definitions</u>.&nbsp; For
purposes of this Section&nbsp;1:</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">Act</font></b>&#148; means the Securities Act
of 1933, as amended.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">Holder</font></b>&#148; means any person
owning Registrable Securities or any assignee thereof in accordance with
Section&nbsp;1.9 hereof.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">1934 Act</font></b>&#148; means the
Securities Exchange Act of 1934, as amended.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(d)&#160;&#160; The terms &#147;<b><font style="font-weight:bold;">register</font></b>,&#148; &#147;<b><font style="font-weight:bold;">registered</font></b>,&#148;
and &#147;<b><font style="font-weight:bold;">registration</font></b>&#148;
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration
or ordering of effectiveness of such registration statement or document.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(e)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">Registrable Securities</font></b>&#148; means
(i)&nbsp;the Shares and (ii)&nbsp;any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to,
or in exchange for, or in replacement of, the Shares.&#160; Notwithstanding the foregoing, Registrable Securities shall not
include (i) any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 or sold in a private transaction in which
the transferor&#146;s rights under Section 1 of this Agreement are not assigned;
(ii) any securities for which the rights of a Holder have terminated pursuant
to Section 1.10 herein.</font></h3>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=10,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=223774,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(f)&#160;&#160;&#160; The number of shares of &#147;Registrable
Securities&#148; outstanding shall be determined by the number of shares of Common
Stock outstanding that are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities that are, Registrable
Securities.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(g)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">SEC</font></b>&#148; shall mean the
Securities and Exchange Commission.</font></h3>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.2 <u>Company Registration</u>.</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; If (but without any obligation to do so) the
Company proposes (i) to register for its own account any of its common stock
under the Act in connection with an underwritten public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan or a registration relating to a
corporate reorganization, merger or other transaction under Rule&nbsp;145 of
the Act) (a &#147;<b><font style="font-weight:bold;">Company Offering</font></b>&#148;);
or (ii) to register the offering of its common stock by stockholders of the
Company other than the Holders (&#147;<b><font style="font-weight:bold;">Other
Selling Stockholders</font></b>&#148;) other than in connection with a Company
Offering or a registration relating solely to the sale of securities to
participants in a Company stock plan or a registration relating to a corporate
reorganization, merger or other transaction under Rule&nbsp;145 of the Act (a &#147;<b><font style="font-weight:bold;">Secondary Offering</font></b>&#148;), the Company shall, at
such time, promptly give each Holder written notice of such Company Offering or
Secondary Offering, as applicable.&#160; Upon
the written request of each Holder given within fifteen (15) days after mailing
of such notice by the Company in accordance with Section&nbsp;2.5, the Company
shall, subject to the provisions of Section&nbsp;1.2(b) and other restrictions
set forth herein, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.&#160; Notwithstanding the foregoing, the Company
shall have no obligation to notify the Holders, cause to be registered any
Registrable Securities, or undertake any other obligation in connection with
this Agreement in connection with (i) any proposed Company Offering in which
the proposed maximum offering price to the public exceeds <b><font style="font-weight:bold;">[80% of Purchase Price]</font></b> (as adjusted for
stock splits, combinations, dividends and the like occurring after the date
hereof); or (ii) any Secondary Offering made pursuant to that certain Preferred
Stock Purchase Agreement dated January 7, 2002 by and between the Company and
Enzon, Inc.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; <u>Underwriting Requirements</u>.&#160; In connection with any offering in which the
Holder would otherwise be permitted to include Registrable Securities pursuant
to this Section 1.2 involving an underwriting of shares of the Company&#146;s
capital stock, the Company shall not be required under this Section&nbsp;1.2 to
include any of the Holders&#146; securities in such underwriting unless they accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the underwriters)
and enter into an underwriting agreement in customary form with an underwriter
or underwriters selected by the Company, and then only in such quantity as the
underwriters determine in their sole discretion will not jeopardize the success
of the offering by the Company.&#160; If the
total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, that the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders
according to the total amount of securities entitled to be included therein
owned by each selling Holder or in such other proportions as shall mutually be
agreed to by such selling Holders), but in no event shall the amount of
securities of the selling Holders included in the offering be reduced below
fifteen percent (15%) of the total amount of securities included in such
offering. For purposes of the preceding parenthetical concerning apportionment,
for any selling stockholder that is a Holder of Registrable Securities and that
is a partnership or corporation, the partners, retired partners and
stockholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single &#147;selling Holder,&#148; and any pro
rata reduction with respect to such &#147;selling Holder&#148; shall be based upon the
aggregate amount of Registrable Securities owned by all such related entities
and individuals.</font></h3>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=11,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=911051,FOLIO='2',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.3 <u>Obligations of the Company</u>.&nbsp;
Whenever required under this Section&nbsp;1 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective until, with respect to a
Company Offering, the distribution of securities by the Company contemplated in
the registration statement is completed, or, with respect to a Secondary
Offering, the earlier of (i) the completion of the distribution contemplated in
the registration statement by the Other Selling Stockholders; (ii) the
termination of all Other Selling Stockholders&#146; rights to require registration
pursuant to such registration statement or (iii) the date 120 days following
the initial effective date of such registrations statement.&#160; Notwithstanding any other provision of this
Agreement, the Holders understand and acknowledge that there may be periods
during which the Company may determine, in good faith, based on the advice of
counsel, that it is in the best interest of the Company and its stockholders to
defer disclosure of non-public information until such information has reached a
more advanced stage and that during such periods sales of Registrable
Securities and the effectiveness of any registration statement covering
Registrable Securities, may be suspended or delayed.&#160; The Holders agree that upon receipt of any notice from the
Company of the development of any material non-public information, each Holder
will forthwith discontinue its disposition of Registrable Securities pursuant
to any such registration statement until such Holder&#146;s receipt of copies of an
appropriately supplemented or amended prospectus and, if so directed by the
Company, each Holder will use reasonable commercial efforts to deliver to the
Company all copies, of the prospectus relating to such Registerable Shares current
at the time of receipt of such notice;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160; furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(d)&#160;&#160; use reasonable commercial efforts to register
and qualify the securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(e)&#160;&#160; notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(f)&#160;&#160;&#160; cause all such Registrable Securities
registered pursuant to this Section 1 to be listed on each securities exchange
on which similar securities issued by the Company are then listed;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(g)&#160;&#160; provide a transfer agent and registrar for
all Registrable Securities registered pursuant to this Section&nbsp;1 and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration; and</font></h3>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=12,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=1045622,FOLIO='3',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(h)&#160;&#160; use reasonable commercial efforts to furnish,
at the request of any Holder requesting registration of Registrable Securities
pursuant to this Section&nbsp;1, on the date that such Registrable Securities
are delivered to the underwriters for sale in connection with a registration
pursuant to this Section&nbsp;1, if such securities are being sold through
underwriters, (i)&nbsp;an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, and (ii)&nbsp;a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.</font></h3>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.4 <u>Information from Holder</u>.&nbsp;
It shall be a condition precedent to the obligations of the Company to take any
action pursuant to this Section&nbsp;1 with respect to the Registrable
Securities of any selling Holder that such Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of such Holder&#146;s Registrable Securities.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.5 <u>Expenses of Registration</u>.&nbsp;
All expenses other than underwriting discounts, commissions and fees and
disbursements of counsel for the Selling Holders incurred in connection with
registrations, filings or qualifications pursuant to Section&nbsp;1.2,
including (without limitation) all registration, filing and qualification fees,
printers&#146; and accounting fees, fees and disbursements of counsel for the
Company shall be borne by the Company.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.6 <u>Delay of Registration</u>.&nbsp;
No Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this
Section&nbsp;1.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.7 <u>Indemnification</u>.&nbsp; In
the event any Registrable Securities are included in a registration statement
under this Section&nbsp;1:</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the partners or officers,
directors and stockholders of each Holder, any underwriter (as defined in the
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Act or the 1934 Act, against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the Act, the 1934 Act or any state securities laws, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively, a &#147;<b><font style="font-weight:bold;">Violation</font></b>&#148;): (i)&nbsp;any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii)&nbsp;the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or
(iii)&nbsp;any violation or alleged violation by the Company of the Act, the
1934 Act, any state securities laws or any rule or regulation promulgated under
the Act, the 1934 Act or any state securities laws; and the Company will
reimburse each such Holder, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; <i><font style="font-style:italic;">provided,
however</font></i>, that the indemnity agreement contained in this
subsection&nbsp;l.7(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.</font></h3>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=13,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=631317,FOLIO='4',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or any state securities
laws, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any person intended to be indemnified pursuant to this subsection
l.7(b), for any legal or other expenses reasonably incurred by such person in
connection with investigating or defending any such loss, claim, damage,
liability or action; <i><font style="font-style:italic;">provided, however</font></i>, that the indemnity
agreement contained in this subsection&nbsp;l.7(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), provided that in no event shall any indemnity
under this subsection&nbsp;l.7(b) exceed the gross proceeds from the offering
received by such Holder.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160; Promptly after receipt by an indemnified
party under this Section&nbsp;1.7 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section&nbsp;1.7, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; <i><font style="font-style:italic;">provided, however</font></i>, that an
indemnified party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding.&#160; The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section&nbsp;1.7, but the
omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section&nbsp;1.7.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(d)&#160;&#160; If the indemnification provided for in this
Section&nbsp;1.7 is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any loss, liability, claim, damage or
expense referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage or expense, as well as any other
relevant equitable considerations.&#160; The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties&#146; relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(e)&#160;&#160; The obligations of the Company and Holders
under this Section&nbsp;1.7 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section&nbsp;1,
and otherwise.</font></h3>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=14,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=819507,FOLIO='5',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.8 <u>Rule 144 Reporting</u>.&nbsp;
With a view to making available to the Holders the benefits of Rule&nbsp;144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act; and</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i)&nbsp;a written
statement by the Company that it has complied with the reporting requirements
of SEC Rule&nbsp;144 (at any time after ninety (90) days after the effective
date of the first registration statement filed by the Company for an offering
of its securities to the general public), the Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), (ii)&nbsp;a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii)&nbsp;such other
information as may be reasonably requested in availing any Holder of any rule
or regulation of the SEC that permits the selling of any such securities
without registration or pursuant to such form.</font></h3>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.9 <u>Assignment of Registration
Rights</u>.&nbsp; The rights to cause the Company to register Registrable
Securities pursuant to this Section&nbsp;1 may be assigned (but only with all
related obligations) by a Holder only to an affiliate of the Investor or
McKinsey (an &#147;<b><font style="font-weight:bold;">Affiliate</font></b>&#148;),
provided: (a)&nbsp;the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
Affiliate and the securities with respect to which such registration rights are
being assigned; (b)&nbsp;such Affiliate agrees in writing to be bound by and
subject to the terms and conditions of this Agreement, including without
limitation the provisions of Section&nbsp;1.10 below; and (c)&nbsp;such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted
under the Act.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.10 <u>Termination of Registration
Rights</u>.&nbsp; The Company&#146;s obligations under this Section 1 to effect the
registration of any Registrable Securities shall terminate as to any Holder at
such time as all the Registrable Securities held by such Holder are eligible
for sale under Rule 144.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Miscellaneous</u>.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.1 <u>Successors and Assigns</u>.&nbsp;
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of any shares of Registrable
Securities).&#160; Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.2 <u>Governing Law</u>.&nbsp; This
Agreement shall be governed by, and construed and enforced in accordance with
the internal laws of the State of California, without reference to conflicts of
law provisions thereof.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.3 <u>Counterparts</u>.&nbsp; This
Agreement may be executed by facsimile and in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.4 <u>Titles and Subtitles</u>.&nbsp;
The titles and subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=15,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=250452,FOLIO='6',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.5 <u>Notices</u>.&nbsp; Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon delivery by confirmed facsimile
transmission, nationally recognized overnight courier service, or upon deposit
with the United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address indicated for
such party on the signature page hereof, or at such other address as such party
may designate by ten (10) days&#146; advance written notice to the other parties.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.6 <u>Expenses</u>.&nbsp; If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorneys&#146;
fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.7 <u>Entire Agreement: Amendments
and Waivers</u>.&nbsp; This Agreement, the Purchase Agreement, the Consulting
Agreement and the agreements referenced therein constitute the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and thereof.&#160; Any term of this
Agreement may be amended and the observance of any terms of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least two&#150;thirds of the Registrable Securities. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities each future holder of all such
Registrable Securities, and the Company.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.8 <u>Severability</u>.&nbsp; If one
or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.9 <u>Aggregation of Stock</u>.&nbsp;
All shares of Registrable Securities held or acquired by affiliated entities or
persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=16,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=639887,FOLIO='7',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date first above written.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="102%" style="border-collapse:collapse;width:102.76%;">
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="44%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:44.18%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">THE COMPANY</font></b><font size="2" style="font-size:10.0pt;text-transform:uppercase;">:</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="44%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:44.18%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="44%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:44.18%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">INHALE THERAPEUTIC SYSTEMS, INC.</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="38%" colspan="4" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:38.4%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ AJIT S. GILL</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="44%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:44.18%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name: Ajit S. Gill</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="44%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:44.18%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title: Chief Executive Officer and President</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.04%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="35%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:35.16%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">150 Industrial Road</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.04%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="35%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:35.16%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">San Carlos, CA 94070</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">THE
  INVESTOR:</font></b></p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">AFAC
  EQUITY, L.P.</font></b></p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="44%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:44.18%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="44%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:44.18%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="38%" colspan="4" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:38.4%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/&#160; BRIAN M.
  FEUER</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="6%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:6.88%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name:</font></p>
  </td>
  <td width="37%" colspan="3" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:37.32%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Brian M. Feuer</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="5%" valign="top" style="padding:0in .7pt 0in .7pt;width:5.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title:</font></p>
  </td>
  <td width="38%" colspan="4" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:38.4%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Attorney-in-Fact</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="22%" valign="top" style="padding:0in .7pt 0in .7pt;width:22.1%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.04%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="35%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:35.16%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">c/o McKinsey &amp; Company</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.04%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="35%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:35.16%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">55 East 52<sup>nd</sup> Street, 27<sup>th</sup>
  Floor</font></p>
  </td>
 </tr>
 <tr>
  <td width="51%" valign="top" style="padding:0in .7pt 0in .7pt;width:51.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="3%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:3.9%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.04%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="35%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:35.16%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">New York, New York 10022</font></p>
  </td>
 </tr>
 <tr height="0">
  <td width="385" style="border:none;"></td>
  <td width="29" style="border:none;"></td>
  <td width="43" style="border:none;"></td>
  <td width="8" style="border:none;"></td>
  <td width="16" style="border:none;"></td>
  <td width="97" style="border:none;"></td>
  <td width="164" style="border:none;"></td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>


<div align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=17,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2",CHK=916309,FOLIO='8',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-21_2355.CHC",USER="DROCCON",CD='Nov 12 21:09 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

</div>

<BR>
<!-- SEQ=,FILE='QUICKLINK',USER=DROCCON,SEQ=,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="2" -->
<!-- TOCEXISTFLAG -->
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.22
<SEQUENCE>4
<FILENAME>a2093292zex-4_22.htm
<DESCRIPTION>EX-4.22
<TEXT>
<HTML>
<HEAD>

</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>

<div>

<p align="right" style="font-weight:bold;margin:12.0pt 0in 6.0pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">Exhibit 4.22</font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">INHALE THERAPEUTIC SYSTEMS, INC.</font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">AND</font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">AFAC EQUITY, L.P.</font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<div align="center" style="font-family:'Times New Roman';">

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="100%" valign="top" style="border:none;border-top:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:100.0%;">
  <p align="center" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="100%" valign="top" style="padding:0in .7pt 0in .7pt;width:100.0%;">
  <p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">COMMON
  STOCK PURCHASE AGREEMENT</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="100%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:100.0%;">
  <p align="center" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
</table>

</div>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">July 9, 2002</font></b></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=1,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=303769,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">INHALE
THERAPEUTIC SYSTEMS, INC.</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">COMMON
STOCK PURCHASE AGREEMENT</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman Bold" style="font-size:10.0pt;font-weight:bold;">&#160;THIS COMMON STOCK PURCHASE AGREEMENT</font></b> <font size="2" style="font-size:10.0pt;">(this &#147;Agreement&#148;) is made as of July 9, 2002, by and
between <b><font style="font-weight:bold;text-transform:uppercase;">Inhale Therapeutic Systems, Inc.</font></b>, a
Delaware corporation with its principal office at 150 Industrial Road, San
Carlos, California 94070 (the &#147;Company&#148;), and <b><font style="font-weight:bold;text-transform:uppercase;">AFAC Equity L.P</font></b>. a Delaware limited
partnership with its offices c/o McKinsey &amp; Company, Inc. United States at
55 East 52<sup>nd</sup> Street, 27<sup>th</sup> Floor, New York, New York 10022
(&#147;AFAC&#148; or, the &#147;Purchaser&#148;).</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">RECITALS</font></b></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">WHEREAS</font></b><font size="2" style="font-size:10.0pt;">, the Company and McKinsey &amp; Company, Inc. United States, an
affiliate of AFAC (&#147;McKinsey&#148;) have entered into that certain Confidentiality
Agreement dated April 9, 2002 and that certain letter agreement dated May 23,
2002 with respect to the performance of certain consulting services by McKinsey
(collectively, the &#147;Related Agreements&#148;); and</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">WHEREAS</font></b><font size="2" style="font-size:10.0pt;">, in connection with the Related Agreements, the Company desires to
issue to AFAC and AFAC desires to acquire from the Company shares of common
stock of the Company, on the terms and subject to the conditions set forth in
this Agreement.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">NOW, THEREFORE</font></b><font size="2" style="font-size:10.0pt;">, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; PURCHASE
OF COMMON STOCK.</font></b></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Agreement
to Sell and Purchase.</font></b><font size="2" style="font-size:10.0pt;">&#160; At the Closing (as hereinafter
defined), the Company will sell to AFAC and AFAC will purchase from the Company
Thirty-Five Thousand Three Hundred Fifty-Two (35,352) shares of the common
stock of the Company (the &#147;Common Stock&#148;) in exchange for services rendered by
McKinsey.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Closing;
Closing Date.&#160; </font></b><font size="2" style="font-size:10.0pt;">The completion of the sale and purchase
of the Common Stock (the &#147;Closing&#148;) shall be held at 9:00 a.m. (Pacific Time)
on the date hereof (the &#147;Closing Date&#148;), at the offices of Cooley Godward LLP,
3175 Hanover Street, Palo Alto, California, or at such other time and place as
the Company and the Purchasers may agree.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Delivery.&#160; </font></b><font size="2" style="font-size:10.0pt;">At the Closing, subject to the terms and conditions
hereof, the Company will deliver to AFAC a stock certificate dated as of the
Closing Date.</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=2,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=469995,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Except as otherwise
specifically disclosed to the Purchasers in writing on the date hereof, the
Company hereby represents and warrants to the Purchasers as follows:</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Authorization.&#160; </font></b><font size="2" style="font-size:10.0pt;">All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement and the Registration Rights Agreement by and
between the Company and AFAC dated as of the date hereof in the form set forth
as Exhibit A (the &#147;Registration Rights Agreement&#148;) has been taken.&#160; The Company has the requisite corporate
power to enter into this Agreement and the Registration Rights Agreement and
carry out and perform its obligations under the terms of this Agreement and the
Registration Rights Agreement.&#160; At the
Closing, the Company will have the requisite corporate power to issue and sell
the Common Stock.&#160; This Agreement and
the Registration Rights Agreement have been duly authorized, executed and
delivered by the Company and, upon due execution and delivery by the
Purchasers, this Agreement and the Registration Rights Agreement will be valid
and binding agreements of the Company, except as enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors&#146; rights generally or by equitable principles.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Organization,
Good Standing and Qualification. </font></b><font size="2" style="font-size:10.0pt;">&#160;The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.&#160; The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would have a material adverse effect on its
business or properties.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Valid
Issuance of Common Stock. </font></b><font size="2" style="font-size:10.0pt;">&#160;The Common
Stock, when issued, sold and delivered in accordance with the terms hereof will
be duly and validly authorized and issued, fully paid and nonassessable.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Offering.&#160; </font></b><font size="2" style="font-size:10.0pt;">Assuming the accuracy of the representations of the
Purchasers in Section 3.3 of this Agreement on the date hereof and on the
Closing Date, the offer, issue and sale of the Common Stock are and will be exempt
from the registration and prospectus delivery requirement of the Securities Act
and have been or will be registered or qualified (or are or will be exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; REPRESENTATIONS
AND WARRANTIES OF THE PURCHASERS.</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Purchaser hereby represents and warrants to the
Company as follows:</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Legal
Power.</font></b><font size="2" style="font-size:10.0pt;">&#160; Purchaser has the requisite corporate power
and authority to enter into this Agreement and the Registration Rights
Agreement, to carry out and perform its obligations under the terms of this
Agreement and the Registration Rights Agreement.&#160; All action on Purchaser&#146;s part required for the lawful execution
and delivery of this Agreement and the Registration Rights Agreement have been
or will be effectively taken prior to the Closing.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Due
Execution.</font></b><font size="2" style="font-size:10.0pt;">&#160; This Agreement and the Registration Rights
Agreement have been duly authorized, executed and delivered by the Purchaser,
and, upon due execution and delivery by the Company, this Agreement and
Registration Rights Agreement will be valid and</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=3,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=439340,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">binding agreements
of Purchaser, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors&#146;
rights generally or by equitable principles.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Investment
Representations.</font></b><font size="2" style="font-size:10.0pt;">&#160; In connection with the sale and issuance of
the Common Stock, Purchaser makes the following representations to the Company:</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Investment for Own Account.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser is acquiring the Common Stock for its own
account, not as nominee or agent, for investment and not with a view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Transfer Restrictions; Legends.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser understands that (i) the Common Stock has
not been registered under the Securities Act; (ii) the Common Stock is being
offered and sold pursuant to an exemption from registration and that the Common
Stock must be held by Purchaser indefinitely, and that Purchaser must,
therefore, bear the economic risk of such investment indefinitely, unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration; (iii) each certificate representing the Common
Stock will be endorsed with the following legends:</font></p>

<p align="left" style="margin:12.0pt .5in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE &#147;ACT&#148;), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.&#160; THESE SECURITIES ARE SUBJECT TO RESTRICTIONS
ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.&#160;
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.</font></p>

<p align="left" style="margin:12.0pt .5in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">and (iv) the
Company will instruct any transfer agent not to register the transfer of the
Common Stock (or any portion thereof) unless the conditions specified in the
foregoing legend are satisfied, until such time as a transfer is made, pursuant
to the terms of this Agreement, and in compliance with Rule 144 under the
Securities Act or pursuant to a registration statement or, if the opinion of
counsel referred to above is to the further effect that such legend is not
required in order to establish compliance with any provisions of the Securities
Act or this Agreement, or other satisfactory assurances of such nature are
given to the Company.&#160; Unless otherwise
required by applicable securities laws, the Company shall be obligated, at the
request of Purchaser, to cause the transfer agent to reissue unlegended
certificates with respect to the Common Stock if (A) Purchaser shall have
obtained an opinion of counsel reasonably acceptable to the Company to the
effect that the Common Stock with respect to which unlegended certificates are
to be issued may lawfully be disposed of without registration, qualification or</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=4,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=859065,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">legend; or (B) the
Common Stock can be sold without restriction as to the number of securities
sold under Rule 144(k).&#160; Further, the
Company will instruct the transfer agent to remove the legend on Common Stock
(A) upon the sale of such Common Stock pursuant to an effective registration
statement, provided the transfer agent and Company have received evidence or
assurances of such sale in a form satisfactory to the transfer agent and the
Company or (ii) upon the sale of such Common Stock pursuant to Rule 144 under
the Securities Act, provided the transfer agent and the Company have received
evidence or assurances from Purchaser of compliance with Rule 144 in a form
satisfactory to the transfer agent and the Company.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Financial Sophistication.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the investment in connection with the transactions contemplated in this
Agreement.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (d)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Accredited Investor Status.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser is an &#147;accredited investor&#148; as such term is
defined in Rule 501(a) of the rules and regulations promulgated under the
Securities Act.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; No Brokers.
</font></b><font size="2" style="font-size:10.0pt;">&#160;No broker, finder or investment banker is entitled
to any brokerage, finder&#146;s or other fee or commission in connection with the
transactions contemplated by this Agreement based on arrangements made by
Purchaser.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Conditions
to Closing.</font></b></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Conditions
to Obligations of Purchasers at Closing. </font></b><font size="2" style="font-size:10.0pt;">AFAC&#146;s obligation to purchase the Common Stock at the
Closing is subject to the fulfillment to the Purchaser&#146;s satisfaction, on or
prior to the Closing, of all of the following conditions, any of which may be
waived by Purchaser:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <b><font style="font-weight:bold;">(a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Representations
and Warranties True; Performance of Obligations.&#160; </font></b>The representations and warranties made by the Company
in Section 2 hereof shall be true and correct in all material respects on the
Closing Date with the same force and effect as if they had been made on and as
of said date and the Company shall have performed and complied with all
obligations and conditions herein required to be performed or complied with by
it on or prior to the Closing.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (b) &#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Registration Rights Agreement.&#160; </font></b><font size="2" style="font-size:10.0pt;">The Company shall have
executed and delivered the Registration Rights Agreement in the form attached
hereto as Exhibit A.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Qualifications,
Legal Investment. </font></b><font size="2" style="font-size:10.0pt;">&#160;All authorizations, approvals, or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful sale and issuance
of the Common Stock shall have been duly obtained and shall be effective on and
as of the Closing.&#160; No stop order or
other order enjoining the sale of the Common Stock shall have been issued and
no proceedings for such purpose shall be pending or, to the knowledge of the
Company, threatened by the SEC, or any commissioner of corporations or similar
officer of any state having jurisdiction over this</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=5,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=304266,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">transaction.&#160; At the time of the Closing, the sale and
issuance of the Common Stock shall be legally permitted by all laws and
regulations to which Purchaser and the Company are subject.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Conditions
to Obligations of the Company.&#160; </font></b><font size="2" style="font-size:10.0pt;">The Company&#146;s obligation to issue and
sell the Common Stock at the Closing is subject to the fulfillment to the
Company&#146;s satisfaction, on or prior to the Closing of the following conditions,
any of which may be waived by the Company:</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (a)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Representations and Warranties True. </font></b><font size="2" style="font-size:10.0pt;">&#160;The representations and warranties made by Purchaser in Section 3
hereof shall be true and correct in all material respects on the Closing Date
with the same force and effect as if they had been made on and as of said date.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <b><font style="font-weight:bold;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Performance
of Obligations.&#160; </font></b>Purchaser
shall have performed and complied with all agreements and conditions herein
required to be performed or complied with by them on or before the Closing.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; (c)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Registration Rights Agreement.&#160; </font></b><font size="2" style="font-size:10.0pt;">Purchaser shall have
executed and delivered the Registration Rights Agreement in the form attached
hereto as Exhibit A.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(d)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Qualifications,
Legal Investment.&#160; </font></b><font size="2" style="font-size:10.0pt;">All authorizations, approvals, or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Common Stock shall have been duly obtained and shall be
effective on and as of the Closing.&#160; No
stop order or other order enjoining the sale of the Common Stock shall have
been issued and no proceedings for such purpose shall be pending or, to the
knowledge of the Company, threatened by the SEC, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction.&#160; At the time of the
Closing, the sale and issuance of the Common Stock shall be legally permitted
by all laws and regulations to which the Purchaser and the Company are subject.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; MISCELLANEOUS.</font></b></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Governing
Law. </font></b><font size="2" style="font-size:10.0pt;">&#160;This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without
regard to the choice of law provisions thereof, and the federal laws of the
United States.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Successors
and Assigns.&#160; </font></b><font size="2" style="font-size:10.0pt;">Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Entire
Agreement.&#160; </font></b><font size="2" style="font-size:10.0pt;">This Agreement, the Registration Rights
Agreement, the Related Agreements and the exhibits hereto and thereto, and the
other documents delivered pursuant hereto, constitutes the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and no party shall be liable or bound to any other party in any manner
by any representations, warranties, covenants, or agreements except as specifically
set</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=6,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=507984,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">forth herein or
therein.&#160; Nothing in this Agreement,
express or implied, is intended to confer upon any party, other than the
parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Severability.</font></b><font size="2" style="font-size:10.0pt;">&#160;
In the event any provision of this Agreement shall be invalid, illegal,
or unenforceable, it shall to the extent practicable, be modified so as to make
it valid, legal and enforceable and to retain as nearly as practicable the
intent of the parties, and the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Amendment
and Waiver.</font></b><font size="2" style="font-size:10.0pt;">&#160; Except as otherwise provided herein, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or indefinitely),
with the written consent of the Company and Purchaser.&#160; Any amendment or waiver effected in
accordance with this Section shall be binding upon any holder of any securities
purchased under this Agreement, each future holder of all such securities, and
the Company.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.6.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Notices.&#160; </font></b><font size="2" style="font-size:10.0pt;">Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address first indicated for such party above, or at such other
address as such party may designate by ten (10) days&#146; advance written notice to
the other parties.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.7.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Fees
and Expenses. </font></b><font size="2" style="font-size:10.0pt;">&#160;The Company and Purchaser shall bear their
own expenses and legal fees incurred on their behalf with respect to this
Agreement and the transactions contemplated hereby.&#160; Each party hereby agrees to indemnify and to hold harmless of and
from any liability the other party for any commission or compensation in the
nature of a finder&#146;s fee to any broker or other person or firm (and the costs
and expenses of defending against such liability or asserted liability) for
which such indemnifying party or any of its employees or representatives are
responsible.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.8.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Counterparts.&#160; </font></b><font size="2" style="font-size:10.0pt;">This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=7,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=346325,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="font-family:'Times New Roman';margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">In Witness Whereof</font></b><font size="2" style="font-size:10.0pt;">, the foregoing Common Stock Purchase
Agreement is hereby executed as of the date first above written.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;font-family:'Times New Roman';width:100.0%;">
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">THE COMPANY:</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">INHALE
  THERAPEUTIC SYSTEMS, INC.</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="26%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:26.56%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="26%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:26.56%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.44%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="43%" colspan="6" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:43.34%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ AJIT S. GILL</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name: Ajit S. Gill</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title: Chief Executive Officer and President</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="37%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">150 Industrial Road</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">San Carlos, CA 94070</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="26%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:26.56%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="font-weight:bold;margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">THE PURCHASER:</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="font-size:12.0pt;font-weight:bold;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="47%" colspan="7" valign="top" style="padding:0in .7pt 0in .7pt;width:47.78%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">AFAC </font></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">EQUITY<font style="text-transform:uppercase;">, L.P.</font></font></b></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="26%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:26.56%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="26%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:26.56%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.44%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="43%" colspan="6" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:43.34%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/&#160; BRIAN M. FEUER</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="7%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="40%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:40.02%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="6%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:6.64%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name:</font></p>
  </td>
  <td width="41%" colspan="4" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:41.14%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Brian M. Feuer</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="7%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:7.76%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="40%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:40.02%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="5%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:5.54%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title:</font></p>
  </td>
  <td width="42%" colspan="5" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:42.24%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Attorney-in-Fact</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="26%" colspan="6" valign="top" style="padding:0in .7pt 0in .7pt;width:26.56%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="21%" valign="top" style="padding:0in .7pt 0in .7pt;width:21.22%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="37%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">c/o McKinsey &amp; Company</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">55 East 52<sup>nd</sup> Street, 27<sup>th</sup> Floor</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.22%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="9%" colspan="5" valign="bottom" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;text-indent:0in;">&nbsp;</p>
  </td>
  <td width="37%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:37.8%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">New York, NY 10022</font></p>
  </td>
 </tr>
 <tr height="0">
  <td width="361" style="border:none;"></td>
  <td width="16" style="border:none;"></td>
  <td width="32" style="border:none;"></td>
  <td width="8" style="border:none;"></td>
  <td width="8" style="border:none;"></td>
  <td width="8" style="border:none;"></td>
  <td width="16" style="border:none;"></td>
  <td width="120" style="border:none;"></td>
  <td width="153" style="border:none;"></td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div align="left" style="margin:0in 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=8,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=937902,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">EXHIBIT
A</font></b></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">REGISTRATION RIGHTS AGREEMENT</font></b></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=9,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=1036797,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p style="font-weight:bold;margin:12.0pt 0in 6.0pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">EXHIBIT
A</font></b></p>

<p style="font-weight:bold;margin:12.0pt 0in;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">REGISTRATION
RIGHTS AGREEMENT</font></b></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">THIS REGISTRATION
RIGHTS AGREEMENT is made as of the 9<sup>TH</sup> day of July, 2002, by and
between Inhale Therapeutic Systems, Inc., a Delaware corporation (the &#147;<b><font style="font-weight:bold;">Company</font></b>&#148;)
and AFAC Equity, L.P., a Delaware limited partnership (the &#147;<b><font style="font-weight:bold;">Investor</font></b>&#148;).</font></p>

<p style="margin:12.0pt 0in .0001pt;text-align:center;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">RECITALS</font></u></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">WHEREAS, the
Company and McKinsey &amp; Company, Inc. United States, an affiliate of the
Investor (&#147;<b><font style="font-weight:bold;">McKinsey</font></b>&#148;) are parties to a certain confidentiality agreement
effective as of April 9, 2002 and a letter agreement dated May 23, 2002
(collectively, the &#147;<b><font style="font-weight:bold;">Consulting Agreement</font></b>&#148;); and</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">WHEREAS, the
Company and Investor are parties to that certain Common Stock Purchase
Agreement dated as of the date hereof the &#147;<b><font style="font-weight:bold;">Purchase
Agreement</font></b>&#148;) pursuant to which the Company shall issue Thirty-Five
Thousand Three Hundred Fifty-Two (35,352) shares of Company common stock (the
&#147;Shares&#148;) to the Investor in partial consideration of services provided by
McKinsey to the Company; and</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">WHEREAS, the
Purchase Agreement provides that the Company and the Investor will enter into a
registration rights agreement in form and substance reasonably satisfactory to
both parties;</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">NOW, THEREFORE, in
consideration of the mutual promises and covenants set forth herein, the
parties hereto agree as follows:</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <u>Registration
Rights</u>.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.1 <u>Definitions</u>.&nbsp; For
purposes of this Section&nbsp;1:</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">Act</font></b>&#148; means the Securities Act
of 1933, as amended.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">Holder</font></b>&#148; means any person
owning Registrable Securities or any assignee thereof in accordance with
Section&nbsp;1.9 hereof.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">1934 Act</font></b>&#148; means the
Securities Exchange Act of 1934, as amended.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(d)&#160;&#160; The terms &#147;<b><font style="font-weight:bold;">register</font></b>,&#148; &#147;<b><font style="font-weight:bold;">registered</font></b>,&#148;
and &#147;<b><font style="font-weight:bold;">registration</font></b>&#148;
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration
or ordering of effectiveness of such registration statement or document.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(e)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">Registrable Securities</font></b>&#148; means
(i)&nbsp;the Shares and (ii)&nbsp;any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to,
or in exchange for, or in replacement of, the Shares.&#160; Notwithstanding the foregoing, Registrable Securities shall not
include (i) any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 or sold in a private transaction in which
the transferor&#146;s rights under Section 1 of this Agreement are not assigned;
(ii) any securities for which the rights of a Holder have terminated pursuant
to Section 1.10 herein.</font></h3>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=10,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=414038,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(f)&#160;&#160;&#160; The number of shares of &#147;Registrable
Securities&#148; outstanding shall be determined by the number of shares of Common
Stock outstanding that are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities that are, Registrable
Securities.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(g)&#160;&#160; The term &#147;<b><font style="font-weight:bold;">SEC</font></b>&#148; shall mean the
Securities and Exchange Commission.</font></h3>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.2 <u>Company Registration</u>.</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; If (but without any obligation to do so) the
Company proposes (i) to register for its own account any of its common stock
under the Act in connection with an underwritten public offering of such
securities (other than a registration relating solely to the sale of securities
to participants in a Company stock plan or a registration relating to a
corporate reorganization, merger or other transaction under Rule&nbsp;145 of
the Act) (a &#147;<b><font style="font-weight:bold;">Company Offering</font></b>&#148;);
or (ii) to register the offering of its common stock by stockholders of the
Company other than the Holders (&#147;<b><font style="font-weight:bold;">Other Selling
Stockholders</font></b>&#148;) other than in connection with a Company Offering or a
registration relating solely to the sale of securities to participants in a
Company stock plan or a registration relating to a corporate reorganization,
merger or other transaction under Rule&nbsp;145 of the Act (a &#147;<b><font style="font-weight:bold;">Secondary Offering</font></b>&#148;), the Company shall, at
such time, promptly give each Holder written notice of such Company Offering or
Secondary Offering, as applicable.&#160; Upon
the written request of each Holder given within fifteen (15) days after mailing
of such notice by the Company in accordance with Section&nbsp;2.5, the Company
shall, subject to the provisions of Section&nbsp;1.2(b) and other restrictions
set forth herein, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.&#160; Notwithstanding the foregoing, the Company
shall have no obligation to notify the Holders, cause to be registered any
Registrable Securities, or undertake any other obligation in connection with
this Agreement in connection with (i) any proposed Company Offering in which
the proposed maximum offering price to the public exceeds <b><font style="font-weight:bold;">[80% of Purchase Price]</font></b> (as adjusted for
stock splits, combinations, dividends and the like occurring after the date
hereof); or (ii) any Secondary Offering made pursuant to that certain Preferred
Stock Purchase Agreement dated January 7, 2002 by and between the Company and
Enzon, Inc.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; <u>Underwriting Requirements</u>.&#160; In connection with any offering in which the
Holder would otherwise be permitted to include Registrable Securities pursuant
to this Section 1.2 involving an underwriting of shares of the Company&#146;s
capital stock, the Company shall not be required under this Section&nbsp;1.2 to
include any of the Holders&#146; securities in such underwriting unless they accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters) and enter into an underwriting agreement in customary form with
an underwriter or underwriters selected by the Company, and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company.&#160; If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling Holders according to the total amount of securities
entitled to be included therein owned by each selling Holder or in such other
proportions as shall mutually be agreed to by such selling Holders), but in no
event shall the amount of securities of the selling Holders included in the
offering be reduced below fifteen percent (15%) of the total amount of
securities included in such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder that is a
Holder of Registrable Securities and that is a partnership or corporation, the
partners, retired partners and stockholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single &#147;selling
Holder,&#148; and any pro rata reduction with respect to such &#147;selling Holder&#148; shall
be based upon the aggregate amount of Registrable Securities owned by all such
related entities and individuals.</font></h3>

<p style="margin:12.0pt 0in .0001pt;text-align:justify;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=11,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=498276,FOLIO='2',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="left" style="font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; <font size="2" face="Times New Roman" style="font-size:10.0pt;">1.3 <u>Obligations of the Company</u>.&nbsp; Whenever
required under this Section&nbsp;1 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective until, with respect to a
Company Offering, the distribution of securities by the Company contemplated in
the registration statement is completed, or, with respect to a Secondary
Offering, the earlier of (i) the completion of the distribution contemplated in
the registration statement by the Other Selling Stockholders; (ii) the
termination of all Other Selling Stockholders&#146; rights to require registration
pursuant to such registration statement or (iii) the date 120 days following
the initial effective date of such registrations statement.&#160; Notwithstanding any other provision of this
Agreement, the Holders understand and acknowledge that there may be periods
during which the Company may determine, in good faith, based on the advice of
counsel, that it is in the best interest of the Company and its stockholders to
defer disclosure of non-public information until such information has reached a
more advanced stage and that during such periods sales of Registrable
Securities and the effectiveness of any registration statement covering
Registrable Securities, may be suspended or delayed.&#160; The Holders agree that upon receipt of any notice from the
Company of the development of any material non-public information, each Holder
will forthwith discontinue its disposition of Registrable Securities pursuant
to any such registration statement until such Holder&#146;s receipt of copies of an
appropriately supplemented or amended prospectus and, if so directed by the
Company, each Holder will use reasonable commercial efforts to deliver to the
Company all copies, of the prospectus relating to such Registerable Shares
current at the time of receipt of such notice;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities covered
by such registration statement;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160; furnish to the Holders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(d)&#160;&#160; use reasonable commercial efforts to register
and qualify the securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or jurisdictions;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(e)&#160;&#160; notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(f)&#160;&#160;&#160; cause all such Registrable Securities
registered pursuant to this Section 1 to be listed on each securities exchange
on which similar securities issued by the Company are then listed;</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(g)&#160;&#160; provide a transfer agent and registrar for
all Registrable Securities registered pursuant to this Section&nbsp;1 and a
CUSIP number for all such Registrable Securities, in each case not later than
the effective date of such registration; and</font></h3>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=12,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=1040532,FOLIO='3',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(h)&#160;&#160; use reasonable commercial efforts to furnish,
at the request of any Holder requesting registration of Registrable Securities
pursuant to this Section&nbsp;1, on the date that such Registrable Securities
are delivered to the underwriters for sale in connection with a registration
pursuant to this Section&nbsp;1, if such securities are being sold through
underwriters, (i)&nbsp;an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, and (ii)&nbsp;a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.</font></h3>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.4 <u>Information from Holder</u>.&nbsp;
It shall be a condition precedent to the obligations of the Company to take any
action pursuant to this Section&nbsp;1 with respect to the Registrable
Securities of any selling Holder that such Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it, and
the intended method of disposition of such securities as shall be required to
effect the registration of such Holder&#146;s Registrable Securities.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.5 <u>Expenses of Registration</u>.&nbsp;
All expenses other than underwriting discounts, commissions and fees and
disbursements of counsel for the Selling Holders incurred in connection with
registrations, filings or qualifications pursuant to Section&nbsp;1.2,
including (without limitation) all registration, filing and qualification fees,
printers&#146; and accounting fees, fees and disbursements of counsel for the
Company shall be borne by the Company.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.6 <u>Delay of Registration</u>.&nbsp;
No Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this
Section&nbsp;1.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.7 <u>Indemnification</u>.&nbsp; In
the event any Registrable Securities are included in a registration statement
under this Section&nbsp;1:</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the partners or officers, directors
and stockholders of each Holder, any underwriter (as defined in the Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, a &#147;<b><font style="font-weight:bold;">Violation</font></b>&#148;): (i)&nbsp;any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii)&nbsp;the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or
(iii)&nbsp;any violation or alleged violation by the Company of the Act, the
1934 Act, any state securities laws or any rule or regulation promulgated under
the Act, the 1934 Act or any state securities laws; and the Company will
reimburse each such Holder, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; <i><font style="font-style:italic;">provided,
however</font></i>, that the indemnity agreement contained in this
subsection&nbsp;l.7(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation that occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.</font></h3>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=13,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=2872,FOLIO='4',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or any state securities
laws, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any person intended to be indemnified pursuant to this subsection
l.7(b), for any legal or other expenses reasonably incurred by such person in
connection with investigating or defending any such loss, claim, damage,
liability or action; <i><font style="font-style:italic;">provided, however</font></i>, that the indemnity
agreement contained in this subsection&nbsp;l.7(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), provided that in no event shall any indemnity
under this subsection&nbsp;l.7(b) exceed the gross proceeds from the offering
received by such Holder.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(c)&#160;&#160; Promptly after receipt by an indemnified
party under this Section&nbsp;1.7 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this
Section&nbsp;1.7, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; <i><font style="font-style:italic;">provided, however</font></i>, that an
indemnified party (together with all other indemnified parties that may be
represented without conflict by one counsel) shall have the right to retain one
separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding.&#160; The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section&nbsp;1.7, but the
omission so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section&nbsp;1.7.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(d)&#160;&#160; If the indemnification provided for in this
Section&nbsp;1.7 is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations.&#160; The relative
fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties&#146; relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(e)&#160;&#160; The obligations of the Company and Holders
under this Section&nbsp;1.7 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section&nbsp;1,
and otherwise.</font></h3>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=14,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=493780,FOLIO='5',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.8 <u>Rule 144 Reporting</u>.&nbsp;
With a view to making available to the Holders the benefits of Rule&nbsp;144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:</font></p>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(a)&#160;&#160; file with the SEC in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act; and</font></h3>

<h3 align="left" style="font-weight:normal;margin:12.0pt 0in .0001pt;text-align:left;text-indent:2.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(b)&#160;&#160; furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i)&nbsp;a written
statement by the Company that it has complied with the reporting requirements
of SEC Rule&nbsp;144 (at any time after ninety (90) days after the effective
date of the first registration statement filed by the Company for an offering
of its securities to the general public), the Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), (ii)&nbsp;a copy
of the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii)&nbsp;such other information as
may be reasonably requested in availing any Holder of any rule or regulation of
the SEC that permits the selling of any such securities without registration or
pursuant to such form.</font></h3>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.9 <u>Assignment of Registration
Rights</u>.&nbsp; The rights to cause the Company to register Registrable
Securities pursuant to this Section&nbsp;1 may be assigned (but only with all
related obligations) by a Holder only to an affiliate of the Investor or
McKinsey (an &#147;<b><font style="font-weight:bold;">Affiliate</font></b>&#148;),
provided: (a)&nbsp;the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
Affiliate and the securities with respect to which such registration rights are
being assigned; (b)&nbsp;such Affiliate agrees in writing to be bound by and
subject to the terms and conditions of this Agreement, including without
limitation the provisions of Section&nbsp;1.10 below; and (c)&nbsp;such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 1.10 <u>Termination of Registration
Rights</u>.&nbsp; The Company&#146;s obligations under this Section 1 to effect the
registration of any Registrable Securities shall terminate as to any Holder at
such time as all the Registrable Securities held by such Holder are eligible
for sale under Rule 144.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2. <u>Miscellaneous</u>.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.1 <u>Successors and Assigns</u>.&nbsp;
Except as otherwise provided herein, the terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties (including transferees of any shares of Registrable
Securities).&#160; Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.2 <u>Governing Law</u>.&nbsp; This
Agreement shall be governed by, and construed and enforced in accordance with
the internal laws of the State of California, without reference to conflicts of
law provisions thereof.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.3 <u>Counterparts</u>.&nbsp; This
Agreement may be executed by facsimile and in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.4 <u>Titles and Subtitles</u>.&nbsp;
The titles and subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=15,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=728257,FOLIO='6',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.5 <u>Notices</u>.&nbsp; Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal
delivery to the party to be notified or upon delivery by confirmed facsimile
transmission, nationally recognized overnight courier service, or upon deposit
with the United States Post Office, by registered or certified mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party on the signature page hereof, or at such other address as such party may
designate by ten (10) days&#146; advance written notice to the other parties.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.6 <u>Expenses</u>.&nbsp; If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorneys&#146;
fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.7 <u>Entire Agreement: Amendments
and Waivers</u>.&nbsp; This Agreement, the Purchase Agreement, the Consulting
Agreement and the agreements referenced therein constitute the full and entire
understanding and agreement among the parties with regard to the subjects
hereof and thereof.&#160; Any term of this
Agreement may be amended and the observance of any terms of this Agreement may
be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least two&#150;thirds of the Registrable Securities. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities each future holder of all such
Registrable Securities, and the Company.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.8 <u>Severability</u>.&nbsp; If one
or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; 2.9 <u>Aggregation of Stock</u>.&nbsp;
All shares of Registrable Securities held or acquired by affiliated entities or
persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>


<div align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=16,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=489854,FOLIO='7',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="center" style="font-family:'Times New Roman';font-size:12.0pt;margin:12.0pt 0in .0001pt;text-align:center;text-indent:0in;">&nbsp;</p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date first above written.</font></p>

<p align="left" style="margin:12.0pt 0in .0001pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;font-family:'Times New Roman';width:100.0%;">
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="43%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:43.3%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">THE COMPANY</font></b><font size="2" style="font-size:10.0pt;text-transform:uppercase;">:</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="43%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:43.3%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">INHALE THERAPEUTIC SYSTEMS, INC.</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.44%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="38%" colspan="4" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:38.86%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ AJIT S. GILL</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="43%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:43.3%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name: Ajit S. Gill</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="43%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:43.3%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title: Chief Executive Officer and President</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="33%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:33.32%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">150 Industrial Road</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="33%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:33.32%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">San Carlos, CA 94070</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="33%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:33.32%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="43%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:43.3%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">THE
  INVESTOR:</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="43%" colspan="5" valign="top" style="padding:0in .7pt 0in .7pt;width:43.3%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">AFAC
  EQUITY, L.P.</font></b></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.44%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="38%" colspan="4" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:38.86%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/&#160; BRIAN M.
  FEUER</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="6%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:6.66%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name:</font></p>
  </td>
  <td width="36%" colspan="3" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:36.64%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Brian M. Feuer</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="6%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:6.66%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title:</font></p>
  </td>
  <td width="36%" colspan="3" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:36.64%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Attorney-in-Fact</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="16%" colspan="4" valign="top" style="padding:0in .7pt 0in .7pt;width:16.62%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="26%" valign="top" style="padding:0in .7pt 0in .7pt;width:26.68%;">
  <p align="left" style="font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Address:</font></p>
  </td>
  <td width="33%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:33.32%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">c/o McKinsey &amp; Company</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="33%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:33.32%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">55 East 52<sup>nd</sup> Street, 27<sup>th</sup>
  Floor</font></p>
  </td>
 </tr>
 <tr>
  <td width="54%" valign="top" style="padding:0in .7pt 0in .7pt;width:54.44%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:2.26%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="9%" colspan="3" valign="top" style="padding:0in .7pt 0in .7pt;width:9.98%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
  <td width="33%" colspan="2" valign="top" style="padding:0in .7pt 0in .7pt;width:33.32%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">New York, New York 10022</font></p>
  </td>
 </tr>
 <tr height="0">
  <td width="393" style="border:none;"></td>
  <td width="16" style="border:none;"></td>
  <td width="32" style="border:none;"></td>
  <td width="16" style="border:none;"></td>
  <td width="24" style="border:none;"></td>
  <td width="48" style="border:none;"></td>
  <td width="193" style="border:none;"></td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>


<div align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="3" style="font-size:12.0pt;">
<!-- ZEQ.=1,SEQ=17,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3",CHK=670117,FOLIO='8',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX4-22_2355.CHC",USER="DROCCON",CD='Nov 12 21:10 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

</div>

<BR>
<!-- SEQ=,FILE='QUICKLINK',USER=DROCCON,SEQ=,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="3" -->
<!-- TOCEXISTFLAG -->
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.44
<SEQUENCE>5
<FILENAME>a2093292zex-10_44.htm
<DESCRIPTION>EX-10.44
<TEXT>
<HTML>
<HEAD>

</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>

<div>

<p align="right" style="margin:0in 0in .0001pt;text-align:right;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Exhibit 10.44</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">[*] = Certain confidential information
contained in this document, marked by brackets, has been omitted and filed
separately with the Securities and Exchange Commission pursuant to Rule 24b-2
of the Securities Exchange Act of 1934, as amended.</font></p>

<p align="left" style="margin:.5in 0in;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">July 31, 2002</font></p>

<p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Douglas H. Altschuler</font></p>

<p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2001 California Ave #403</font></p>

<p align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">San Francisco, California
94109</font></p>

<p align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dear Douglas:</font></p>

<p align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This letter sets forth
the substance of the separation agreement (the &#147;Agreement&#148;) which Inhale
Therapeutic Systems, Inc. (&#147;Inhale&#148; or the &#147;Company&#148;) is offering to you to aid
in your employment transition.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">1.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Resignation.</font></b><font size="2" style="font-size:10.0pt;">&#160; Your employment with the
Company will terminate upon the earlier (&#147;Termination Date&#148;) of:&#160; (a)&nbsp;your commencement of full-time
employment with another employer; or (b)&nbsp;June&nbsp;6, 2003.&#160; You agree to notify Inhale promptly upon
your acceptance of full-time employment before May 31, 2003.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">2.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Further Services.</font></b><font size="2" style="font-size:10.0pt;">&#160; [*]&#160; You agree to provide, upon Company request
at any time before the Termination Date, reasonable telephone consultation
services to the Company, in order to assist with the transition of
responsibility.&#160; Prior to the
Termination Date, you further agree to provide up to three days of personal
services, as requested by the Company, per calendar month at no additional
charge other than the usual and customary reimbursement of out-of-pocket
expenses.&#160; The Company further agrees to
pay you $1000.00 per day of additional compensation for any personal services
beyond three days per calendar month it may request.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">3.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Compensation and Benefits.</font></b><font size="2" style="font-size:10.0pt;">&#160;
Until the Termination Date, you will continue to accrue vacation and to
receive your current base salary (the &#147;Salary Continuance&#148;) and benefits,
except as follows.&#160; To the extent
provided by the federal COBRA law, and by the Company&#146;s current group health
insurance policies, as of the Termination Date you will be eligible to continue
your group health insurance benefits at your own expense.&#160; Later, you may be able to convert to an
individual policy through the provider of the Company&#146;s health insurance, if
you wish.&#160; You will not be eligible for,
and will not receive, any other form of compensation such as bonuses,
commissions or incentive compensation.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">4.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Stock Options.</font></b><font size="2" style="font-size:10.0pt;">&#160;
You were granted one or more options to purchase shares (post-split) of
the Company&#146;s common stock, pursuant to the Company&#146;s 2000 Equity Incentive
Plan (the &#147;Plan&#148;).&#160; Under the terms of
the Plan and your stock option grant, vesting will continue until the
Termination Date, at which time vesting will cease.&#160; Your rights to exercise any vested shares will be as set forth in
the Plan and your option grant.</font></p>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CONFIDENTIAL</font></b></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=1,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=802860,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Douglas H. Altschuler</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">July 31, 2002</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Page 2</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in 12.0pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Voicemail and Email Access.</font></b><font size="2" style="font-size:10.0pt;">&#160;
You will continue to have access to the Company&#146;s voicemail and email
facilities, including the use of the Company laptop computer, until the
Termination Date.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">6.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Accrued Salary And Vacation Pay.</font></b><font size="2" style="font-size:10.0pt;">&#160;
On the Termination Date, the Company will pay you all accrued salary,
and all accrued and unused vacation earned through the Termination Date,
subject to standard payroll deductions and withholdings.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">7.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Severance Payment.</font></b><font size="2" style="font-size:10.0pt;">&#160;
Although the Company has no policy or procedure for providing severance
benefits, in the event that you commence full-time employment with another
employer prior to June&nbsp;6, 2003, the Company will pay you, as severance, an
amount equivalent to your base salary from the Termination Date until
June&nbsp;6, 2003, subject to standard payroll deductions and withholdings
(&#147;Severance Payment&#148;).&#160; The Severance
Payment, if due, will be paid in a lump sum within ten (10) days after the
Termination Date.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">8.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Other Compensation or Benefits.</font></b><font size="2" style="font-size:10.0pt;">&#160;
You acknowledge that, except as expressly provided in this Agreement,
you will not receive any additional compensation, severance or benefits after
the Termination Date.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">9.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Expense Reimbursements.</font></b><font size="2" style="font-size:10.0pt;">&#160;
You agree that, within thirty (30) days of the Separation Date, you will
submit your final documented expense reimbursement statement reflecting all
business expenses you incurred through the Separation Date, if any, for which
you seek reimbursement.&#160; The Company
will reimburse you for these expenses pursuant to its regular business
practice.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">10.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Return of Company Property.</font></b><font size="2" style="font-size:10.0pt;">&#160;
By the Separation Date, you agree to return to the Company all Company
documents (and all copies thereof) and other Company property that you have had
in your possession at any time, including, but not limited to, Company files,
notes, drawings, records, business plans and forecasts, financial information,
specifications, computer-recorded information, tangible property (including,
but not limited to, computers), credit cards, entry cards, identification
badges and keys; and, any materials of any kind that contain or embody any
proprietary or confidential information of the Company (and all reproductions
thereof).</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">11.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Proprietary Information Obligations.</font></b><font size="2" style="font-size:10.0pt;"> You acknowledge your continuing
obligations under your Proprietary Information and Inventions Agreement,
including but not limited to your obligation not to use or disclose any
confidential or proprietary information of the Company.&#160; A copy of your Proprietary Information and
Inventions Agreement is attached hereto as Exhibit A.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">12.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Confidentiality.</font></b><font size="2" style="font-size:10.0pt;">&#160;
The provisions of this Agreement will be held in strictest confidence by
you and the Company and will not be publicized or disclosed in any manner
whatsoever; <i><font style="font-style:italic;">provided, however</font></i>,
that:&#160; (a)&nbsp;you may disclose this
Agreement to your immediate</font></p>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CONFIDENTIAL</font></b></p>


<div align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="3" style="font-size:12.0pt;">
<!-- ZEQ.=1,SEQ=2,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=72922,FOLIO='Page 2',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="left" style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Douglas H. Altschuler</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">July 31, 2002</font></p>

<p style="margin:0in 0in 12.0pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Page 3</font></p>

<p style="margin:0in 0in 12.0pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">family;
(b)&nbsp;the parties may disclose this Agreement in confidence to their
respective attorneys, accountants, auditors, tax preparers, and financial
advisors; (c)&nbsp;the Company may disclose this Agreement as necessary to
fulfill standard or legally required corporate reporting or disclosure
requirements; and (d)&nbsp;the parties may disclose this Agreement insofar as
such disclosure may be necessary to enforce its terms or as otherwise required
by law.&#160; In particular, and without limitation,
you agree not to disclose the terms of this Agreement to any current or former
Company employee.</font></p>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">13.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Nondisparagement.</font></b><font size="2" style="font-size:10.0pt;">&#160; <b><font style="font-weight:bold;">(a)</font></b>&nbsp;Both
you and the Company agree not to disparage the other party, and you further
agree not to disparage the Company&#146;s officers, directors, employees,
shareholders and agents, in any manner likely to be harmful to them or their
business, business reputation or personal reputation; and the Company further
agrees not to disparage you in any manner likely to be harmful to you or your
business, business reputation or personal reputation provided, further, that
both you and the Company will respond accurately and fully to any question,
inquiry or request for information when required by legal process.&#160; [*]</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">(b)&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font></b><font size="2" style="font-size:10.0pt;">[*].</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">14.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Mandatory Arbitration.</font></b><font size="2" style="font-size:10.0pt;">&#160;
Both you and the Company agree that any and all disputes arising from
your or the Company&#146;s breach or alleged breach of paragraphs 12 or 13 of this
Agreement shall be resolved, to the fullest extent permissible by law, by final
and binding confidential arbitration held in San Francisco, California through
the American Arbitration Association under its then-existing rules and
procedures.&#160; <b><font style="font-weight:bold;">Both you and the Company acknowledge that by agreeing to this arbitration
procedure, both you and the Company waive the right to resolve any such dispute
through a trial by judge or jury or administrative proceeding.</font></b>&#160; The arbitrator shall be authorized to award
any or all remedies that you or the Company would be entitled to seek in a
court of law.&#160; The prevailing party in
any such arbitration shall be entitled to seek recovery of his or its
attorney&#146;s fees and costs.&#160; Nothing in
this paragraph is intended to prevent either you or the Company from obtaining
injunctive relief in court to prevent irreparable harm pending the conclusion
of any such arbitration.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">15.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Release of Claims.</font></b><font size="2" style="font-size:10.0pt;">&#160;
In exchange for the Salary Continuance, COBRA Premiums, benefits
continuance, eligibility for the Severance Payment, and other consideration
under this Agreement to which you would not otherwise be entitled, and except
as otherwise set forth in this Agreement, you hereby release, acquit and
forever discharge the Company, its subsidiaries, and its and their respective
officers, directors, agents, servants, employees, attorneys, shareholders,
successors, assigns and affiliates, of and from any and all claims,
liabilities, demands, causes of action, costs, expenses, attorneys&#146; fees,
damages, indemnities and obligations of every kind and nature, in law, equity,
or otherwise, known and unknown, suspected and unsuspected, disclosed and
undisclosed, arising out of or in any way related to agreements, events, acts
or conduct at any time prior to and including the date you sign this Agreement,
including but not limited to:&#160; any and
all such claims and demands directly or indirectly arising</font></p>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CONFIDENTIAL</font></b></p>


<div align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="3" style="font-size:12.0pt;">
<!-- ZEQ.=1,SEQ=3,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=811260,FOLIO='Page 3',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="left" style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Douglas H. Altschuler</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">July 31, 2002</font></p>

<p style="margin:0in 0in 12.0pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Page 4</font></p>

<p align="left" style="margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">out of or in any
way connected with your employment with the Company or the termination of that
employment; claims or demands related to salary, bonuses, commissions, stock,
stock options, or any other ownership interests in the Company, vacation pay,
fringe benefits, expense reimbursements, sabbatical benefits, severance
benefits, or any other form of compensation; claims pursuant to any federal,
state, local law, statute or cause of action including, but not limited to, the
federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in
Employment Act of 1967, as amended (&#147;ADEA&#148;); the federal Americans with
Disabilities Act of 1990; the California Fair Employment and Housing Act, as
amended; tort law; contract law; wrongful discharge; discrimination; fraud;
defamation; harassment; emotional distress; and breach of the implied covenant
of good faith and fair dealing.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">16.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; ADEA Waiver.</font></b><font size="2" style="font-size:10.0pt;">&#160;
You acknowledge that you are knowingly and voluntarily waiving and
releasing any rights you may have under the ADEA, as amended.&#160; You also acknowledge that the consideration given
for the waiver and release in the preceding paragraph hereof is in addition to
anything of value to which you were already entitled.&#160; You further acknowledge that you have been advised by this
writing, as required by the ADEA, that:&#160;
(a)&nbsp;your waiver and release do not apply to any rights or claims
that may arise after the date you sign this Agreement; (b)&nbsp;you have been
advised hereby that you have the right to consult with an attorney prior to
executing this Agreement; (c)&nbsp;you have twenty-one (21) days to consider
this Agreement (although you may choose to voluntarily execute this Agreement
earlier); (d)&nbsp;you have seven (7) days following your execution of this
Agreement to revoke the Agreement (in writing); and (e)&nbsp;this Agreement
will not be effective until after the date upon which the revocation period has
expired, which will be the eighth day after this Agreement is executed by you,
provided that the Company has also executed this Agreement by that date.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">17.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Section 1542 Waiver.</font></b><font size="2" style="font-size:10.0pt;">&#160;
In giving the release described in Paragraphs 15 and 16, above, which
includes claims that may be unknown to you at present, you acknowledge that you
have read and understand Section 1542 of the California Civil Code which reads
as follows:&#160; <b><font style="font-weight:bold;">&#147;A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.&#148;</font></b>&#160; You hereby
expressly waive and relinquish all rights and benefits under that section and
any law or legal principle of similar effect in any jurisdiction with respect
to the release of unknown and unsuspected claims granted in this Agreement.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">18.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Post-Death Payment.</font></b><font size="2" style="font-size:10.0pt;">&#160; In the event
of your death, any balance then remaining under this Agreement which has not
yet been paid shall be due and payable to your parents, Dr.&nbsp;Gerald and/or
Phyllis Altschuler.</font></p>

<p align="left" style="font-family:'Times New Roman';margin:0in 0in 12.0pt;text-align:left;text-indent:.5in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">19.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; Miscellaneous.</font></b><font size="2" style="font-size:10.0pt;">&#160;
This Agreement, including its exhibit, constitutes the complete, final
and exclusive embodiment of the entire agreement between you and the Company
with regard to this subject matter.&#160; It
is entered into without reliance on any promise or representation,</font></p>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CONFIDENTIAL</font></b></p>


<div align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="3" style="font-size:12.0pt;">
<!-- ZEQ.=1,SEQ=4,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=763777,FOLIO='Page 4',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="left" style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Douglas H. Altschuler</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">July 31, 2002</font></p>

<p style="margin:0in 0in 12.0pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Page 5</font></p>

<p align="left" style="margin:0in 0in 12.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">written or oral,
other than those expressly contained herein, and it supersedes any other such
promises, warranties or representations.&#160;
This Agreement may not be modified or amended except in a writing signed
by both you and a duly authorized officer of the Company.&#160; This Agreement will bind the heirs, personal
representatives, successors and assigns of both you and the Company, and inure
to the benefit of both you and the Company, their heirs, successors and
assigns.&#160; If any provision of this Agreement
is determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement and the
provision in question will be modified by the court so as to be rendered
enforceable.&#160; This Agreement will be
deemed to have been entered into and will be construed and enforced in
accordance with the laws of the State of California as applied to contracts
made and to be performed entirely within California.</font></p>

<p align="left" style="margin:0in 0in 12.0pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">If this Agreement
is acceptable to you, please sign below and return the original to me.</font></p>

<p align="left" style="margin:0in 0in 12.0pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">I wish you good
luck in your future endeavors.</font></p>

<p align="left" style="margin:0in 0in 12.0pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Sincerely,</font></p>

<p align="left" style="margin:0in 0in .5in;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;text-transform:uppercase;">INHALE THERAPEUTIC SYSTEMS,
INC.</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;font-family:'Times New Roman';width:100.0%;">
 <tr>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.56%;">
  <p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="46%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:46.62%;">
  <p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Elizabeth Frisby</font></p>
  </td>
  <td width="48%" valign="top" style="padding:0in .7pt 0in .7pt;width:48.82%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.56%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;">&nbsp;</p>
  </td>
  <td width="46%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:46.62%;">
  <p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;
  Elizabeth Frisby</font></p>
  </td>
  <td width="48%" valign="top" style="padding:0in .7pt 0in .7pt;width:48.82%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="4%" valign="top" style="padding:0in .7pt 0in .7pt;width:4.56%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;">&nbsp;</p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.62%;">
  <p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160; Vice
  President, Human Resources</font></p>
  </td>
  <td width="48%" valign="top" style="padding:0in .7pt 0in .7pt;width:48.82%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;">&nbsp;</p>
  </td>
 </tr>
</table>

<p align="left" style="margin:0in 0in .0001pt .5in;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;text-transform:uppercase;">AGREED:</font></p>

<p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;font-family:'Times New Roman';width:100.0%;">
 <tr>
  <td width="50%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;text-transform:uppercase;">/</font><font size="2" style="font-size:10.0pt;">s/ Douglas H. Altschuler</font></p>
  </td>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Douglas H. Altschuler</font></p>
  </td>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;">&nbsp;</p>
  </td>
 </tr>
</table>

<p align="left" style="margin:0in 0in .0001pt;page-break-after:avoid;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;font-family:'Times New Roman';width:100.0%;">
 <tr>
  <td width="50%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">July 31, 2002</font></p>
  </td>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="margin:0in 0in .0001pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Date</font></p>
  </td>
  <td width="50%" valign="top" style="padding:0in .7pt 0in .7pt;width:50.0%;">
  <p align="left" style="font-size:1.0pt;margin:0in 0in .0001pt;text-align:left;">&nbsp;</p>
  </td>
 </tr>
</table>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">&nbsp;</font></b></p>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CONFIDENTIAL</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=5,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=958309,FOLIO='Page 5',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

<p align="center" style="font-family:'Times New Roman';margin:0in 0in 24.0pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">EXHIBIT </font></b><b><font size="2" style="font-size:10.0pt;font-weight:bold;">A</font></b></p>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">PROPRIETARY
INFORMATION AND INVENTIONS AGREEMENT</font></b></p>


<div align="left" style="font-weight:bold;margin:0in 0in .0001pt;punctuation-wrap:simple;text-align:left;text-autospace:none;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></b></div>

<b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">
<!-- ZEQ.=1,SEQ=6,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=906743,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font></b>

<p align="left" style="font-weight:bold;margin:0in 0in .0001pt;punctuation-wrap:simple;text-align:left;text-autospace:none;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:normal;">&nbsp;</font></b></p>

<p style="font-weight:bold;margin:0in 0in .0001pt;punctuation-wrap:simple;text-align:center;text-autospace:none;"><b><font size="4" face="Times New Roman" style="font-size:14.0pt;">Inhale Therapeutic Systems</font></b></p>

<p style="font-weight:bold;margin:0in 0in .0001pt;punctuation-wrap:simple;text-align:center;text-autospace:none;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></b></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<h1 style="font-weight:normal;margin:0in 0in .0001pt;page-break-after:avoid;punctuation-wrap:simple;text-align:center;text-autospace:none;text-decoration:underline;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">EMPLOYEE
AGREEMENT</font></u></h1>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; In
consideration of my employment or continued employment by Inhale Therapeutic
Systems, Inc. (the &#147;Company&#148;), I agree as of the date I was first employed by
Company as follows:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">This Agreement
supersedes any and all previous oral or written communications, discussions and
agreements between Company and me with respect to the subject of this
Agreement.</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">I shall devote
my full time and best efforts during my employment with Company to the business
of Company and shall not, without the prior approval of (a) an executive
officer of the Company if I am not an executive officer of the Company, or (b)
the Board of Directors of the Company if I am an executive officer of the
Company, (i) engage in any other professional employment or consulting, or (ii)
except as appropriate in connection with my employment by the Company, directly
or indirectly participate in or assist any business which is a current or
potential supplier or customer of Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">During my
employment by Company and for a period of one year thereafter I shall notify
Company of any and all ideas, (including but not limited to computer programs,
software and documentation), formulae, devices, improvements, methods,
processes or discoveries related to Company&#146;s business and/or its actual or
demonstrably anticipated research and development (&#147;Inventions&#148;) which I
develop, and those Inventions developed during my employment by Company shall
be the sole property of Company and I hereby assign my entire right, title and
interest in any and all such Inventions to Company, if:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt 1.0in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">a.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">I used
equipment, supplies facilities and/or confidential and/or proprietary and/or
trade secret information of Company in developing or creating said Inventions;
and/or</font></p>

<p style="margin:0in 0in .0001pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt 1.0in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">b.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">The Inventions
result, in whole or in part, from any work performed by me for Company; and/or</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt 1.0in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">c.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">The Inventions
relate at the time of conception or reduction to practice of the Inventions to
Company&#146;s business, and/or its actual demonstrably anticipated research and
development.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .75in;punctuation-wrap:simple;text-autospace:none;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">I shall make and maintain adequate and current written
records of all Inventions, which records shall be and remain the property of
Company.</font></p>


<div style="margin:0in 0in .0001pt;punctuation-wrap:simple;text-autospace:none;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=7,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=773521,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;punctuation-wrap:simple;text-autospace:none;">&nbsp;</p>

<p style="margin:0in 0in .0001pt .75in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">I shall not, at
any time during or following my employment by Company, disclose, other than to
Company&#146;s authorized personnel, or otherwise use for non-Company purposes, any
confidential or proprietary information, whether business or technical, or
know-how of any nature whatsoever (whether or not a trade secret) relating to
any activity of Company, or any invention, which is owned or licensed by
Company of which has been otherwise disclosed to Company.</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">I shall keep on
Company&#146;s premises (except when required elsewhere in connection with the
conduct of Company&#146;s business) and shall deliver to Company upon termination of
my employment all writings related to the business of Company, and all
documents, equipment, materials and other personal property belonging to
Company.&#160; I further agree not to make or
retain any copy, duplication, facsimile, reproduction or replication of any of
the foregoing except as necessary to perform my duties as an employee of the
Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">I agree to
abide by, and comply with, all of the rules, regulations and policies of
Company.&#160; I will not, in connection with
my employment by Company, use or disclose to Company any confidential, trade
secret or other proprietary information of any previous employer or other person
to which I am not lawfully entitled.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">Except for
those obligations specifically set forth in another writing signed by me and an
officer of Company (a copy of which is presented to Company with this
Agreement), I shall be under no obligation to others which restricts my right
to perform the undertakings set forth in this Agreement or which creates a
conflict with my other duties and responsibilities as an employee of
Company.&#160; The purpose of this Paragraph
7 is solely for me to advise Company of any alleged obligations to others that
may exist and in no manner should be construed as Company&#146;s acceptance of such
obligations (even if an officer of Company should sign this Agreement).</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">I agree that
unless specifically provided in another writing signed by me and (a) an
executive officer of Company if I am not an executive officer of the Company,
or (b) another executive officer of the Company if I am an executive officer of
the company, my employment by Company is not for a definite period of time.&#160; Rather, my employment relationship with
Company is one of employment at will and my continued employment is not
obligatory by either myself or Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">This Agreement
shall be construed and governed by the laws of the State of California
applicable to contracts entered into and wholly to be performed by California
residents.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">10.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">The waiver of
any breach of this Agreement shall not constitute a waiver of subsequent
similar of dissimilar breaches of this Agreement, or a waiver of any of the
obligations contained herein.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=8,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=951757,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">11.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">This Agreement
shall be binding upon the pass to the benefit of the successors and assigns of
Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">12.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">I recognize the
right of Company to notify any third party of the existence of this Agreement
and/or its provisions and/or my agreeing to it.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">13.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">Should a
provision or part of a provision of this Agreement be found as a matter or law
to be invalid, such finding shall not have the effect of invalidating the
remainder of this Agreement and the provision or part thereof as to which such
finding of invalidity is made shall be interpreted so as to be ineffective only
to the extent of such invalidity without invalidating the remainder of such
provision or part thereof or any of the other provisions of this Agreement.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="93%" style="border-collapse:collapse;font-family:'Times New Roman';margin-left:36.7pt;width:93.22%;">
 <tr>
  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">EMPLOYEE:</font></p>
  </td>
  <td width="50%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:50.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">INHALE THERAPEUTIC
  SYSTEMS,</font></p>
  </td>
 </tr>
 <tr>
  <td width="49%" valign="top" style="padding:0in .7pt 0in .7pt;width:49.94%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="50%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:50.06%;">
  <p style="margin:0in 0in .0001pt 20.0pt;text-indent:-10.0pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">INC.:</font></p>
  </td>
 </tr>
</table>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="93%" style="border-collapse:collapse;font-family:'Times New Roman';margin-left:36.7pt;width:93.22%;">
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Signed:</font></p>
  </td>
  <td width="40%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Douglas H. Altschuler</font></p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">By:</font></p>
  </td>
  <td width="42%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Donald Campodonico</font></p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="40%" valign="bottom" style="border:none;padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="42%" valign="bottom" style="border:none;padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Name:</font></p>
  </td>
  <td width="40%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;Douglas H. Altschuler</font></p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Title:</font></p>
  </td>
  <td width="42%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Vice President</font></p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="40%" valign="bottom" style="border:none;padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="42%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Human Resources</font></p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="40%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="42%" valign="bottom" style="border:none;padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dated:</font></p>
  </td>
  <td width="40%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">September 14, 2001</font></p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dated:</font></p>
  </td>
  <td width="42%" valign="bottom" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">September 14, 2001</font></p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="40%" valign="bottom" style="border:none;padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="42%" valign="bottom" style="border:none;padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="40%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="42%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="40%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="42%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="6%" valign="top" style="padding:0in .7pt 0in .7pt;width:6.68%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="40%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:40.88%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="2%" valign="top" style="padding:0in .7pt 0in .7pt;width:2.38%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="7%" valign="top" style="padding:0in .7pt 0in .7pt;width:7.12%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="42%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:42.94%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
</table>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=9,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=16463,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p style="font-family:'Times New Roman';font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">ACKNOWLEDGMENT
OF NOTIFICATION</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">REGARDING
LIMITS ON ASSIGNMENT OF INVENTIONS</font></p>

<p align="center" style="margin:0in 0in .0001pt .5in;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; I
acknowledge that by signing the Employee Agreement to which this Acknowledgment
of Notification is attached and specifically, that under the terms of Paragraph
3 of the Agreement, I have agreed that inventions, discoveries and improvements
developed by me during my employment with Company shall be the sole property of
Company and are thereby assigned to Company.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; I
further acknowledge that Company has notified me that under California Labor
Code Section 2870 the above-referenced Paragraph 3 of the Employee Agreement
does not apply to inventions, discoveries or improvements developed by me
during my employment with Company:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">a.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">For which no
equipment, supplies, facilities, and/or trade secret, and/or confidential
and/or proprietary information of Company was used by me; AND</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">b.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">Which do not
result from any work performed by me for Company, AND</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="font-family:'Times New Roman';margin:0in 0in .0001pt .75in;text-indent:-.25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">c.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font size="2" style="font-size:10.0pt;">Which do not
relate directly to the business of Company, at the time of conception or
reduction to practice of the invention, discovery or improvement and/or its
actual or demonstrably anticipated research and development.</font></p>

<p style="margin:0in 0in .0001pt .25in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Acknowledgment:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; I
hereby certify that I have read and understood the above Acknowledgment of
Notification regarding those inventions, discoveries and improvements which I
may develop during my employment with Company which do/will not become the
property of Company and for which I have made no assignment to Company under
Acknowledgment of Notification is attached.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;font-family:'Times New Roman';width:100.0%;">
 <tr>
  <td width="12%" valign="top" style="padding:0in .7pt 0in .7pt;width:12.32%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">EMPLOYEE:</font></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="39%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:39.86%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Douglas H. Altschuler</font></p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.72%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="12%" valign="top" style="padding:0in .7pt 0in .7pt;width:12.32%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="39%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:39.86%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.72%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="12%" valign="top" style="padding:0in .7pt 0in .7pt;width:12.32%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="39%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:39.86%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Douglas H. Altschuler</font></p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.72%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="12%" valign="top" style="padding:0in .7pt 0in .7pt;width:12.32%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="39%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:39.86%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">(Printed or Typewritten)</font></p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.72%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="12%" valign="top" style="padding:0in .7pt 0in .7pt;width:12.32%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="39%" valign="top" style="padding:0in .7pt 0in .7pt;width:39.86%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.72%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="12%" valign="top" style="padding:0in .7pt 0in .7pt;width:12.32%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">DATED:</font></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="39%" valign="top" style="border:none;border-bottom:solid windowtext .5pt;padding:0in .7pt 0in .7pt;width:39.86%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">September 14, 2001</font></p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.72%;">
  <p style="font-size:1.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="12%" valign="top" style="padding:0in .7pt 0in .7pt;width:12.32%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="39%" valign="top" style="border:none;padding:0in .7pt 0in .7pt;width:39.86%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.72%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
 <tr>
  <td width="12%" valign="top" style="padding:0in .7pt 0in .7pt;width:12.32%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in .7pt 0in .7pt;width:1.1%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="39%" valign="top" style="padding:0in .7pt 0in .7pt;width:39.86%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
  <td width="46%" valign="top" style="padding:0in .7pt 0in .7pt;width:46.72%;">
  <p style="font-size:12.0pt;margin:0in 0in .0001pt;">&nbsp;</p>
  </td>
 </tr>
</table>


<div align="left" style="margin:0in 0in 24.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=10,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=344805,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

<p align="left" style="margin:0in 0in 24.0pt;text-align:left;"><font size="2" face="Times New Roman" style="font-size:10.0pt;text-transform:uppercase;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in 24.0pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;text-transform:uppercase;">EXHIBIT B</font></b></p>

<p align="center" style="margin:0in 0in 24.0pt;text-align:center;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">[*]</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">[*] = Certain confidential information contained in this document,
marked by brackets, has been omitted and filed separately with the Securities
and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act
of 1934, as amended.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>

<p align="center" style="margin:0in 0in 12.0pt;text-align:center;text-indent:0in;"><b><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">CONFIDENTIAL</font></b></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>


<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<font size="2" face="Times New Roman" style="font-size:10.0pt;">
<!-- ZEQ.=1,SEQ=11,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4",CHK=408667,FOLIO='',FILE="DISK027:[02PAL5.02PAL2355.EDGAR]EX10-44_2355.CHC",USER="DROCCON",CD='Nov 13 17:03 2002' -->
<br clear="all" style="page-break-before:always;">
</font>

</div>

<BR>
<!-- SEQ=,FILE='QUICKLINK',USER=DROCCON,SEQ=,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="4" -->
<!-- TOCEXISTFLAG -->
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>6
<FILENAME>a2093292zex-99_1.htm
<DESCRIPTION>EX-99.1
<TEXT>
<HTML>
<HEAD>

</HEAD>
<BODY BGCOLOR="#FFFFFF" LINK=BLUE  VLINK=PURPLE>
<BR>
<FONT SIZE=3 ><A HREF="#02PAL2354_5">QuickLinks</A></FONT>
<font size=3> -- Click here to rapidly navigate through this document</font>
<!-- TOC_END -->
<P ALIGN="RIGHT"><FONT SIZE=2><A
NAME="km2354_exhibit_99.1"> </A>
<A NAME="toc_km2354_1"> </A>
<BR></FONT><FONT SIZE=2><B>Exhibit&nbsp;99.1    <BR>  </B></FONT></P>

<P ALIGN="CENTER"><FONT SIZE=2><A
NAME="km2354_certification_of_chief_executi__cer04570"> </A>
<A NAME="toc_km2354_2"> </A>
<BR></FONT><FONT SIZE=2><B>CERTIFICATION OF CHIEF EXECUTIVE OFFICER<BR>  AND CHIEF FINANCIAL OFFICER PURSUANT<BR>  TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002    <BR>  </B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C &sect; 1350, as adopted), Ajit S. Gill, Chief Executive Officer and President of
Inhale Therapeutic Systems,&nbsp;Inc. (the "Company"), and Brigid A. Makes, Vice President, Finance and Administration and Chief Financial Officer of the Company, each hereby certifies that, to the
best of his or her knowledge: </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp;The
Company's Quarterly Report on Form&nbsp;10-Q for the period ended September&nbsp;30, 2002, to which this Certification is attached as
Exhibit&nbsp;99.1 (the "Periodic Report"), fully complies with the requirements of Section&nbsp;13(a) of the Securities Exchange Act of 1934, as amended; and </FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp;The
information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the
Periodic Report and results of operations of the Company for the period covered by the Periodic Report. </FONT></P>

<P><FONT SIZE=2>Dated:
November&nbsp;14, 2002 </FONT></P>

<!-- User-specified TAGGED TABLE -->
<TABLE WIDTH="100%" BORDER=0 CELLSPACING=0 CELLPADDING=0>
<TR VALIGN="TOP">
<TD WIDTH="49%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>AJIT S. GILL</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Ajit S. Gill<BR></FONT> <FONT SIZE=2><I>Chief Executive Officer, President and
Director</I></FONT></TD>
<TD WIDTH="3%"><FONT SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH="49%"><FONT SIZE=2>/s/&nbsp;&nbsp;</FONT><FONT SIZE=2>BRIGID A. MAKES</FONT><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT><HR NOSHADE><FONT SIZE=2> Brigid A. Makes<BR></FONT> <FONT SIZE=2><I>Vice President, Finance and
Administration,<BR>
Chief Financial Officer and Assistant Secretary</I></FONT></TD>
</TR>
</TABLE>
<!-- end of user-specified TAGGED TABLE -->

<HR NOSHADE>
<!-- ZEQ.=1,SEQ=1,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="5",CHK=967932,FOLIO='blank',FILE='DISK027:[02PAL4.02PAL2354]KM2354A.;4',USER='ATOBAK',CD='12-NOV-2002;19:13' -->
<!-- THIS IS THE END OF A COMPOSITION COMPONENT -->
<BR>
<P><br><A NAME="02PAL2354_5">QuickLinks</A><br></P><!-- TOC_BEGIN -->
<UL>
<FONT SIZE=2><A HREF="#toc_km2354_1">Exhibit 99.1</A></FONT><BR>
</UL>
<FONT SIZE=2><A HREF="#toc_km2354_2">CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002</A></FONT><BR>

<!-- SEQ=,FILE='QUICKLINK',USER=DROCCON,SEQ=,EFW="2093292",CP="INHALE THERAPEUTIC SYSTEMS, INC",DN="5" -->
<!-- TOCEXISTFLAG -->
</BODY>
</HTML>

</TEXT>
</DOCUMENT>
</SUBMISSION>
