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<SEC-DOCUMENT>0000950124-06-001086.txt : 20060310
<SEC-HEADER>0000950124-06-001086.hdr.sgml : 20060310
<ACCEPTANCE-DATETIME>20060309211719
ACCESSION NUMBER:		0000950124-06-001086
CONFORMED SUBMISSION TYPE:	424B5
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20060310
DATE AS OF CHANGE:		20060309

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			TARGETED GENETICS CORP /WA/
		CENTRAL INDEX KEY:			0000921114
		STANDARD INDUSTRIAL CLASSIFICATION:	BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836]
		IRS NUMBER:				911549568
		STATE OF INCORPORATION:			WA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		424B5
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-116600
		FILM NUMBER:		06677411

	BUSINESS ADDRESS:	
		STREET 1:		1100 OLIVE WAY
		STREET 2:		STE 100
		CITY:			SEATTLE
		STATE:			WA
		ZIP:			98101
		BUSINESS PHONE:		2066237612

	MAIL ADDRESS:	
		STREET 1:		1100 OLIVE WAY
		STREET 2:		STE 100
		CITY:			SEATTLE
		STATE:			WA
		ZIP:			98101
</SEC-HEADER>
<DOCUMENT>
<TYPE>424B5
<SEQUENCE>1
<FILENAME>v16231b5e424b5.htm
<DESCRIPTION>PROSPECTUS SUPPLEMENT TO RULE 424(B)(5)
<TEXT>
<HTML>
<HEAD>
<TITLE>e424b5</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B><FONT size="2">PROSPECTUS SUPPLEMENT</FONT></B></TD>
    <TD align="right"><B><FONT size="2">Filed Pursuant to Rule 424(b)(5)</FONT></B></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="50%"></TD>
    <TD width="50%"></TD>
</TR>

<TR valign="top">
    <TD align="left"><B><FONT size="2">(to Prospectus dated July&nbsp;7, 2004)</FONT></B></TD>
    <TD align="right"><B><FONT size="2">Registration No. 333-116600</FONT></B></TD>
</TR>

</TABLE>

<P align="center">
<B><FONT size="4">12,791,611&nbsp;Shares</FONT></B>

<P align="center">
<IMG src="v16231b5v1623100.gif" alt="(Targeted Genetics Logo)">

<P align="center">
<B><FONT size="6">Targeted Genetics Corporation</FONT></B>

<P align="center">
<B><FONT size="4">Common Stock</FONT></B>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are offering up to 12,791,611&nbsp;shares of
our common stock. Our common stock is quoted on the Nasdaq
Capital Market under the symbol &#147;TGEN.&#148; On
March&nbsp;8, 2006, the last reported sales price of our common
stock on the Nasdaq Capital Market was $0.54&nbsp;per share.
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Our business and an investment in our common stock involve
significant risks. These risks are described under the caption
&#147;Risk Factors&#148; beginning on page&nbsp;S-7 of this
prospectus supplement and on page&nbsp;5 of the accompanying
prospectus.</B>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<CENTER>
<TABLE width="90%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="65%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="9%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="8%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Per Share</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Maximum Offering</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Public Offering Price
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,988,728</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Proceeds, Before Expenses, to Targeted Genetics
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">4,988,728</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because there is no minimum offering amount
required as a condition to closing in this offering, the actual
public offering amount, and proceeds to us, if any, are not
presently determinable and may be substantially less than the
total maximum offering amounts set forth above.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The Securities and Exchange Commission and state
securities regulators have not approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. It is illegal
for any person to tell you otherwise.
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="center">
<FONT size="2">The date of this prospectus supplement is
March&nbsp;9, 2006.
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV align="left">

</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<P align="center">
<B><FONT size="2">Prospectus Supplement</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#201'>About This Prospectus
    Supplement</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#202'>Targeted Genetics
    Corporation</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-3</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#203'>The Offering</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#205'>Dilution</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-6</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#206'>Risk Factors</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-7</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#207'>Special Note&nbsp;Regarding
    Forward-Looking Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#208'>Use of Proceeds</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-18</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#209'>Plan of Distribution</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#211'>Legal Matters</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#212'>Experts</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#210'>Where You Can Find More
    Information</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">S-19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center">
<B><FONT size="2">Prospectus</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#101'>About This Prospectus</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#102'>Targeted Genetics
    Corporation</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#103'>Risk Factors</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#104'>Special Note&nbsp;Regarding
    Forward-Looking Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#105'>Use of Proceeds</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#106'>Plan of Distribution</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#107'>Where You Can Find More
    Information</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#108'>Legal Matters</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#109'>Experts</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="top" nowrap><FONT size="2">17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">You should rely only on the information
provided or incorporated by reference in this prospectus
supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information. You
should not assume that the information in this prospectus
supplement and the accompanying prospectus is accurate as of any
date other than its respective date, regardless of the time of
delivery of the prospectus supplement and the accompanying
prospectus or any sale of common stock.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus supplement and the accompanying
prospectus is an offer to sell and a solicitation of an offer to
buy the securities offered by this prospectus supplement and the
accompanying prospectus only in jurisdictions where the offer or
sale is permitted.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In this prospectus, &#147;Targeted
Genetics,&#148; &#147;we,&#148; &#147;us&#148; and
&#147;our&#148; refer to Targeted Genetics Corporation and its
subsidiaries.
</FONT>

<P align="center"><FONT size="2">S-2
</FONT>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='201'></A>
</DIV>

<!-- link1 "ABOUT THIS PROSPECTUS SUPPLEMENT" -->

<P align="center">
<B><FONT size="2">ABOUT THIS PROSPECTUS SUPPLEMENT</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus supplement and the accompanying
prospectus are part of a registration statement that we have
filed with the Securities and Exchange Commission, or SEC, using
the SEC&#146;s shelf registration process. Under the shelf
registration statement and in accordance with the shelf
registration process, we may sell up to 16,300,000&nbsp;shares
of our common stock from time to time after the effectiveness of
the shelf registration statement of which this prospectus
supplement is a part. The shelf registration statement was
declared effective by the SEC on July&nbsp;7, 2004. This
prospectus supplement describes the specific details regarding
this offering, including the price, the amount of common stock
being offered and the risks of investing in our common stock.
The accompanying prospectus provides general information about
us, some of which, such as the section entitled &#147;Plan of
Distribution,&#148; may not apply to this offering. If
information in this prospectus supplement is inconsistent with
the accompanying prospectus or the information incorporated by
reference, you should rely on this prospectus supplement. You
should read both this prospectus supplement and the accompanying
prospectus together with the additional information about
Targeted Genetics described in this prospectus supplement in the
section below entitled &#147;Where You Can Find More
Information.&#148;
</FONT>

<DIV align="left">
<A name='202'></A>
</DIV>

<!-- link1 "TARGETED GENETICS CORPORATION" -->

<P align="center">
<B><FONT size="2">TARGETED GENETICS CORPORATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This summary does not contain all the information
about Targeted Genetics Corporation that may be important to
you. You should read the more detailed information and
consolidated financial statements and related notes that are
incorporated by reference and are considered to be a part of
this prospectus supplement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We develop gene therapy products and technologies
for treating both acquired and inherited diseases. Our gene
therapy product candidates are designed to treat disease by
appropriately modifying cellular function at a genetic level.
This involves introducing genetic material into target cells and
expressing it in a manner that provides the desired effect. We
have assembled a broad base of proprietary intellectual property
that we believe gives us the potential to address the
significant diseases that are the primary focus of our business.
Our proprietary intellectual property includes gene therapy uses
of certain genes, methods of transferring genetic material into
cells, processes to manufacture our AAV-based product candidates
and other proprietary technologies and processes. In addition,
we have established expertise and development capabilities
focused in the areas of preclinical research and development,
manufacturing and manufacturing process scale-up, quality
control, quality assurance, regulatory affairs and clinical
trial design and implementation.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have two product candidates in clinical
trials. The first, tgAAC94, is an AAV-based product candidate
being developed for the treatment of inflammatory arthritis. The
second is an AAV-based prophylactic vaccine candidate for
high-risk populations in developing nations to protect against
HIV-AIDS. We are developing this program in collaboration with
the International AIDS Vaccine Initiative, or IAVI, a non-profit
organization, and the Columbus Children&#146;s Research
Institute at Children&#146;s Hospital in Columbus, Ohio, or CCRI
and The Children&#146;s Hospital of Philadelphia, or CHOP.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In December 2004, we formed a collaboration with
Celladon Corporation to evaluate AAV-based delivery of the
SERCA2a gene and phospholamban gene variants that may have a
therapeutic benefit in the treatment of congestive heart
failure. We are also partnered with Sirna Therapeutics, Inc., in
a collaboration formed in January 2005, to develop short
interfering RNA, or siRNA, AAV-based therapies for the treatment
of Huntington&#146;s disease. In addition, we have two partnered
preclinical programs and have been awarded a subcontract to
develop another AAV-based HIV vaccine candidate. In November
2005, we and our scientific collaborators at CHOP and CCRI
announced that the National Institute of Allergy and Infectious
Disease (NIAID)&nbsp;has awarded a $21.75&nbsp;million contract
to expand AAV-based HIV vaccine. We have entered into a
subcontract with CHOP to complete work related to the NIAID
contract, under which we receive up to $18&nbsp;million over the
five year period of the contract. The purpose of the NIAID
contract is to develop AAV-based vaccines against HIV strains
most prevalent in North America and Europe.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The development of pharmaceutical products,
including our potential inflammatory arthritis, prophylactic
AIDS vaccine, congestive heart failure, and Huntington&#146;s
disease product candidates discussed above, involves extensive
preclinical development followed by human clinical trials that
take several years or more to
</FONT>

<P align="center"><FONT size="2">S-3
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">complete. The length of time required to
completely develop any product candidate varies substantially
according to the type, complexity and novelty of the product
candidate, the degree of involvement by a development partner
and the intended use of the product candidate. Our commencement
and rate of completion of clinical trials may vary or be delayed
for many reasons, including those discussed in the section
entitled &#147;Risk Factors&#148; presented below.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We were incorporated in the state of Washington
in 1989. Our executive offices are located at 1100 Olive Way,
Suite&nbsp;100, Seattle, Washington 98101, and our telephone
number is (206)&nbsp;623-7612.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For more information about Targeted Genetics, you
should read this prospectus supplement together with the
accompanying prospectus and the information described in the
section of this prospectus supplement entitled &#147;Where You
Can Find More Information,&#148; including our consolidated
financial statements and related notes.
</FONT>

<P align="center"><FONT size="2">S-4
</FONT>

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<DIV align="left">
<A name='203'></A>
</DIV>

<!-- link1 "THE OFFERING" -->

<P align="center">
<B><FONT size="2">THE OFFERING</FONT></B>

<DIV>&nbsp;</DIV>

<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="36%"></TD>
    <TD width="1%"></TD>
    <TD width="63%"></TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Common stock offered by Targeted Genetics in this
    Offering
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">12,791,611&nbsp;shares
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Common stock to be outstanding after this Offering
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">98,485,855&nbsp;shares
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Use of proceeds from this Offering
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">Clinical development, research and development,
    working capital and other general corporate purposes, which may
    include acquisitions
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    <FONT size="2">Nasdaq Capital Market symbol
    </FONT></TD>
    <TD></TD>
    <TD valign="top">
    <FONT size="2">TGEN
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The number of shares of common stock to be
outstanding after this offering is based on
85,694,244&nbsp;shares outstanding on December&nbsp;31, 2005 and
does not include:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">7,040,870&nbsp;shares of common stock issuable
    upon exercise of options outstanding as of December&nbsp;31,
    2005, of which 4,320,432&nbsp;shares are exercisable, under our
    1992 Restated Stock Option Plan, our Stock Option Plan for
    Nonemployee Directors, our 1999 Stock Option Plan and our 2000
    Genovo, Inc. Roll-over Stock Option Plan at a weighted average
    exercise price of $2.70&nbsp;per share;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">2,993,541&nbsp;shares available for grant as of
    December&nbsp;31, 2005 under our stock option plans.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">S-5
</FONT>

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<DIV align="left">
<A name='205'></A>
</DIV>

<!-- link1 "DILUTION" -->

<P align="center">
<B><FONT size="2">DILUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If you invest in our common stock, your interest
will be diluted by an amount equal to the difference between the
public offering price and the net tangible book value per share
of common stock after this offering. We calculate net tangible
book value per share by dividing the net tangible book value
(total assets less intangible assets and total liabilities) by
the number of outstanding shares of common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our net tangible book value at September&nbsp;30,
2005 was $2.5&nbsp;million, or $0.03&nbsp;per share of common
stock. Assuming we sell all 12,791,611&nbsp;shares of common
stock in this offering at $0.39 per share, and our receipt of
the net proceeds from the sale of the shares, our adjusted net
tangible book value at September&nbsp;30, 2005 would be
$7.5&nbsp;million, or $0.08&nbsp;per share. This represents an
immediate increase in pro forma net tangible book value of
$0.05&nbsp;per share to existing shareholders and an immediate
and substantial dilution of $0.31&nbsp;per share to new
investors. The following table illustrates this per share
dilution:
</FONT>

<CENTER>
<TABLE width="70%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="78%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
    <TD></TD>
    <TD colspan="3"></TD>
</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Approximate fixed price per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.39</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Net tangible book value per share at
    September&nbsp;30, 2005
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.03</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Increase in net tangible book value per share
    attributable to existing shareholders
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.05</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Net tangible book value per share after this
    offering
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.08</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="1" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

<TR valign="bottom" bgcolor="#EEEEEE">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Dilution per share to new investors
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">0.31</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD colspan="2"><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="left"><HR size="4" noshade></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>

</TR>

</TABLE>
</CENTER>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">These calculations exclude:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">7,275,283&nbsp;shares of common stock issuable
    upon exercise of options outstanding as of September&nbsp;30,
    2005, of which 4,165,795&nbsp;shares are exercisable under our
    1992 Restated Stock Option Plan, our Stock Option Plan for
    Nonemployee Directors, our 1999 Stock Option Plan and our 2000
    Genovo, Inc. Roll-over Stock Option Plan at a weighted average
    exercise price of $2.77&nbsp;per share;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">2,825,128&nbsp;shares available for grant as of
    September&nbsp;30, 2005 under our stock option plans.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">S-6
</FONT>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<A name='206'></A>
</DIV>

<!-- link1 "RISK FACTORS" -->

<P align="center">
<B><FONT size="2">RISK FACTORS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">This offering involves a high degree of risk.
Before you invest in our common stock, you should carefully read
and consider the following risk factors. If any of these risks
actually occur, our business, operating results or financial
condition could be harmed. This could cause the trading price of
our stock to decline, and you could lose all or part of your
investment.</FONT></I>

<P align="center">
<B><FONT size="2">Risks Related To Our Business</FONT></B>

<P align="left">
<B><I><FONT size="2">If we are unable to raise additional
capital when needed, we will be unable to conduct our operations
and develop our potential products and may not continue as a
going concern.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because internally generated cash flow will not
fund development and commercialization of our product
candidates, we will require substantial additional financial
resources. We expect that our cash and cash equivalents at
December&nbsp;31, 2005, plus the funding from our partners will
be sufficient to fund our operations until approximately the
fourth quarter of 2006. This estimate is based on our ability to
perform planned research and development activities and the
receipt of planned funding from our collaborators. Because we
require additional capital to fund operations through 2006, the
audit opinion for our fiscal 2005 financial statements may
include a going concern qualification. If we are unable to raise
such additional capital, we may not be able to continue as a
going concern. Our future capital requirements will depend on
many factors, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the rate and extent of scientific progress in our
    research and development programs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the timing, costs and scope of, and our success
    in, conducting clinical trials, obtaining regulatory approvals
    and pursuing patent prosecutions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">competing technological and market developments;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ability to re-negotiate any lease
    obligations; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the timing and costs of, and our success in any
    product commercialization activities and facility expansions, if
    and as required; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the expense and outcome of any litigation or
    administrative proceedings involving our intellectual property,
    or access to third party intellectual property through licensing
    agreements.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we owe approximately
$8.2&nbsp;million in aggregate principal amount under two notes
payable to Biogen Idec. The notes&#146; terms require us to make
scheduled principal payments of $3.2&nbsp;million in August 2007
and $2.5&nbsp;million in each of August 2008 and 2009. We will
need to raise additional capital to make the scheduled payments
and to repay these notes. Additional sources of financing could
involve one or more of the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">entering into additional product development and
    funding collaborations or other strategic transactions, or
    extending or expanding our current collaborations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">issuing equity in the public or private markets;
    or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">issuing debt.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additional funding may not be available to us on
reasonable terms, if at all. Our ability to issue equity, and
our ability to issue it at the current market price, may be
adversely affected by the fact that upon the filing of our
Annual Report 10-K for the fiscal year ended December&nbsp;31,
2005, we will become ineligible under SEC rules to utilize
Form&nbsp;S-3 for primary offerings of our securities because
the aggregate market value our outstanding common stock held by
non-affiliates is less than $75&nbsp;million.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The funding that we expect to receive from our
collaborations depends on continued scientific progress under
the collaboration and our collaborators&#146; ability and
willingness to continue or extend the collaboration. If we are
unable to successfully access additional capital, we may need to
scale back, delay or terminate one or more of our development
programs, curtail capital expenditures or reduce other operating
activities. We may
</FONT>

<P align="center"><FONT size="2">S-7
</FONT>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">also be required to relinquish some rights to our
technology or product candidates or grant or take licenses on
unfavorable terms, either of which would reduce the ultimate
value to us of our technology or product candidates.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">We expect to continue to operate at a loss
and may never become profitable.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Substantially all of our revenue has been derived
under collaborative research and development agreements relating
to the development of our potential product candidates. We have
incurred, and will continue to incur for the foreseeable future,
significant expense to develop our research and development
programs, conduct preclinical studies and clinical trials, seek
regulatory approval for our product candidates and provide
general and administrative support for these activities. As a
result, we have incurred significant net losses since inception,
and we expect to continue to incur substantial additional losses
in the future. As of September&nbsp;30, 2005, we had an
accumulated deficit of approximately $246.5&nbsp;million. We may
never generate profits and, if we do become profitable, we may
be unable to sustain or increase profitability.
</FONT>

<P align="left">
<B><I><FONT size="2">All of our product candidates are in
early-stage clinical trials or preclinical development, and if
we are unable to successfully develop and commercialize our
product candidates we will be unable to generate sufficient
capital to maintain our business.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In November 2005, IAVI initiated a Phase&nbsp;II
trial for our HIV/AIDS vaccine product candidate in South
Africa. In October 2005, we initiated a second Phase&nbsp;I
trial for our inflammatory arthritis product candidate in the
United States and Canada. We will not generate any product
revenue for at least several years and then only if we can
successfully develop and commercialize our product candidates.
Commercializing our potential products depends on successful
completion of additional research and development and testing,
in both preclinical development and clinical trials. Clinical
trials may take several years or more to complete. The
commencement, cost and rate of completion of our clinical trials
may vary or be delayed for many reasons, including the risks
discussed elsewhere in this section. If we are unable to
successfully complete preclinical and clinical development of
some or all of our product candidates in a timely manner, we may
be unable to generate sufficient product revenue to maintain our
business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Even if our potential products succeed in
clinical trials and are approved for marketing, these products
may never achieve market acceptance. If we are unsuccessful in
commercializing our product candidates for any reason, including
greater effectiveness or economic feasibility of competing
products or treatments, the failure of the medical community or
the public to accept or use any products based on gene delivery,
inadequate marketing and distribution capabilities or other
reasons discussed elsewhere in this section, we will be unable
to generate sufficient product revenue to maintain our business.
</FONT>

<P align="left">
<B><I><FONT size="2">Failure to recruit subjects could delay or
prevent clinical trials of our potential products, which could
delay or prevent the development of potential
products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Identifying and qualifying subjects to
participate in clinical trials of our potential products is
critically important to our success. The timing of our clinical
trials depends on the speed at which we can recruit subjects to
participate in testing our product candidates. We have
experienced delays in some of our clinical trials, and we may
experience similar delays in the future. If subjects are
unwilling to participate in our gene therapy trials because of
negative publicity from adverse events in the biotechnology or
gene therapy industries or for other reasons, including
competitive clinical trials for similar patient populations, the
timeline for recruiting subjects, conducting trials and
obtaining regulatory approval of potential products will be
delayed. These delays could result in increased costs, delays in
advancing our product development, delays in testing the
effectiveness of our technology or termination of the clinical
trials altogether.
</FONT>

<P align="left">
<B><I><FONT size="2">The regulatory approval process for our
product candidates is costly, time-consuming and subject to
unpredictable changes and delays, and our product candidates may
never receive regulatory approval.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">No gene therapy products have received regulatory
approval for marketing from the U.S.&nbsp;Food and Drug
Administration, or FDA. Because our product candidates involve
new and unproven technologies, we believe
</FONT>

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<DIV align="left">
<FONT size="2">that the regulatory approval process may proceed
more slowly compared to clinical trials involving traditional
drugs. The FDA and applicable state and foreign regulators must
conclude at each stage of clinical testing that our clinical
data suggest acceptable levels of safety in order for us to
proceed to the next stage of clinical trials. In addition, gene
therapy clinical trials conducted at institutions that receive
funding for recombinant DNA research from the U.S.&nbsp;National
Institutes of Health, or NIH, are subject to review by the
NIH&#146;s Office of Biotechnology Activities Recombinant DNA
Advisory Committee, or RAC. Although NIH guidelines do not have
regulatory status, the RAC review process can impede the
initiation of the trial, even if the FDA has reviewed the trial
and approved its initiation. Moreover, before a clinical trial
can begin at an NIH-funded institution, that institution&#146;s
Institutional Biosafety Committee must review the proposed
clinical trial to assess the safety of the trial.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The regulatory process for our product candidates
is costly, time-consuming and subject to unpredictable delays.
The clinical trial requirements of the FDA, NIH and other
agencies and the criteria these regulators use to determine the
safety and efficacy of a product candidate vary substantially
according to the type, complexity, novelty and intended use of
the potential products. In addition, regulatory requirements
governing gene therapy products have changed frequently and may
change in the future. Accordingly, we cannot predict how long it
will take or how much it will cost to obtain regulatory
approvals for clinical trials or for manufacturing or marketing
our potential products. Some or all of our product candidates
may never receive regulatory approval. A product candidate that
appears promising at an early stage of research or development
may not result in a commercially successful product. Our
clinical trials may fail to demonstrate the safety and efficacy
of a product candidate or a product candidate may generate
unacceptable side affects or other problems during or after
clinical trials. Should this occur, we may have to delay or
discontinue development of the product candidate, and the
partner, if any, that supports development of that product
candidate may terminate its support. Delay or failure to obtain,
or unexpected costs in obtaining, the regulatory approval
necessary to bring a potential product to market could decrease
our ability to generate sufficient product revenue to maintain
our business.
</FONT>

<P align="left">
<B><I><FONT size="2">If we are unable to obtain or maintain
licenses for necessary third-party technology on acceptable
terms or to develop alternative technology, we may be unable to
develop and commercialize our product candidates.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have entered into exclusive and nonexclusive
license agreements that give us and our partners rights to use
technologies owned or licensed by commercial and academic
organizations in the research, development and commercialization
of our potential products. For example, we have a gene therapy
technology license agreement with Amgen Inc., or Amgen, as the
successor to Immunex Corporation, or Immunex, under which we
have license rights to certain Immunex proprietary technology
specifically applicable to gene therapy applications. In a
February 2004 letter, Amgen took the position that we are not
licensed, either exclusively or nonexclusively, to use Immunex
intellectual property covering TNFR:Fc or therapeutic uses for
TNFR:Fc. We have responded with a letter confirming our
confidence that the gene therapy technology license agreement
provides us with an exclusive worldwide license to use the gene
construct coding for TNFR:Fc for gene therapy applications. We
have had and continue to have further communications with Amgen
regarding our differences. Notwithstanding our confidence, it is
possible that a resolution of those differences, through
litigation or otherwise, could cause delay or discontinuation of
our development of tgAAC94 or our inability to commercialize any
resulting product.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that we will need to obtain additional
licenses to use patents and unpatented technology owned or
licensed by others for use, compositions, methods, processes to
manufacture compositions, processes to manufacture and purify
gene delivery product candidates and other technologies and
processes for our present and potential product candidates. If
we are unable to maintain our current licenses for third-party
technology or obtain additional licenses on acceptable terms, we
may be required to expend significant time and resources to
develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates. In addition, the license agreements for
technology for which we hold exclusive licenses typically
contain provisions that require us to meet minimum development
milestones in order to maintain the license on an exclusive
basis for some or all fields of the license. We also have
license agreements for some of our technologies, which may
require us to sublicense
</FONT>

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<DIV align="left">
<FONT size="2">certain of our rights. If we do not meet these
requirements, our licensor may convert all or a portion of the
license to a nonexclusive license or, in some cases, terminate
the license.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In many cases, patent prosecution of our licensed
technology is controlled solely by the licensor. If our
licensors fail to obtain and maintain patent or other protection
for the proprietary intellectual property we license from them,
we could lose our rights to the intellectual property or our
exclusivity with respect to those rights, and our competitors
could market competing products using the intellectual property.
Licensing of intellectual property is of critical importance to
our business and involves complex legal, business and scientific
issues and is complicated by the rapid pace of scientific
discovery in our industry. Disputes may arise regarding
intellectual property subject to a licensing agreement,
including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the scope of rights granted under the license
    agreement and other interpretation-related issues;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the extent to which our technology and processes
    infringe on intellectual property of the licensor that is not
    subject to the licensing agreement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the sublicensing of patent and other rights under
    our collaborative development relationships;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ownership of inventions and know-how
    resulting from the joint creation or use of intellectual
    property by our licensors and us and our partners;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the priority of invention of patented technology.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If disputes over intellectual property that we
have licensed prevent or impair our ability to maintain our
current licensing arrangements on acceptable terms, we may be
unable to successfully develop and commercialize the affected
product candidates.
</FONT>

<P align="left">
<B><I><FONT size="2">Litigation involving intellectual property,
product liability or other claims and product recalls could
strain our resources, subject us to significant liability,
damage our reputation or result in the invalidation of our
proprietary rights.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As our product development efforts progress, most
particularly in potentially significant markets such as
HIV/AIDS, congestive heart failure or inflammatory arthritis
therapies, the risk increases that others may claim that our
processes and product candidates infringe on their intellectual
property rights. In addition, administrative proceedings,
litigation or both may be necessary to enforce our intellectual
property rights or determine the rights of others. Defending or
pursuing these claims, regardless of their merit, would be
costly and would likely divert management&#146;s attention and
resources away from our operations. If there were to be an
adverse outcome in litigation or an interference proceeding, we
could face potential liability for significant damages or be
required to obtain a license to the patented process or
technology at issue, or both. If we are unable to obtain a
license on acceptable terms, or to develop or obtain alternative
technology or processes, we may be unable to manufacture or
market any product or potential product that uses the affected
process or technology.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Clinical trials and the marketing of any
potential products may expose us to liability claims resulting
from the testing or use of our products. Gene therapy treatments
are new and unproven, and potential known and unknown side
effects of gene therapy may be serious and potentially
life-threatening. Product liability claims may be made by
clinical trial participants, consumers, healthcare providers or
other sellers or users of our products. Although we currently
maintain liability insurance, the costs of product liability and
other claims against us may exceed our insurance coverage. In
addition, we may require increased liability coverage as
additional product candidates are used in clinical trials or
commercialized. Liability insurance is expensive and may not
continue to be available on acceptable terms. A product
liability or other claim or product recall not covered by or
exceeding our insurance coverage could significantly harm our
financial condition. In addition, adverse publicity resulting
from a product recall or a liability claim against us, one of
our partners or another gene therapy company could significantly
harm our reputation and make it more difficult to obtain the
funding and collaborative partnerships necessary to maintain our
business.
</FONT>

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<B><I><FONT size="2">If we lose our collaborative partners, we
may be unable to develop our potential products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A portion of our operating expenses are funded
through our collaborative agreements with third parties. We
currently have strategic partnerships with two biotechnology
companies, Sirna Therapeutics and Celladon, one public health
organization, IAVI, and through a contract funded by the NIAID,
that provide for funding, collaborative development,
intellectual property rights or expertise to develop certain of
our product candidates. With limited exceptions, each
collaborator has the right to terminate its obligation to
provide research funding at any time for scientific or business
reasons. In addition, to the extent that funding is provided by
a collaborator for non-program-specific uses, the loss of
significant amounts of collaborative funding could result in the
delay, reduction or termination of additional research and
development programs, a reduction in capital expenditures or
business development and other operating activities, or any
combination of these measures. For example, we have a
collaborative development agreement with IAVI, which expires in
December 2006, that we expect to provide us with funding to
reimburse research and development and manufacturing expenses we
incur in connection with the collaboration. As a result, a
significant portion of our operating expenses are funded through
our collaborative agreements with IAVI. Additionally, IAVI
directly funds the Phase&nbsp;II clinical trial for our HIV/AIDS
vaccine product candidate.
</FONT>

<P align="left">
<B><I><FONT size="2">If we do not attract and retain qualified
personnel, we may be unable to develop and commercialize some of
our potential products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future success depends in large part on our
ability to attract and retain key technical and management
personnel. All of our employees, including our executive
officers, can terminate their employment with us at any time. We
have programs in place designed to retain personnel, including
competitive compensation packages and programs to create a
positive work environment. Other companies, research and
academic institutions and other organizations in our field
compete intensely for employees, however, and we may be unable
to retain our existing personnel or attract additional qualified
employees and consultants. If we experience significant turnover
or difficulty in recruiting new personnel, our research and
development of product candidates could be delayed and we could
experience difficulty in generating sufficient revenue to
maintain our business.
</FONT>

<P align="left">
<B><I><FONT size="2">The reduction in workforce associated with
our recent restructuring of operations may impair our ability to
develop our product candidates and harm our
operations.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">January&nbsp;24, 2006 we restructured our
operations to concentrate our resources on generating data from
the clinical trials of our inflammatory arthritis product
candidate, maintaining our manufacturing capabilities and
advancing our funded product development efforts. As part of
this restructuring we eliminated 26 positions, which reduced our
workforce by approximately 27%, including scientific, operations
and administrative functions that were not required to support
our programs. This restructuring primarily affected earlier
stage product discovery and preclinical product development
efforts, small-scale vector manufacturing employees, management
positions and operations and general and administrative support.
Many of the terminated employees possess specific knowledge or
expertise that may later prove to be important to our
operations. As a result of these factors, our ability to develop
our product candidates and respond to challenges in the future
may be impaired and we may not be able to take advantage of new
business opportunities.
</FONT>

<P align="left">
<B><I><FONT size="2">If our partners or scientific consultants
terminate, reduce or delay our relationships with them, we may
be unable to develop our potential products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our partners provide funding, manage regulatory
filings, aid and augment our internal research and development
efforts and provide access to important intellectual property
and know-how. Their activities include, for example, support in
processing the regulatory filings of our product candidates and
funding clinical trials. Our outside scientific consultants and
contractors perform research, develop technology and processes
to advance and augment our internal efforts and provide access
to important intellectual property and know-how. Their
activities include, for example, clinical evaluation of our
product candidates, product development activities performed
under our research collaborations, research under sponsored
research agreements and contract manufacturing services.
Collaborations with established pharmaceutical and biotechnology
compa-
</FONT>

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<FONT size="2">nies and academic, research and public health
organizations often provide a measure of validation of our
product development efforts in the eyes of securities analysts,
investors and the medical community. The development of certain
of our potential products, and therefore the success of our
business, depends on the performance of our partners,
consultants and contractors. If they do not dedicate sufficient
time, regulatory or other technical resources to the research
and development programs for our product candidates or if they
do not perform their obligations as expected, we may experience
delays in, and may be unable to continue, the preclinical or
clinical development of those product candidates. Each of our
collaborations and scientific consulting relationships concludes
at the end of the term specified in the applicable agreement
unless we and our partners agree to extend the relationship. Any
of our partners may decline to extend the collaboration, or may
be willing to extend the collaboration only with a significantly
reduced scope, for a number of scientific or business reasons.
Competition for scientific consultants and partners in gene
therapy is intense. We may be unable to successfully maintain
our existing relationships or establish additional relationships
necessary for the development of our product candidates on
acceptable terms, if at all. If we are unable to do so, our
research and development programs may be delayed or we may lose
access to important intellectual property or know-how.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">The success of our clinical trials and
preclinical studies may not be indicative of results in a large
number of subjects of either safety or efficacy.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The successful results of our technology in
preclinical studies using animal models may not be predictive of
the results that we will see in our clinical trials. In
addition, results in early-stage clinical trials are based on
limited numbers of subjects and generally test for drug safety
rather than efficacy. Our reported progress and results from our
early phases of clinical testing of our product candidates may
not be indicative of progress or results that will be achieved
from larger populations, which could be less favorable.
Moreover, we do not know if the favorable results we have
achieved in clinical trials will have a lasting or repeatable
effect. If a larger group of subjects does not experience
positive results, or if any favorable results do not demonstrate
a beneficial effect, our product candidates that we advance to
clinical trials, may not receive approval from the FDA for
further clinical trials or commercialization. For example, in
March 2005, we discontinued the development of tgAAVCF following
the analysis of Phase&nbsp;II clinical trial data in which
tgAAVCF failed to achieve the efficacy endpoints of the trial.
</FONT>

<P align="left">
<B><I><FONT size="2">We may be unable to adequately protect our
proprietary rights domestically or overseas, which may limit our
ability to successfully market any product
candidates.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends substantially on our ability
to protect our proprietary rights and operate without infringing
on the proprietary rights of others. We own or license patents
and patent applications, and will need to license additional
patents, for genes, processes, practices and techniques critical
to our present and potential product candidates. If we fail to
obtain and maintain patent or other intellectual property
protection for this technology, our competitors could market
competing products using those genes, processes, practices and
techniques. The patent process takes several years and involves
considerable expense. In addition, patent applications and
patent positions in the field of biotechnology are highly
uncertain and involve complex legal, scientific and factual
questions. Our patent applications may not result in issued
patents and the scope of any patent may be reduced both before
and after the patent is issued. Even if we secure a patent, the
patent may not provide significant protection and may be
circumvented or invalidated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also rely on unpatented proprietary technology
and technology that we have licensed on a nonexclusive basis.
While we take precautions to protect our proprietary unpatented
technology, we may be unable to meaningfully protect this
technology from unauthorized use or misappropriation by a third
party. Our competitors could also obtain rights to our
nonexclusively licensed proprietary technology. In any event,
other companies may independently develop equivalent proprietary
information and techniques. If our competitors develop and
market competing products using our unpatented or nonexclusively
licensed proprietary technology or substantially similar
technology, our products, if successfully developed, could
suffer a reduction in sales or be forced out of the market.
</FONT>

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<B><I><FONT size="2">If we do not develop adequate development,
manufacturing, sales, marketing and distribution capabilities,
either alone or with our business partners, we will be unable to
generate sufficient product revenue to maintain our
business.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our potential products require significant
development of new processes and design for the advancement of
the product candidate through manufacture, preclinical and
clinical testing. We may be unable to continue development or
meet critical milestones with our partners due to technical or
scientific issues related to manufacturing or development. We
currently do not have the physical capacity to manufacture
large-scale quantities of our potential products. This could
limit our ability to conduct large clinical trials of a product
candidate and to commercially launch a successful product
candidate. In order to manufacture product at such scale, we
will need to expand or improve our current facilities and staff
or supplement them through the use of contract providers. If we
are unable to obtain and maintain the necessary manufacturing
capabilities, either alone or through third parties, we will be
unable to manufacture our potential products in quantities
sufficient to sustain our business. Moreover, we are unlikely to
become profitable if we, or our contract providers, are unable
to manufacture our potential products in a cost-effective manner.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we have no experience in sales,
marketing and distribution. To successfully commercialize any
products that may result from our development programs, we will
need to develop these capabilities, either on our own or with
others. We intend to enter into collaborations with other
entities to utilize their mature marketing and distribution
capabilities, but we may be unable to enter into marketing and
distribution agreements on favorable terms, if at all. If our
current or future collaborative partners do not commit
sufficient resources to timely marketing and distributing our
future products, if any, and we are unable to develop the
necessary marketing and distribution capabilities on our own, we
will be unable to generate sufficient product revenue to sustain
our business.
</FONT>

<P align="left">
<B><I><FONT size="2">Post-approval manufacturing or product
problems or failure to satisfy applicable regulatory
requirements could prevent or limit our ability to market our
products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Commercialization of any products will require
continued compliance with FDA and other federal, state and local
regulations. For example, our current manufacturing facility,
which is designed for manufacturing our AAV vectors for clinical
and development purposes, is subject to the Good Manufacturing
Practices requirements and other regulations of the FDA, as well
as to other federal, state and local regulations such as the
Occupational Health and Safety Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act and the
Environmental Protection Act. Any future manufacturing
facilities that we may construct for large-scale commercial
production will also be subject to regulation. We may be unable
to obtain regulatory approval for or maintain in operation this
or any other manufacturing facility. In addition, we may be
unable to attain or maintain compliance with current or future
regulations relating to manufacture, safety, handling, storage,
record keeping or marketing of potential products. If we fail to
comply with applicable regulatory requirements or discover
previously unknown manufacturing, contamination, product side
effects or other problems after we receive regulatory approval
for a potential product, we may suffer restrictions on our
ability to market the product or be required to withdraw the
product from the market.
</FONT>

<P align="center">
<B><FONT size="2">Risks Related to Our Industry</FONT></B>

<P align="left">
<B><I><FONT size="2">Adverse events in the field of gene therapy
could damage public perception of our potential products and
negatively affect governmental approval and
regulation.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Public perception of our product candidates could
be harmed by negative events in the field of gene transfer. For
example, in 2003, fourteen subjects in a French academic
clinical trial being treated for x-linked severe combined
immunodeficiency in a gene therapy trial using a retroviral
vector showed correction of the disease, although three of the
subjects subsequently developed leukemia. Serious adverse
events, including patient deaths have occurred in clinical
trials. Adverse events in our clinical trials and the resulting
publicity, as well as any other adverse events in the field of
gene therapy that may occur in the future, could result in a
decrease in demand for any products that we may develop. The
commercial success of our product candidates will depend in part
on public acceptance of the use of gene therapy for preventing
or treating human diseases.
</FONT>

<P align="center"><FONT size="2">S-13
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<FONT size="2">If public perception is influenced by claims that
gene therapy is unsafe, our product candidates may not be
accepted by the general public or the medical community. The
public and the medical community may conclude that our
technology is unsafe.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future adverse events in gene therapy or the
biotechnology industry could also result in greater governmental
regulation, unfavorable public perception, stricter labeling
requirements and potential regulatory delays in the testing or
approval of our potential products. Any increased scrutiny could
delay or increase the costs of our product development efforts
or clinical trials.
</FONT>

<P align="left">
<B><I><FONT size="2">Our use of hazardous materials exposes us
to liability risks and regulatory limitations on their use,
either of which could reduce our ability to generate product
revenue.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our research and development activities involve
the controlled use of hazardous materials, including chemicals,
biological materials and radioactive compounds. Our safety
procedures for handling, storing and disposing of these
materials must comply with federal, state and local laws and
regulations, including, among others, those relating to solid
and hazardous waste management, biohazard material handling,
radiation and air pollution control. We may be required to incur
significant costs in the future to comply with environmental or
other applicable laws and regulations. In addition, we cannot
eliminate the risk of accidental contamination or injury from
hazardous materials. If a hazardous material accident were to
occur, we could be held liable for any resulting damages, and
this liability could exceed our insurance and financial
resources. Accidents unrelated to our operations could cause
federal, state or local regulatory agencies to restrict our
access to hazardous materials needed in our research and
development efforts, which could result in delays in our
research and development programs. Paying damages or
experiencing delays caused by restricted access could reduce our
ability to generate revenue and make it more difficult to fund
our operations.
</FONT>

<P align="left">
<B><I><FONT size="2">The intense competition and rapid
technological change in our market may result in failure of our
potential products to achieve market acceptance.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We face increasingly intense competition from a
number of commercial entities and institutions that are
developing gene therapy technologies. Our competitors include
early-stage and more established gene delivery companies, other
biotechnology companies, pharmaceutical companies, universities,
research institutions and government agencies developing gene
therapy products or other biotechnology-based therapies designed
to treat the diseases on which we focus. We also face
competition from companies using more traditional approaches to
treating human diseases, such as surgery, medical devices and
pharmaceutical products. As our product candidates become
commercial gene therapy products that may affect commercial
markets of the analogous protein or traditional pharmaceutical
therapy, disputes including lawsuits, demands, threats or patent
challenges may arise in an effort to slow our development. In
addition, we compete with other companies to acquire products or
technology from research institutions or universities. Many of
our competitors have substantially more resources, including
research and development personnel, capital and infrastructure,
than we do. Many of our competitors also have greater experience
and capabilities than we do in:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">research and development;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">clinical trials;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">obtaining FDA and other regulatory approvals;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">manufacturing;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">marketing and distribution.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the competitive positions of other
companies, institutions and organizations, including smaller
competitors, may be strengthened through collaborative
relationships. Consequently, our competitors may be able to
develop, obtain patent protection for, obtain regulatory
approval for, or commercialize new products more rapidly than we
do, or manufacture and market competitive products more
successfully than we
</FONT>

<P align="center"><FONT size="2">S-14
</FONT>

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<DIV align="left">
<FONT size="2">do. This could limit the prices we could charge
for the products that we are able to market or result in our
products failing to achieve market acceptance.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Gene therapy is a rapidly evolving field and is
expected to continue to undergo significant and rapid
technological change and competition. Rapid technological
development by our competitors, including development of
technologies, products or processes that are more effective or
more economically feasible than those we have developed, could
result in our actual and proposed technologies, products or
processes losing market share or becoming obsolete.
</FONT>

<P align="left">
<B><I><FONT size="2">Healthcare reform measures and the
unwillingness of third-party payors to provide adequate
reimbursement for the cost of our products could impair our
ability to successfully commercialize our potential products and
become profitable.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sales of medical products and treatments depends
substantially, both domestically and abroad, on the availability
of reimbursement to the consumer from third-party payors. Our
potential products may not be considered cost-effective by
third-party payors, who may not provide coverage at the price
set for our products, if at all. If purchasers or users of our
products are unable to obtain adequate reimbursement, they may
forego or reduce their use of our products. Even if coverage is
provided, the approved reimbursement amount may not be high
enough to allow us to establish or maintain pricing sufficient
to realize a sufficient return on our investment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Increasing efforts by governmental and
third-party payors, such as Medicare, private insurance plans
and managed care organizations, to cap or reduce healthcare
costs will affect our ability to commercialize our product
candidates and become profitable. We believe that third-party
payors will attempt to reduce healthcare costs by limiting both
coverage and level of reimbursement for new products approved by
the FDA. There have been and will continue to be a number of
federal and state proposals to implement government controls on
pricing, the adoption of which could affect our ability to
successfully commercialize our product candidates. Even if the
government does not adopt any such proposals or reforms, their
announcement could impair our ability to raise capital.
</FONT>

<P align="center">
<B><FONT size="2">Risks Related to Our Common Stock</FONT></B>

<P align="left">
<B><I><FONT size="2">If we are unable to comply with the minimum
requirements for quotation on the NASDAQ Capital Market and we
may be delisted from the NASDAQ Capital Market, the liquidity
and market price of our common stock would
decline.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our stock is listed on the NASDAQ Capital Market.
In order to continue to be listed on the NASDAQ Capital Market,
we must meet specific quantitative standards, including
maintaining a minimum bid price of $1.00 for our common stock.
On May&nbsp;31, 2005, we received a notice from the NASDAQ Stock
Market informing us that for 30 consecutive business days the
bid price of our common stock had closed below the minimum $1.00
per share requirement for continued inclusion under Marketplace
Rule&nbsp;4310(c)(4). The letter stated that under Marketplace
Rule&nbsp;4310(c)(8)(d), we were provided with 180 calendar
days, or until November&nbsp;28, 2005, to regain compliance with
Marketplace Rule&nbsp;4310(c)(4). To regain compliance, the bid
price of our common stock must close at $1.00 per share or more
for a minimum of 10 consecutive business days. On
November&nbsp;28, 2005, we had not regained compliance with
Market place Rule&nbsp;4310(c). However, since we met all of the
NASDAQ Stock Market&#146;s criteria set forth in Marketplace
Rule&nbsp;4310(c), except for the bid price requirement, the
NASDAQ provided us with an additional 180 calendar day
compliance period, or until May&nbsp;26, 2006, to demonstrate
full compliance and maintain our listing on the NASDAQ Capital
Market. To date, we have not achieved the required minimum bid
price. If we have not regained compliance at that time, the
NASDAQ Staff will provide written notification that our
securities will be delisted.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon delisting from the NASDAQ Capital Market,
trading, if any, in our shares may continue to be conducted on
the OTC Bulletin&nbsp;Board or in a non-NASDAQ over-the-counter
market, such as the &#147;pink sheets.&#148; Delisting of our
shares would result in limited release of the market price of
those shares and limited analyst coverage and could reduce
investors&#146; interest in our securities. Also, a delisting
could have a material
</FONT>

<P align="center"><FONT size="2">S-15
</FONT>

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<DIV align="left">
<FONT size="2">adverse effect on the trading market and prices
for our shares and our ability to issue additional securities or
to secure additional financing. In addition, if our shares were
not listed and the trading price of our shares was less than
$5&nbsp;per share, our shares could be subject to
Rule&nbsp;15g-9 under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, which, among other things,
requires that broker/ dealers satisfy special sales practice
requirements, including making individualized written
suitability determinations and receiving a purchaser&#146;s
written consent prior to any transaction. In such case, our
securities could also be deemed to be a &#147;penny stock&#148;
under the Securities Enforcement and Penny Stock Reform Act of
1990, which would require additional disclosure in connection
with trades in those shares, including the delivery of a
disclosure schedule explaining the nature and risks of the penny
stock market. Such requirements could severely limit the
liquidity of our securities.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">If we sell additional shares, our stock
price may decline as a result of the dilution which will occur
to existing stockholders.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Until we are profitable, we will need significant
additional funds to develop our business and sustain our
operations. Any additional sales of shares of our common stock
are likely to have a dilutive effect on our then existing
stockholders. Subsequent sales of these shares in the open
market could also have the effect of lowering our stock price,
thereby increasing the number of shares we may need to issue in
the future to raise the same dollar amount and consequently
further diluting our outstanding shares. These future sales
could also have an adverse effect on the market price of our
shares and could result in additional dilution to the holders of
our shares.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The perceived risk associated with the possible
sale of a large number of shares could cause some of our
stockholders to sell their stock, thus causing the price of our
stock to decline. In addition, actual or anticipated downward
pressure on our stock price due to actual or anticipated sales
of stock could cause some institutions or individuals to engage
in short sales of our common stock, which may itself cause the
price of our stock to decline.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If our stock price declines, we may be unable to
raise additional capital. A sustained inability to raise capital
could force us to go out of business. Significant declines in
the price of our common stock could also impair our ability to
attract and retain qualified employees, reduce the liquidity of
our common stock and result in the delisting of our common stock
from the Nasdaq Capital Market.
</FONT>

<P align="left">
<B><I><FONT size="2">Concentration of ownership of our common
stock may give certain shareholders significant influence over
our business.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A small number of investors own a significant
number of shares of our common stock. As of December&nbsp;31,
2005, Elan held approximately 11.6&nbsp;million and Biogen Idec
held approximately 11.5&nbsp;million shares of our common stock.
Together these holdings represent approximately 27.0% of our
common shares outstanding as of December&nbsp;31, 2005. This
concentration of stock ownership may allow these shareholders to
exercise significant control over our strategic decisions and
block, delay or substantially influence all matters requiring
shareholder approval, such as:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">election of directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">amendment of our charter documents;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">approval of significant corporate transactions,
    such as a change of control of Targeted Genetics.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The interests of these shareholders may conflict
with the interests of other holders of our common stock with
regard to such matters. Furthermore, this concentration of
ownership of our common stock could allow these shareholders to
delay, deter or prevent a third party from acquiring control of
Targeted Genetics at a premium over the then-current market
price of our common stock, which could result in a decrease in
our stock price.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Both Biogen Idec and Elan have sold shares of our
common stock and may continue to do so. In accordance with the
termination agreement that we entered into with Elan with in
March 2004, Elan is only
</FONT>

<P align="center"><FONT size="2">S-16
</FONT>

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<DIV align="left">
<FONT size="2">permitted to sell quantities of stock our equal
to 175% of the volume limitation set forth in
Rule&nbsp;144(e)(1) promulgated under the Securities Act of
1933, as amended, or the Securities Act.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Market fluctuations or volatility could
cause the market price of our common stock to decline and limit
our ability to raise capital.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The stock market in general and the market for
biotechnology-related companies in particular have experienced
extreme price and volume fluctuations, often unrelated to the
operating performance of the affected companies. The market
price of the securities of biotechnology companies, particularly
companies such as ours without earnings and product revenue, has
been highly volatile and is likely to remain so in the future.
Any report of clinical trial results that are below the
expectations of financial analysts or investors could result in
a decline in our stock price. We believe that in the past,
similar levels of volatility have contributed to the decline in
the market price of our common stock, and may do so again in the
future. Trading volumes of our common stock can increase
dramatically, resulting in a volatile market price for our
common stock. The trading price of our common stock could
decline significantly as a result of sales of a substantial
number of shares of our common stock, or the perception that
significant sales could occur. In addition, the sale of
significant quantities of stock by Elan, Biogen Idec or other
holders of significant amounts of shares of our stock, could
adversely impact the price of our common stock.
</FONT>

<P align="center">
<B><FONT size="2">Risks Related to This Offering</FONT></B>

<P align="left">
<B><I><FONT size="2">Our use of the offering proceeds may not
yield a favorable return on your investment.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We intend to use the net proceeds to us from this
offering for clinical development, research and development,
working capital and other general corporate purposes. In
addition, we may use a portion of the net proceeds to acquire or
invest in complementary businesses or technologies. Our
management will retain broad discretion in the allocation and
use of the net proceeds and could spend the proceeds in ways
with which you may not agree. Pending the use of the proceeds in
this offering, we will invest them. However, the proceeds may
not be invested in a manner that yields a favorable or any
return.
</FONT>

<P align="left">
<B><I><FONT size="2">As a new investor, you will incur
substantial dilution as a result of this offering and future
equity issuances, and as a result, our stock price could
decline.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The offering price will be substantially higher
than the net tangible book value per share of our outstanding
common stock. As a result, based on our capitalization as of
September&nbsp;30, 2005, investors purchasing common stock in
this offering will incur immediate dilution of $0.31&nbsp;per
share, based on the offering price of $0.39&nbsp;per share. We
will need to raise additional capital in the next twelve months.
To meet all or a portion of our funding requirements, we may
sell securities in the public or private equity markets.
Furthermore, we may enter into financing transactions at prices
that represent a substantial discount to market price. In
addition, any additional shares issued in connection with
acquisitions, could also result in dilution to investors. A
negative reaction by investors and securities analysts to any
discounted sale of our equity securities or to an acquisition
could result in a decline in the trading price of our common
stock. In addition, the market price of our common stock could
fall as a result of resales of any of these shares of common
stock due to an increased number of shares available for sale in
the market.
</FONT>

<DIV align="left">
<A name='207'></A>
</DIV>

<!-- link1 "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" -->

<P align="center">
<B><FONT size="2">SPECIAL NOTE&nbsp;REGARDING FORWARD-LOOKING
STATEMENTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our disclosure and analysis in this prospectus
supplement, the accompanying prospectus and the documents
incorporated by reference into this prospectus supplement and
the accompanying prospectus contain forward-looking statements,
which provide information regarding our current expectations,
plans, objectives and forecasts of future events. Words such as
&#147;may,&#148; &#147;will,&#148; &#147;believe,&#148;
&#147;estimate,&#148; &#147;anticipate,&#148; &#147;plan,&#148;
&#147;expect,&#148; &#147;may affect&#148; and
&#147;intend,&#148; or statements concerning
&#147;potential&#148; or &#147;opportunity&#148; and similar
expressions or the negative thereof, are intended to identify
forward-looking statements, but the
</FONT>

<P align="center"><FONT size="2">S-17
</FONT>
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<DIV align="left">
<FONT size="2">absence of these words does not mean that a
statement is not forward-looking. Forward-looking statements
include, without limitation:
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">statements about our product development and
    commercialization goals and expectations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">potential market opportunities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our plans for and anticipated results of our
    clinical development activities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential advantage of our product candidates;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">statements about our future capital requirements,
    the sufficiency of our capital resources to meet those
    requirements and the expected composition of our capital
    resources;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">statements about our continued listing on the
    NASDAQ Capital Market;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">other statements that are not historical facts.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Forward-looking statements are based on the
judgment of management at the time the statements are made.
Inaccurate assumptions and known and unknown risks and
uncertainties can affect the accuracy of forward-looking
statements. Our actual results could differ materially from
those stated in or implied by forward-looking statements for a
number of reasons, including the risks described in the sections
of this prospectus supplement and the accompanying prospectus
entitled &#147;Risk Factors,&#148; in our other public filings,
press releases and statements by our management. Other factors
besides those described in this prospectus supplement, the
accompanying prospectus and in our other public filings, press
releases and statements by our management could also affect
actual results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should not unduly rely on these
forward-looking statements, which speak only as of the date of
this prospectus supplement or the accompanying prospectus. We
undertake no obligation to publicly update any forward-looking
statement to reflect new information, events or circumstances,
whether anticipated or unanticipated, or to conform the
statement to actual results or changes in our expectations. You
should, however, review the factors, risks and other information
we provide in the reports we file from time to time with the SEC.
</FONT>

<DIV align="left">
<A name='208'></A>
</DIV>

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<P align="center">
<B><FONT size="2">USE OF PROCEEDS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Assuming all of the shares offered hereby are
sold, the proceeds before expenses to us from this offering will
be approximately $4,988,728&nbsp;million in the aggregate. We
intend to use the net proceeds to us from this offering for
clinical development, research and development, working capital
and other general corporate purposes. We will retain broad
discretion in the allocation and use of the net proceeds.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we may use a portion of the net
proceeds to acquire or invest in complementary businesses or
technologies. Although from time to time we evaluate potential
acquisitions of complementary businesses or products, we
currently have no present understandings, commitments or
agreements with respect to any such transactions.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Pending any of these uses, we intend to invest
the net proceeds of this offering in short-term marketable
securities. Within the parameters set by our investment policy,
we will retain broad discretion in allocating the net proceeds
of this offering.
</FONT>

<P align="center"><FONT size="2">S-18
</FONT>
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<DIV align="left">
<A name='209'></A>
</DIV>

<!-- link1 "PLAN OF DISTRIBUTION" -->

<P align="center">
<B><FONT size="2">PLAN OF DISTRIBUTION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are proposing to sell directly to a limited
number of institutional accredited investors a total of up to
12,791,611 shares of our common stock under this prospectus
supplement at a price of $0.39&nbsp;per share. Because there is
no minimum offering amount required as a condition to closing
this offering, the actual number of shares to be sold in this
offering is not presently determinable and may be substantially
less than 12,791,611 shares. All expenses related to this
offering, other than the fees and expenses of counsel to the
purchasers, will be borne by us, and are estimated, as of the
date hereof at $200,000.
</FONT>

<DIV align="left">
<A name='211'></A>
</DIV>

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<P align="center">
<B><FONT size="2">LEGAL MATTERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The validity of the common stock offered under
this prospectus supplement and the accompanying prospectus will
be passed on for us by Orrick, Herrington&nbsp;&#38; Sutcliffe
LLP, Seattle, Washington.
</FONT>

<DIV align="left">
<A name='212'></A>
</DIV>

<!-- link1 "EXPERTS" -->

<P align="center">
<B><FONT size="2">EXPERTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Ernst&nbsp;&#38; Young LLP, independent
registered public accounting firm, have audited our consolidated
financial statements included in our annual report on
Form&nbsp;10-K for the year ended December&nbsp;31, 2004, as set
forth in their report, which is incorporated by reference in
this prospectus supplement and the accompanying prospectus and
elsewhere in the registration statement. Our consolidated
financial statements are incorporated by reference in reliance
on Ernst&nbsp;&#38; Young LLP&#146;s report, given on their
authority as experts in accounting and auditing.
</FONT>

<DIV align="left">
<A name='210'></A>
</DIV>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<P align="center">
<B><FONT size="2">WHERE YOU CAN FIND MORE INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have filed with the SEC a registration
statement under the Securities Act relating to the common stock
being offered by this prospectus supplement and the accompanying
prospectus. As permitted by the SEC rules, this prospectus
supplement and the accompanying prospectus omit some information
included in the registration statement, including exhibits and
schedules attached to the registration statement and information
incorporated by reference therein. For a more complete
understanding of the common stock and this offering, you should
refer to the registration statement, including its exhibits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we file annual, quarterly and
current reports, as well as registration and proxy statements
and other information with the SEC. SEC rules allow us to
incorporate by reference into this prospectus supplement and the
accompanying prospectus the information we file with the SEC,
which means we can disclose important information to you by
referring you to those documents. The information included in
the following documents is incorporated by reference and is
considered to be a part of this prospectus supplement and the
accompanying prospectus:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">1.&nbsp;Our quarterly reports on Form&nbsp;10-Q
    for the quarters ended March&nbsp;31, 2005, filed with the SEC
    on April&nbsp;29, 2005; June&nbsp;30, 2005, filed with the SEC
    on July&nbsp;28, 2005; and September&nbsp;30, 2005, filed with
    the SEC on November&nbsp;3, 2005;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">2.&nbsp;Our annual report on Form&nbsp;10-K for
    the year ended December&nbsp;31, 2004, filed with the SEC on
    March&nbsp;4, 2005;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">3.&nbsp;Our current reports on Form&nbsp;8-K
    filed with the SEC on January&nbsp;4, 2005; February&nbsp;23,
    2005; March&nbsp;17, 2005; June&nbsp;1, 2005; July&nbsp;26,
    2005; August&nbsp;16, 2005; August&nbsp;23, 2005, as amended on
    Form&nbsp;8-K/ A on January&nbsp;19, 2006; September&nbsp;1,
    2005; September&nbsp;13, 2005; October&nbsp;12, 2005;
    November&nbsp;2, 2005; November&nbsp;16, 2005; November&nbsp;30,
    2005; January&nbsp;25, 2006; March&nbsp;8, 2006 and
    March&nbsp;9, 2006.
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">4.&nbsp;Our definitive proxy statement dated
    April&nbsp;14, 2005, relating to our May&nbsp;26, 2005 annual
    meeting of shareholders;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">5.&nbsp;The description of our common stock
    contained in our registration statements on Form&nbsp;8-A filed
    on April&nbsp;26, 1994 and October&nbsp;22, 1996 under
    Section&nbsp;12(g) of the Exchange Act, including any amendments
    or reports filed for the purpose of updating that description.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">S-19
</FONT>
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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also incorporate by reference all documents we
file under Section&nbsp;13(a), 13(c), 14 or 15(d) of the
Exchange Act, (a)&nbsp;after the filing date of the initial
registration statement of which this prospectus is a part and
before the effectiveness of the registration statement and
(b)&nbsp;after the effectiveness of the registration statement
and before all of the shares registered under the registration
statement are sold. The most recent information that we file
with the SEC automatically updates and supersedes older
information. The information contained in any such filing will
be deemed to be part of this prospectus supplement and the
accompanying prospectus as of the date on which the document is
filed, and any older information that has been modified or
superseded will not be deemed to be a part of this prospectus
supplement or the accompanying prospectus. Unless specifically
stated to the contrary, none of the information that we disclose
on any Current Report on Form&nbsp;8-K that we may from time to
time furnish to the SEC under Item&nbsp;2.02 or Item&nbsp;7.01
of Form&nbsp;8-K, will be incorporated by reference into, or
otherwise included in, this prospectus supplement or the
accompanying prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon request, we will provide without charge to
each person who receives this prospectus supplement, including
any beneficial owner, a copy of the information that has been
incorporated by reference into this prospectus supplement and
the accompanying prospectus. Please direct your request, either
in writing or by telephone, to the Secretary, Targeted Genetics
Corporation, 1100 Olive Way, Suite&nbsp;100, Seattle, Washington
98101, (206)&nbsp;623-7612.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You may also inspect and copy the registration
statement and other documents that we have filed with the SEC,
at prescribed rates, at the public reference facility maintained
by the SEC at Room&nbsp;1024, 450&nbsp;Fifth Street, N.W.,
Washington,&nbsp;D.C. 20549. You may obtain information
regarding the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the registration statement and
other documents we have filed with the SEC are publicly
available through the SEC&#146;s website at http://www.sec.gov
or through our website at www.targetedgenetics.com.
</FONT>

<P align="center"><FONT size="2">S-20
</FONT>

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<P align="left">
<B><FONT size="2">PROSPECTUS</FONT></B>

<P align="center">
<IMG src="v16231b5v1623100.gif" alt="(Targeted Genetics Logo)">

<P align="center">
<B><FONT size="6">Targeted Genetics Corporation</FONT></B>

<P align="center">
<B><FONT size="4">16,300,000 Shares of Common Stock</FONT></B>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may sell from time to time up to
16,300,000&nbsp;shares of the common stock offered by this
prospectus at prices and on terms to be determined at or prior
to the time of an offering. We will describe the specific terms
and amounts of the common stock offered in a prospectus
supplement that will accompany this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should read both the prospectus supplement
and this prospectus carefully before you invest in our common
stock. This prospectus may not be used to sell securities unless
accompanied by a prospectus supplement.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our common stock is quoted on the NASDAQ SmallCap
Market under the symbol &#147;TGEN.&#148; The last reported
sales price of our common stock on June&nbsp;16, 2004 was
$1.52&nbsp;per share.
</FONT>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Investing in our common stock involves risks. See &#147;Risk
Factors&#148; beginning on page&nbsp;5.</B>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved
these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.</FONT></B>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="center">
<FONT size="2">The date of this prospectus is July&nbsp;7, 2004
</FONT>

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<DIV align="left">

</DIV>

<DIV align="left">
<!-- TOC -->
</DIV>

<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center">
<B><FONT size="2">TABLE OF CONTENTS</FONT></B>

<CENTER>
<TABLE width="60%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="90%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="2%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="1">Page</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><HR size="1" noshade></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#101'>About This Prospectus</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#102'>Targeted Genetics
    Corporation</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">2</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#103'>Risk Factors</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">5</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#104'>Special Note Regarding
    Forward-Looking Statements</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#105'>Use of Proceeds</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">14</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#106'>Plan of Distribution</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#107'>Where You Can Find More
    Information</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#108'>Legal Matters</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">&nbsp;<A HREF='#109'>Experts</A>
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">17</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

</TABLE>
</CENTER>

<P align="center">
<HR size="1" width="26%" align="center" color="black" noshade>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B><FONT size="2">You should rely only on the information
provided or incorporated by reference in this prospectus or any
prospectus supplement. We have not authorized anyone to provide
you with different information. You should not assume that the
information in this prospectus or any prospectus supplement is
accurate as of any date other than its date, regardless of the
time of delivery of the prospectus or prospectus supplement or
any sale of common stock.</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus and any prospectus supplement is
an offer to sell and a solicitation of an offer to buy the
securities offered by this prospectus and any prospectus
supplement only in jurisdictions where the offer or sale is
permitted.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In this prospectus, &#147;Targeted
Genetics,&#148; &#147;we,&#148; &#147;us&#148; and
&#147;our&#148; refer to Targeted Genetics Corporation and its
subsidiaries.
</FONT>

<DIV align="left">
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</DIV>

<P align="center"><FONT size="2">1
</FONT>

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<DIV align="left">
<A name='101'></A>
</DIV>

<!-- link1 "ABOUT THIS PROSPECTUS" -->

<P align="center">
<B><FONT size="2">ABOUT THIS PROSPECTUS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This prospectus is part of a registration
statement that we have filed with the Securities and Exchange
Commission, or SEC, using the SEC&#146;s shelf registration
process. Each time we sell our common stock under this
prospectus we will provide a prospectus supplement that will
contain specific information about the terms of that offering,
including the price, the amount of common stock being offered
and the plan of distribution. The prospectus supplement for a
particular offering may also add, update or change information
contained in this prospectus. In addition, we may update or
supplement any prospectus supplement relating to a particular
offering. You should read both this prospectus and any
applicable prospectus supplement together with the additional
information about Targeted Genetics to which we refer you in the
section of this prospectus entitled &#147;Where You Can Find
More Information.&#148;
</FONT>

<DIV align="left">
<A name='102'></A>
</DIV>

<!-- link1 "TARGETED GENETICS CORPORATION" -->

<P align="center">
<B><FONT size="2">TARGETED GENETICS CORPORATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">This summary does not contain all the information
about Targeted Genetics Corporation that may be important to
you. You should read the more detailed information and
consolidated financial statements and related notes that are
incorporated by reference and are considered to be a part of
this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Targeted Genetics develops gene therapy products
and technologies for treating both acquired and inherited
diseases. Our gene therapy product candidates are designed to
treat disease by regulating cellular function at a genetic
level. This involves introducing genetic material into target
cells and activating it in a manner that provides the desired
effect. We have developed and licensed a broad base of
proprietary intellectual property that we believe gives us the
potential to address the significant diseases that are the
primary focus of our business. Our proprietary intellectual
property includes genes, methods of transferring genes into
cells, processes to manufacture our gene delivery product
candidates and other proprietary technologies and processes. In
addition, we have established expertise and development
capabilities focused in the areas of preclinical research and
biology, manufacturing and manufacturing process scale-up,
quality control, quality assurance, regulatory affairs and
clinical trial design and implementation. We believe that our
focus and expertise will enable us to develop products based on
our proprietary intellectual property.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Gene therapy products involve the use of delivery
vehicles, called vectors, to place genetic material into target
cells. Our proprietary vector technologies include both viral
and synthetic vectors. Our viral vector development activities,
which use modified viruses to deliver genes into cells, focus
primarily on adeno-associated virus, or AAV, a common human
virus that has not been associated with any human disease or
illness. We believe that AAV provides a number of safety and
gene delivery advantages over other viruses for several of our
potential gene therapy products. Our synthetic vectors deliver
genes into cells using lipids, which are fatty, water-insoluble
organic substances that can promote gene uptake through cell
membranes. We believe that synthetic vectors may provide a
number of gene delivery advantages for repeated, efficient
delivery of therapeutic genes into rapidly dividing cells, such
as certain types of tumor cells. Although our current product
development candidates utilize AAV as the delivery vector, we
believe that possessing capabilities in both viral and synthetic
approaches provides advantages in our corporate partnering
efforts and increases the range of our potential products that
may reach the market.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have an AAV-based product candidate under
development for treating cystic fibrosis that is being evaluated
in a second Phase&nbsp;II clinical trial initiated in July 2003.
We designed this trial to enroll up to 100&nbsp;patients and are
conducting it in collaboration with the Cystic Fibrosis
Foundation, or CF Foundation. We expect to complete patient
accrual and dosing by the end of 2004. We recently dosed the
50th patient in this study. After collecting 30-day data points
from the first 50&nbsp;patients, an independent data safety
monitoring committee will conduct an interim analysis to
determine whether the trial will continue or be terminated. If
it is apparent, statistically, that significant differences
between placebo and treated groups upon full patient enrollment
cannot be reached then the trial will be terminated. The data
remain blinded as long as the trial continues and we will
continue to accrue patients during the interim analysis period.
This second Phase&nbsp;II trial follows an initial repeat dosing
trial for which we announced final data in June 2003 that
indicated that our cystic fibrosis product candidate met safety
and tolerability targets. In addition, final data from the
initial
</FONT>

<P align="center"><FONT size="2">2
</FONT>

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<DIV align="left">
<FONT size="2">Phase&nbsp;II trial indicated a statistically
significant improvement in lung function at day 30 and a
decrease in levels of an inflammatory cytokine at day 14.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are developing an AAV-based vaccine product
candidate for high-risk populations in developing nations to
protect against the progression of Human Immunodeficiency Virus,
or HIV, infection to Acquired Immune Deficiency Syndrome, or
AIDS, in partnership with the International AIDS Vaccine
Initiative, or IAVI, a non-profit organization, and The Columbus
Children&#146;s Research Institute at Children&#146;s Hospital
in Columbus, Ohio. In December 2003, we initiated a Phase&nbsp;I
initial dose escalation safety trial in humans for our AIDS
vaccine product candidate in Europe. This dose-escalation safety
trial is designed to enroll up to 50 volunteers who are
uninfected with HIV and in good health. Each participant in this
trial will receive a single injection of the vaccine candidate
and will be monitored for safety and immune response. We expect
to complete the dose-escalation phase of this trial by the end
of 2004.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We are also developing an AAV-based product
candidate for the treatment of rheumatoid arthritis. In March
2004, we initiated a Phase&nbsp;I clinical trial for this
product candidate for treating rheumatoid arthritis. This
dose-escalation safety trial is designed to enroll up to
32&nbsp;patients with rheumatoid arthritis and will be conducted
in multiple sites in the United States and Canada. Patients will
be monitored for safety and secondarily for improvements in
arthritis signs and symptoms. We expect to complete patient
accrual and dosing in this trial by the first quarter of 2005.
We also have additional product candidates focused on treating
cancer and hemophilia; however, we have suspended further
development of these programs until we can find other sources of
funding for the programs.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that our successes in developing and
licensing a broad platform of proprietary intellectual property
for developing and manufacturing potential products support our
potential to develop and manufacture gene therapy product
candidates to treat a range of diseases. We have developed
processes to manufacture our potential products using methods
and at a scale amenable to clinical development and expandable
to large-scale production for advancing our potential products
to clinical evaluation and commercialization. These methods are
similar to the methods used to manufacture other biologics. As a
result, we evaluated and continue to evaluate opportunities to
utilize excess capacity to manufacture biologics for other
companies. In March 2003, we entered into a manufacturing
services agreement with GenVec, Inc., or GenVec, to conduct
initial feasibility studies to evaluate our ability to
manufacture clinical supply of GenVec&#146;s cancer product
candidate, TNFerade<SUP>TM</SUP>, an adeno-viral-based gene
therapy product. In October 2003, we successfully completed this
feasibility study and began manufacturing TNFerade<SUP>TM</SUP>
for clinical use. In January 2004, we completed our
manufacturing work for GenVec.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that a wide range of diseases may
potentially be treated, or prevented, with gene-based products,
including cancer, genetic diseases and infectious diseases. We
believe that there is also a significant opportunity to treat
diseases currently treated using recombinant DNA proteins and
monoclonal antibodies or small molecules that may be more
effectively treated by gene-based therapies due to their ability
to provide a long-term or a localized method of treatment. Our
business strategy is to develop multiple gene delivery systems,
which we believe will maximize our product opportunities. Using
these gene delivery systems, we are developing product
candidates across multiple diseases with the belief that
gene-based therapies may provide a means to treat diseases not
fully treatable with current biologic and pharmaceutical drugs.
We believe that, if successful, we can establish significant
market potential for our product candidates. There are no
commercially available gene therapy products in the United
States. We intend to pursue product development programs to
enable us to demonstrate proof of concept and eventually
commercialize gene-based therapeutics to address currently unmet
medical needs in treating disease.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The development of pharmaceutical products
involves extensive preclinical development followed by human
clinical trials that take several years or more to complete. The
length of time required to completely develop any product
candidate varies substantially according to the type, complexity
and novelty of the product candidate, the degree of involvement
by a development partner, and the intended use of the product
candidate. Our commencement and rate of completion of clinical
trials may vary or be delayed for many reasons, including those
discussed in the section of this prospectus entitled &#147;Risk
Factors.&#148;
</FONT>

<P align="center"><FONT size="2">3
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We were incorporated in the state of Washington
in 1989. Our executive offices are located at 1100&nbsp;Olive
Way, Suite&nbsp;100, Seattle, Washington 98101, and our
telephone number is (206)&nbsp;623-7612.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For more information about Targeted Genetics, you
should read the accompanying prospectus and the information
described in the section of this prospectus entitled &#147;Where
You Can Find More Information,&#148; including our consolidated
financial statements and related notes.
</FONT>

<P align="center"><FONT size="2">4
</FONT>

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<DIV align="left">
<A name='103'></A>
</DIV>

<!-- link1 "RISK FACTORS" -->

<P align="center">
<B><FONT size="2">RISK FACTORS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I><FONT size="2">This offering involves a high degree of risk.
Before you invest in our common stock, you should carefully read
and consider the following risk factors. If any of these risks
actually occur, our business, operating results or financial
condition could be harmed. This could cause the trading price of
our stock to decline, and you could lose all or part of your
investment.</FONT></I>

<P align="center">
<B><FONT size="2">Risks Related to Our Business</FONT></B>

<P align="left">
<B><I><FONT size="2">We expect to continue to operate at a loss
and may never become profitable, which could result in a decline
in the value of our common stock and a loss of your
investment.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Substantially all of our revenue has been derived
under collaborative research and development agreements relating
to the development of our potential product candidates. We have
incurred, and will continue to incur for the foreseeable future,
significant expense to develop our research and development
programs, conduct preclinical studies and clinical trials, seek
regulatory approval for our product candidates and provide
general and administrative support for these activities. As a
result, we have incurred significant net losses since inception,
and we expect to continue to incur substantial additional losses
in the future. As of March&nbsp;31, 2004, we had an accumulated
deficit of approximately $221&nbsp;million. We may never
generate profits and, if we do become profitable, we may be
unable to sustain or increase profitability.
</FONT>

<P align="left">
<B><I><FONT size="2">All of our product candidates are in
early-stage clinical trials or preclinical development, and if
we are unable to successfully develop and commercialize our
product candidates we will be unable to generate sufficient
capital to maintain our business.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In July 2003, we initiated a confirmatory
Phase&nbsp;II clinical trial for our cystic fibrosis product
candidate in the United States. In December 2003, we initiated a
Phase&nbsp;I clinical trial for our AIDS vaccine product
candidate in Europe. In March 2004, we initiated a Phase&nbsp;I
clinical trial for our rheumatoid arthritis product candidate in
the United States and Canada. Our product candidates for cancer
have been evaluated in Phase&nbsp;I and Phase&nbsp;II clinical
trials. We will not generate any product revenue for at least
several years and then only if we can successfully develop and
commercialize our product candidates. Commercializing our
potential products depends on successful completion of
additional research and development and testing, in both
preclinical development and clinical trials. Clinical trials may
take several years or more to complete. The commencement, cost
and rate of completion of our clinical trials may vary or be
delayed for many reasons, including the risks discussed
elsewhere in this section. If we are unable to successfully
complete preclinical and clinical development of some or all of
our product candidates in a timely manner, we may be unable to
generate sufficient product revenue to maintain our business.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Even if our potential products succeed in
clinical trials and are approved for marketing, these products
may never achieve market acceptance. If we are unsuccessful in
commercializing our product candidates for any reason, including
greater effectiveness or economic feasibility of competing
products or treatments, the failure of the medical community or
the public to accept or use any products based on gene delivery,
inadequate marketing and distribution capabilities or other
reasons discussed elsewhere in this section, we will be unable
to generate sufficient product revenue to maintain our business.
</FONT>

<P align="left">
<B><I><FONT size="2">The regulatory approval process for our
product candidates is costly, time-consuming and subject to
unpredictable changes and delays, and our product candidates may
never receive regulatory approval.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To our knowledge, no gene therapy products have
received regulatory approval for marketing from the
U.S.&nbsp;Food and Drug Administration, or FDA, or any similar
state or foreign regulatory agencies. Because our product
candidates involve new and unproven technologies, we believe
that the regulatory approval process may proceed more slowly
compared to clinical trials involving traditional drugs. The FDA
and applicable state and foreign regulators must conclude at
each stage of clinical testing that our clinical data suggest
acceptable levels of safety in order for us to proceed to the
next stage of clinical trials. In addition, gene therapy
clinical trials conducted at institutions that receive funding
for recombinant DNA research from the National
</FONT>

<P align="center"><FONT size="2">5
</FONT>

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<DIV align="left">
<FONT size="2">Institutes of Health, or NIH, are subject to
review by the NIH&#146;s Office of Biotechnology Activities
Recombinant DNA Advisory Committee, or RAC. Although NIH
guidelines do not have regulatory status, the RAC review process
can impede the initiation of the trial, even if the FDA has
reviewed the trial and approved its initiation. Moreover, before
a clinical trial can begin at an NIH-funded institution, that
institution&#146;s Institutional Biosafety Committee must review
the proposed clinical trial to assess the safety of the trial.
</FONT>
</DIV>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The regulatory process for our product candidates
is costly, time-consuming and subject to unpredictable delays.
The clinical trial requirements of the FDA, NIH and other
agencies and the criteria these regulators use to determine the
safety and efficacy of a product candidate vary substantially
according to the type, complexity, novelty and intended use of
the potential products. In addition, regulatory requirements
governing gene and cell therapy products have changed frequently
and may change in the future. Accordingly, we cannot predict how
long it will take or how much it will cost to obtain regulatory
approvals for clinical trials or for manufacturing or marketing
our potential products. Some or all of our product candidates
may never receive regulatory approval. A product candidate that
appears promising at an early stage of research or development
may not result in a commercially successful product. Our
clinical trials may fail to demonstrate the safety and efficacy
of a product candidate or a product candidate may generate
unacceptable side effects or other problems during or after
clinical trials. Should this occur, we may have to delay or
discontinue development of the product candidate, and the
corporate partner that supports development of that product
candidate may terminate its support. Delay or failure to obtain,
or unexpected costs in obtaining, the regulatory approval
necessary to bring a potential product to market could decrease
our ability to generate sufficient product revenue to maintain
our business.
</FONT>

<P align="left">
<B><I><FONT size="2">If we are unable to raise additional
capital when needed, we will be unable to conduct our operations
and develop our potential products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Because internally generated cash flow will not
fund development and commercialization of our product
candidates, we will require substantial additional financial
resources. Our future capital requirements will depend on many
factors, including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the rate and extent of scientific progress in our
    research and development programs;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the timing, costs and scope of, and our success
    in, conducting clinical trials, obtaining regulatory approvals
    and pursuing patent prosecutions;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">competing technological and market developments;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the timing and costs of, and our success in, any
    commercialization activities and facility expansions, if and as
    required;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the existence and/or outcome of any litigation or
    administrative proceedings involving our intellectual property.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As of March&nbsp;31, 2004, we had approximately
$41.1&nbsp;million in cash and cash equivalents. We expect that
our cash resources at March&nbsp;31, 2004 and the funding
expected from IAVI to fund 2004 work activities under our AIDS
vaccine collaboration will be sufficient to fund our operations
until at least the beginning of 2006. We are evaluating
opportunities to obtain additional capital to fund our
operations beyond that time. Additional sources of financing
could involve one or more of the following:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">extending or expanding our current collaborations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">entering into additional product development
    collaborations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">selling or licensing our technology or product
    candidates;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">borrowing under loan or equipment leasing
    arrangements;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">issuing equity in the public or private
    markets;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">issuing debt.
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">6
</FONT>

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<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Additional funding may not be available to us on
reasonable terms, if at all.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The funding that we expect to receive from IAVI
depends on continued scientific progress under the collaboration
and IAVI&#146;s ability and willingness to continue or extend
the collaboration. If we are unable to successfully access
additional capital, we may need to scale back, delay or
terminate one or more of our key development programs, curtail
capital expenditures or reduce other operating activities. We
may also be required to relinquish some rights to our technology
or product candidates or grant or take licenses on unfavorable
terms, either of which would reduce the ultimate value to us of
our technology or product candidates.
</FONT>

<P align="left">
<B><I><FONT size="2">If we are unable to obtain or maintain
licenses for necessary third-party technology on acceptable
terms or to develop alternative technology, we may be unable to
develop and commercialize our product candidates.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have entered into exclusive and nonexclusive
license agreements that give us and our partners rights to use
technologies owned or licensed by commercial and academic
organizations in the research, development and commercialization
of our potential products. For example, we have a gene transfer
technology license agreement with Amgen Inc., or Amgen, as the
successor to Immunex Corporation, or Immunex, under which we
have license rights to certain Immunex proprietary technology
specifically applicable to gene therapy applications. In a
February 2004 letter, Amgen has taken the position that we are
not licensed, either exclusively or nonexclusively, to use
Immunex intellectual property covering TNFR:Fc or therapeutic
uses for TNFR:Fc. We have responded with a letter confirming our
confidence that the gene transfer technology license agreement
provides us with an exclusive worldwide license to use the gene
construct coding for TNFR:Fc for gene therapy applications. We
have had and expect to have further communications with Amgen
regarding our differences. Notwithstanding our confidence, it is
possible that a resolution of those differences, through
litigation or otherwise, could cause delay or discontinuation of
our development of our product candidate, tgAAC94, or our
inability to commercialize any resulting product.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We believe that we will need to obtain additional
licenses to use patents and unpatented technology owned or
licensed by others for compositions, methods, processes to
manufacture compositions, processes to manufacture and purify
gene delivery product candidates and other technologies and
processes for our present and potential product candidates. If
we are unable to maintain our current licenses for third-party
technology or obtain additional licenses on acceptable terms, we
may be required to expend significant time and resources to
develop or license replacement technology. If we are unable to
do so, we may be unable to develop or commercialize the affected
product candidates. In addition, the license agreements for
technology for which we hold exclusive licenses typically
contain provisions that require us to meet minimum development
milestones in order to maintain the license on an exclusive
basis for some or all fields of the license. We also have
license agreements for some of our technologies, which may
require us to sublicense certain of our rights. If we do not
meet these requirements, our licensor may convert all or a
portion of the license to a nonexclusive license or, in some
cases, terminate the license.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In many cases, patent prosecution of our licensed
technology is controlled solely by the licensor. If our
licensors fail to obtain and maintain patent or other protection
for the proprietary intellectual property we license from them,
we could lose our rights to the intellectual property or our
exclusivity with respect to those rights, and our competitors
could market competing products using the intellectual property.
Licensing of intellectual property is of critical importance to
our business and involves complex legal, business and scientific
issues and is complicated by the rapid pace of scientific
discovery in our industry. Disputes may arise regarding
intellectual property subject to a licensing agreement,
including:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the scope of rights granted under the license
    agreement and other interpretation-related issues;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the extent to which our technology and processes
    infringe on intellectual property of the licensor that is not
    subject to the licensing agreement;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the sublicensing of patent and other rights under
    our collaborative development relationships;
    </FONT></TD>
</TR>

</TABLE>

<P align="center"><FONT size="2">7
</FONT>

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<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the ownership of inventions and know-how
    resulting from the joint creation or use of intellectual
    property by our licensors and us and our partners; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the priority of invention of patented technology.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If disputes over intellectual property that we
have licensed prevent or impair our ability to maintain our
current licensing arrangements on acceptable terms, we may be
unable to successfully develop and commercialize the affected
product candidates.
</FONT>

<P align="left">
<B><I><FONT size="2">Litigation involving intellectual property,
product liability or other claims and product recalls could
strain our resources, subject us to significant liability,
damage our reputation or result in the invalidation of our
proprietary rights.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">As our product development efforts progress,
especially in potentially significant markets such as AIDS or
rheumatoid arthritis therapies, the risk increases that others
may claim that our processes and potential products infringe on
their intellectual property rights. In addition, administrative
proceedings, litigation or both may be necessary to enforce our
intellectual property rights or determine the rights of others.
Defending or pursuing these claims, regardless of their merit,
would be costly and would likely divert management&#146;s
attention and resources away from our operations. If there were
to be an adverse outcome in litigation or an interference
proceeding, we could face potential liability for significant
damages or be required to obtain a license to the patented
process or technology at issue, or both. If we are unable to
obtain a license on acceptable terms, or to develop or obtain
alternative technology or processes, we may be unable to
manufacture or market any product or potential product that uses
the affected process or technology.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Clinical trials and the marketing of any
potential products may expose us to liability claims resulting
from the testing or use of our products. Gene therapy treatments
are new and unproven, and potential known and unknown side
effects of gene therapy may be serious and potentially
life-threatening. Product liability claims may be made by
clinical trial participants, consumers, healthcare providers or
other sellers or users of our products. Although we currently
maintain liability insurance, the costs of product liability and
other claims against us may exceed our insurance coverage. In
addition, we may require increased liability coverage as
additional product candidates are used in clinical trials and
commercialized. Liability insurance is expensive and may not
continue to be available on acceptable terms. A product
liability or other claim or product recall not covered by or
exceeding our insurance coverage could significantly harm our
financial condition. In addition, adverse publicity resulting
from a product recall or a liability claim against us, one of
our partners or another gene therapy company could significantly
harm our reputation and make it more difficult to obtain the
funding and collaborative partnerships necessary to maintain our
business.
</FONT>

<P align="left">
<B><I><FONT size="2">If we lose IAVI as a funding partner, we
may be unable to develop our AIDS vaccine product
candidate.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A significant portion of our operating and
clinical trial expenses are funded through our collaborative
agreements with IAVI. We have a collaborative development
agreement with IAVI, which expires in December 2006, that we
expect to provide us with funding to reimburse research and
development and manufacturing expenses we incur in connection
with the collaboration. In addition, our collaboration with IAVI
provides funding for our Phase&nbsp;I clinical trial for our
AIDS vaccine product candidate. IAVI has the right to terminate
the collaboration or its obligation to provide funding at any
time for any reason with 90&nbsp;days&#146; notice, which would
significantly affect our operating activities.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">If we were to lose the collaborative funding
relationship with IAVI and were unable to obtain alternative
sources of funding for the AIDS vaccine product candidate
covered by the IAVI collaboration, we may be unable to continue
our research and development or clinical program for this
product candidate. In addition, the loss of significant amounts
of collaborative or clinical trial funding could cause the
delay, reduction or termination of the related research and
development programs, and a reduction in capital expenditures
and other operating activities necessary to support general
operations. Such a reduction could further impede our ability to
develop our product candidates.
</FONT>

<P align="center"><FONT size="2">8
</FONT>

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<P align="left">
<B><I><FONT size="2">If our partners or scientific consultants
terminate, reduce or delay our relationships with them, we may
be unable to develop our potential products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our partners provide funding, manage regulatory
filings, aid and augment our internal research and development
efforts and provide access to important intellectual property
and know-how. Their activities include, for example, support in
processing the regulatory filings of our product candidates and
funding clinical trials. Our outside scientific consultants and
contractors perform research, develop technology and processes
to advance and augment our internal efforts and provide access
to important intellectual property and know-how. Their
activities include, for example, clinical evaluation of our
product candidates, product development activities performed
under our research collaborations, research under sponsored
research agreements and contract manufacturing services.
Collaborations with established pharmaceutical and biotechnology
companies and academic, research and public health organizations
often provide a measure of validation of our product development
efforts in the eyes of securities analysts, investors and the
medical community. The development of certain of our potential
products, and therefore the success of our business, depends on
the performance of our partners, consultants and contractors. If
they do not dedicate sufficient time, regulatory or other
technical resources to the research and development programs for
our product candidates or if they do not perform their
obligations as expected, we may experience delays in, and may be
unable to continue, the preclinical or clinical development of
those product candidates. Each of our collaborations and
scientific consulting relationships concludes at the end of the
term specified in the applicable agreement unless we and our
partners agree to extend the relationship. Any of our partners
may decline to extend the collaboration, or may be willing to
extend the collaboration only with a significantly reduced
scope, for a number of scientific or business reasons.
Competition for scientific consultants and partners in gene
therapy is intense. We may be unable to successfully maintain
our existing relationships or establish additional relationships
necessary for the development of our product candidates on
acceptable terms, if at all. If we are unable to do so, our
research and development programs may be delayed or we may lose
access to important intellectual property or know-how.
</FONT>

<P align="left">
<B><I><FONT size="2">If we do not attract and retain qualified
personnel, we may be unable to develop and commercialize some of
our potential products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our future success depends in large part on our
ability to attract and retain key technical and management
personnel. All of our employees, including our executive
officers, can terminate their employment with us at any time. We
have programs in place designed to retain personnel, including
competitive compensation packages and programs to create a
positive work environment. Other companies, research and
academic institutions and other organizations in our field
compete intensely for employees, however, and we may be unable
to retain our existing personnel or attract additional qualified
employees and consultants. If we experience significant turnover
or difficulty in recruiting new personnel, our research and
development of product candidates could be delayed and we could
experience difficulty in generating sufficient revenue to
maintain our business.
</FONT>

<P align="left">
<B><I><FONT size="2">The success of our clinical trials and
preclinical studies may not be indicative of results in a large
number of patients of either safety or efficacy.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The successful results of our technology in
preclinical studies using animal models may not be predictive of
the results that we will see in our clinical trials. In
addition, results in early-stage clinical trials are based on
limited numbers of patients and generally test for drug safety
rather than efficacy. Our reported progress and results from our
early phases of clinical testing of our product candidates may
not be indicative of progress or results that will be achieved
from larger populations, which could be less favorable.
Moreover, we do not know if the favorable results we have
achieved in clinical trials will have a lasting effect. If a
larger group of patients does not experience positive results,
or if any favorable results do not demonstrate a beneficial
effect, our product candidate for cystic fibrosis, or any other
potential products that we advance to clinical trials, may not
receive approval from the FDA for further clinical trials or
commercialization.
</FONT>

<P align="center"><FONT size="2">9
</FONT>

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<P align="left">
<B><I><FONT size="2">Failure to recruit patients could delay or
prevent clinical trials of our potential products, which could
delay or prevent the development of potential
products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Identifying and qualifying patients to
participate in clinical trials of our potential products is
critically important to our success. The timing of our clinical
trials depends on the speed at which we can recruit patients to
participate in testing our product candidates. We have
experienced delays in some of our clinical trials, and we may
experience similar delays in the future. If patients are
unwilling to participate in our gene therapy trials because of
negative publicity from adverse events in the biotechnology or
gene therapy industries or for other reasons, including
competitive clinical trials for similar patient populations, the
timeline for recruiting patients, conducting trials and
obtaining regulatory approval of potential products will be
delayed. These delays could result in increased costs, delays in
advancing our product development, delays in testing the
effectiveness of our technology or termination of the clinical
trials altogether.
</FONT>

<P align="left">
<B><I><FONT size="2">We may be unable to adequately protect our
proprietary rights domestically or overseas, which may limit our
ability to successfully market any product
candidates.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our success depends substantially on our ability
to protect our proprietary rights and operate without infringing
on the proprietary rights of others. We own or license patents
and patent applications, and will need to license additional
patents, for genes, processes, practices and techniques critical
to our present and potential product candidates. If we fail to
obtain and maintain patent or other intellectual property
protection for this technology, our competitors could market
competing products using those genes, processes, practices and
techniques. The patent process takes several years and involves
considerable expense. In addition, patent applications and
patent positions in the field of biotechnology are highly
uncertain and involve complex legal, scientific and factual
questions. Our patent applications may not result in issued
patents and the scope of any patent may be reduced both before
and after the patent is issued. Even if we secure a patent, the
patent may not provide significant protection and may be
circumvented or invalidated.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also rely on unpatented proprietary technology
and technology that we have licensed on a nonexclusive basis.
While we take precautions to protect our proprietary unpatented
technology, we may be unable to meaningfully protect this
technology from unauthorized use or misappropriation by a third
party. Our competitors could also obtain rights to our
nonexclusively licensed proprietary technology. In any event,
other companies may independently develop equivalent proprietary
information and techniques. If our competitors develop and
market competing products using our unpatented or nonexclusively
licensed proprietary technology or substantially similar
technology, our products, if successfully developed, could
suffer a reduction in sales or be forced out of the market.
</FONT>

<P align="left">
<B><I><FONT size="2">If we do not develop adequate
manufacturing, sales, marketing and distribution capabilities,
either alone or with our business partners, we will be unable to
generate sufficient product revenue to maintain our
business.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We currently do not have the physical capacity to
manufacture large-scale quantities of our potential products.
This could limit our ability to conduct large clinical trials of
a product candidate and to commercially launch a successful
product candidate. In order to manufacture product at such
scale, we will need to expand or improve our current facilities
and staff or supplement them through the use of contract
providers. If we are unable to obtain and maintain the necessary
manufacturing capabilities, either alone or through third
parties, we will be unable to manufacture our potential products
in quantities sufficient to sustain our business. Moreover, we
are unlikely to become profitable if we, or our contract
providers, are unable to manufacture our potential products in a
cost-effective manner.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, we have no experience in sales,
marketing and distribution. To successfully commercialize any
products that may result from our development programs, we will
need to develop these capabilities, either on our own or with
others. We intend to enter into collaborations with other
entities to utilize their mature marketing and distribution
capabilities, but we may be unable to enter into marketing and
distribution agreements on favorable terms, if at all. If our
current or future collaborative partners do not commit
sufficient resources to timely marketing and distributing our
future products, if any, and we are unable to develop the
</FONT>

<P align="center"><FONT size="2">10
</FONT>

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<DIV align="left">
<FONT size="2">necessary marketing and distribution capabilities
on our own, we will be unable to generate sufficient product
revenue to sustain our business.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">Post-approval manufacturing or product
problems or failure to satisfy applicable regulatory
requirements could prevent or limit our ability to market our
products.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Commercialization of any products will require
continued compliance with FDA and other federal, state and local
regulations. For example, our current manufacturing facility,
which is designed for manufacturing our AAV vectors for clinical
and development purposes, is subject to the Good Manufacturing
Practices requirements and other regulations of the FDA, as well
as to other federal, state and local regulations such as the
Occupational Health and Safety Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act and the
Environmental Protection Act. Any future manufacturing
facilities that we may construct for large-scale commercial
production will also be subject to regulation. We may be unable
to obtain regulatory approval for or maintain in operation this
or any other manufacturing facility. In addition, we may be
unable to attain or maintain compliance with current or future
regulations relating to manufacture, safety, handling, storage,
record keeping or marketing of potential products. If we fail to
comply with applicable regulatory requirements or discover
previously unknown manufacturing, contamination, product side
effects or other problems after we receive regulatory approval
for a potential product, we may suffer restrictions on our
ability to market the product or be required to withdraw the
product from the market.
</FONT>

<P align="center">
<B><FONT size="2">Risks Related to Our Industry</FONT></B>

<P align="left">
<B><I><FONT size="2">Adverse events in the field of gene therapy
could damage public perception of our potential products and
negatively affect governmental approval and
regulation.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Public perception of our product candidates could
be harmed by negative events in the field of gene therapy. For
example, in late 2002, two patients in a French academic
clinical trial being treated for x-linked severe combined
immunodeficiency in a gene therapy trial using a retroviral
vector developed leukemia. Patient deaths, related and unrelated
to gene therapy, have occurred in other clinical trials. These
adverse events and the resulting publicity, as well as any other
adverse events in the field of gene therapy that may occur in
the future, could result in a decrease in demand for any
products that we may develop. The commercial success of our
product candidates will depend in part on public acceptance of
the use of gene therapy for preventing or treating human
diseases. If public perception is influenced by claims that gene
therapy is unsafe, our product candidates may not be accepted by
the general public or the medical community. The public and the
medical community may conclude that our technology is unsafe.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Future adverse events in gene therapy or the
biotechnology industry could also result in greater governmental
regulation, unfavorable public perception, stricter labeling
requirements and potential regulatory delays in the testing or
approval of our potential products. Any increased scrutiny could
delay or increase the costs of our product development efforts
or clinical trials.
</FONT>

<P align="left">
<B><I><FONT size="2">Our use of hazardous materials exposes us
to liability risks and regulatory limitations on their use,
either of which could reduce our ability to generate product
revenue.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our research and development activities involve
the controlled use of hazardous materials, including chemicals,
biological materials and radioactive compounds. Our safety
procedures for handling, storing and disposing of these
materials must comply with federal, state and local laws and
regulations, including, among others, those relating to solid
and hazardous waste management, biohazard material handling,
radiation and air pollution control. We may be required to incur
significant costs in the future to comply with environmental or
other applicable laws and regulations. In addition, we cannot
eliminate the risk of accidental contamination or injury from
hazardous materials. If a hazardous material accident were to
occur, we could be held liable for any resulting damages, and
this liability could exceed our financial resources. Accidents
unrelated to our operations could cause federal, state or local
regulatory agencies to restrict our access to hazardous
materials needed in our research and development efforts, which
could result in delays in our research and development
</FONT>

<P align="center"><FONT size="2">11
</FONT>

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<DIV align="left">
<FONT size="2">programs. Paying damages or experiencing delays
caused by restricted access could reduce our ability to generate
revenue and make it more difficult to fund our operations.
</FONT>
</DIV>

<P align="left">
<B><I><FONT size="2">The intense competition and rapid
technological change in our market may result in pricing
pressures and failure of our potential products to achieve
market acceptance.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We face increasingly intense competition from a
number of commercial entities and institutions that are
developing gene therapy and cell therapy technologies. Our
competitors include early-stage and more established gene
delivery companies, other biotechnology companies,
pharmaceutical companies, universities, research institutions
and government agencies developing gene therapy products or
other biotechnology-based therapies designed to treat the
diseases on which we focus. We also face competition from
companies using more traditional approaches to treating human
diseases, such as surgery, medical devices and pharmaceutical
products. As our product candidates become commercial gene
therapy products that may affect commercial markets of the
analogous protein or traditional pharmaceutical therapy,
disputes including lawsuits, demands, threats or patent
challenges may arise in an effort to slow our development. In
addition, we compete with other companies to acquire products or
technology from research institutions or universities. Many of
our competitors have substantially more financial and
infrastructure resources and larger research and development
staffs than we do. Many of our competitors also have greater
experience and capabilities than we do in:
</FONT>
<P>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">research and development;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">clinical trials;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">obtaining FDA and other regulatory approvals;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">manufacturing; and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">marketing and distribution.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In addition, the competitive positions of other
companies, institutions and organizations, including smaller
competitors, may be strengthened through collaborative
relationships. Consequently, our competitors may be able to
develop, obtain patent protection for, obtain regulatory
approval for, or commercialize new products more rapidly than we
do, or manufacture and market competitive products more
successfully than we do. This could limit the prices we could
charge for the products that we are able to market or result in
our products failing to achieve market acceptance.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Gene therapy is a rapidly evolving field and is
expected to continue to undergo significant and rapid
technological change and competition. Rapid technological
development by our competitors, including development of
technologies, products or processes that are more effective or
more economically feasible than those we have developed, could
result in our actual and proposed technologies, products or
processes losing market share or becoming obsolete.
</FONT>

<P align="left">
<B><I><FONT size="2">Healthcare reform measures and the
unwillingness of third-party payors to provide adequate
reimbursement for the cost of our products could impair our
ability to successfully commercialize our potential products and
become profitable.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Sales of medical products and treatments depends
substantially, both domestically and abroad, on the availability
of reimbursement to the consumer from third-party payors. Our
potential products may not be considered cost-effective by
third-party payors, who may not provide coverage at the price
set for our products, if at all. If purchasers or users of our
products are unable to obtain adequate reimbursement, they may
forego or reduce their use of our products. Even if coverage is
provided, the approved reimbursement amount may not be high
enough to allow us to establish or maintain pricing sufficient
to realize a sufficient return on our investment.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Increasing efforts by governmental and
third-party payors, such as Medicare, private insurance plans
and managed care organizations, to cap or reduce healthcare
costs will affect our ability to commercialize our product
candidates and become profitable. We believe that third-party
payors will attempt to reduce healthcare costs by limiting both
coverage and level of reimbursement for new products approved by
the FDA.
</FONT>

<P align="center"><FONT size="2">12
</FONT>

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<DIV align="left">
<FONT size="2">There have been and will continue to be a number
of federal and state proposals to implement government controls
on pricing, the adoption of which could affect our ability to
successfully commercialize our product candidates. Even if the
government does not adopt any such proposals or reforms, their
announcement could impair our ability to raise capital.
</FONT>
</DIV>

<P align="center">
<B><FONT size="2">Risks Related to Our Common Stock</FONT></B>

<P align="left">
<B><I><FONT size="2">Concentration of ownership of our common
stock may give certain shareholders significant influence over
our business.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">A small number of investors own a significant
number of shares of our common stock. As of March&nbsp;31, 2004,
Biogen, Inc. and Elan Corporation plc, or Elan, and its
affiliates each held approximately 12.1&nbsp;million shares of
our common stock, or 14.9% of our current common shares
outstanding. This concentration of stock ownership may allow
these shareholders to exercise significant control over our
strategic decisions and block, delay or substantially influence
all matters requiring shareholder approval, such as:
</FONT>
<P>

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    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">election of directors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">amendment of our charter documents;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">approval of significant corporate transactions,
    such as a change of control of Targeted Genetics.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The interests of these shareholders may conflict
with the interests of other holders of our common stock with
regard to such matters. Furthermore, this concentration of
ownership of our common stock could allow these shareholders to
delay, deter or prevent a third party from acquiring control of
Targeted Genetics at a premium over the then-current market
price of our common stock, which could result in a decrease in
our stock price.
</FONT>

<P align="left">
<B><I><FONT size="2">Market fluctuations or volatility could
cause the market price of our common stock to decline and limit
our ability to raise capital.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">The stock market in general and the market for
biotechnology-related companies in particular have experienced
extreme price and volume fluctuations, often unrelated to the
operating performance of the affected companies. The market
price of the securities of biotechnology companies, particularly
companies such as ours without earnings and product revenue, has
been highly volatile and is likely to remain so in the future.
Any report of clinical trial results that are below the
expectations of financial analysts or investors could result in
a decline in our stock price. We believe that in the past,
similar levels of volatility have contributed to the decline in
the market price of our common stock, and may do so again in the
future. Trading volumes of our common stock can increase
dramatically, resulting in a volatile market price for our
common stock. In addition, the trading price of our common stock
could decline significantly as a result of sales of a
substantial number of shares of our common stock, or the
perception that significant sales could occur.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">For example, on March&nbsp;31, 2004, we and Elan
entered into a termination agreement that permits Elan to sell
shares of our common stock, subject to certain exceptions, under
the trading volume limitations of Rule&nbsp;144(e)(1)
promulgated under the Securities Act of 1933, as amended, or the
Securities Act. The trading volume limitations for Elan are
reduced over time subject to the terms of the termination
agreement. In addition, Elan has registration rights with
respect to its holdings pursuant to a registration rights
agreement dated July&nbsp;21, 1999. Both the termination
agreement and the registration rights agreement permit Elan to
sell quantities of stock, which could adversely impact the price
of our common stock.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In the past, securities class action litigation
has been brought against companies that experience volatility in
the market price of their securities. Market fluctuations in the
price of our common stock could also adversely affect our
collaborative opportunities and our future ability to sell
equity securities at a price we deem appropriate. As a result,
you could lose all or part of your investment.
</FONT>

<P align="center"><FONT size="2">13
</FONT>

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<P align="left">
<B><I><FONT size="2">Our future capital-raising activities could
involve the issuance of equity securities, which would dilute
your investment and could result in a decline in the trading
price of our common stock.</FONT></I></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">To meet all or a portion of our long-term funding
requirements, we may sell securities in the public or private
equity markets if and when conditions are favorable, even if we
do not have an immediate need for additional capital at that
time. Raising funds through the issuance of equity securities
will dilute the ownership of our existing shareholders.
Furthermore, we may enter into financing transactions at prices
that represent a substantial discount to market price. A
negative reaction by investors and securities analysts to any
discounted sale of our equity securities could result in a
decline in the trading price of our common stock.
</FONT>

<DIV align="left">
<A name='104'></A>
</DIV>

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<P align="center">
<B><FONT size="2">SPECIAL NOTE&nbsp;REGARDING FORWARD-LOOKING
STATEMENTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Our disclosure and analysis in this prospectus,
the applicable prospectus supplement and the documents
incorporated by reference into this prospectus and the
applicable prospectus supplement contain forward-looking
statements, which provide information regarding our current
expectations, plans, objectives and forecasts of future events.
Words such as &#147;may,&#148; &#147;will,&#148;
&#147;believe,&#148; &#147;estimate,&#148;
&#147;anticipate,&#148; &#147;plan,&#148; &#147;expect,&#148;
&#147;may affect&#148; and &#147;intend,&#148; or statements
concerning &#147;potential&#148; or &#147;opportunity&#148; and
similar expressions or the negative thereof, are intended to
identify forward-looking statements, but the absence of these
words does not mean that a statement is not forward-looking.
Forward-looking statements include, without limitation:
</FONT>
<P>

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    <TD width="1%"></TD>
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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
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    <FONT size="2">statements about our product development and
    commercialization goals and expectations;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">potential market opportunities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">our plans for and anticipated results of our
    clinical development activities;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the potential advantage of our product candidates;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">statements about our future capital requirements,
    the sufficiency of our capital resources to meet those
    requirements and the expected composition of our capital
    resources;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">other statements that are not historical facts.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Forward-looking statements are based on the
judgment of management at the time the statements are made.
Inaccurate assumptions and known and unknown risks and
uncertainties can affect the accuracy of forward-looking
statements. Our actual results could differ materially from
those stated in or implied by forward-looking statements for a
number of reasons, including the risks described in the sections
of this prospectus and the applicable prospectus supplement
entitled &#147;Risk Factors,&#148; in our other public filings,
press releases and statements by our management. Other factors
besides those described in this prospectus, the applicable
prospectus supplement and in our other public filings, press
releases and statements by our management could also affect
actual results.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You should not unduly rely on these
forward-looking statements, which speak only as of the date of
this prospectus or the applicable prospectus supplement. We
undertake no obligation to publicly update any forward-looking
statement to reflect new information, events or circumstances,
whether anticipated or unanticipated, or to conform the
statement to actual results or changes in our expectations. You
should, however, review the factors, risks and other information
we provide in the reports we file from time to time with the SEC.
</FONT>

<DIV align="left">
<A name='105'></A>
</DIV>

<!-- link1 "USE OF PROCEEDS" -->

<P align="center">
<B><FONT size="2">USE OF PROCEEDS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Unless otherwise indicated in the applicable
prospectus supplement, we intend to use any net proceeds from
the sale of common stock offered by this prospectus for
additional working capital and other general corporate purposes,
as well as the possible acquisition of or investment in
complementary businesses and technologies, through joint
ventures, development agreements or otherwise. As of the date of
this prospectus, we are not a party to any contract, commitment
or letter of intent with respect to such acquisition or
investment. Until we have used the net proceeds, we may invest
them in short-term marketable securities.
</FONT>

<P align="center"><FONT size="2">14
</FONT>

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<DIV align="left">
<A name='106'></A>
</DIV>

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<P align="center">
<B><FONT size="2">PLAN OF DISTRIBUTION</FONT></B>

<P align="left">
<B><FONT size="2">Distributions by the Company</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may sell the common stock offered by this
prospectus in one or more transactions:
</FONT>
<P>

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    <TD width="1%"></TD>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">to or through underwriters;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">through dealers, agents or institutional
    investors;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">directly to purchasers;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">through a combination of these methods.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may sell the common stock at a fixed price or
prices that may change, at prevailing market prices, at prices
relating to prevailing market prices or at negotiated prices.
Each time we sell common stock in a particular offering, we will
provide a prospectus supplement or, if required, amend this
prospectus, to disclose the following information with respect
to that offering:
</FONT>
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    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the material terms of the distribution, including
    the number of shares and the consideration to be paid;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the identity of any underwriters, dealers, agents
    or purchasers that will purchase the common stock;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the amount of any compensation, discounts or
    commissions to be received by underwriters, dealers or agents;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the nature of any transactions by underwriters,
    dealers or agents during the offering that are intended to
    stabilize or maintain the market price of the common
    stock;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">the terms of any indemnification provisions.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Underwriters, dealers, agents or other purchasers
may sell the common stock at a fixed price or prices that may
change, at prices set at or relating to prevailing market prices
or at negotiated prices.
</FONT>

<P align="left">
<B><FONT size="2">Underwriters</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may sell all or a portion of the shares
offered by this prospectus in one or more transactions to or
through underwriters. In connection with the sale of our common
stock, underwriters, dealers or agents may receive compensation
from us, or from the purchasers of the common stock for whom
they may act as agents, in the form of discounts, concessions or
commissions. Underwriters, dealers, agents or purchasers that
participate in the distribution of the common stock, and any
broker-dealers or other persons acting on behalf of parties that
participate in the distribution of the common stock, are
&#147;underwriters&#148; under the Securities Act. Any discounts
or commissions they receive and any profit on the resale of the
common stock they receive constitute underwriting discounts and
commissions under the Securities Act. Any person deemed to be an
underwriter under the Securities Act may be subject to statutory
liabilities, including those under Sections&nbsp;11, 12 and 17
of the Securities Act and Rule&nbsp;10b-5 under the Securities
Exchange Act of 1934, as amended, or the Exchange Act.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Only underwriters named in the applicable
prospectus supplement, if any, will be underwriters of the
common stock offered through that prospectus supplement. Any
underwriters used in an offering will acquire the common stock
for their own account and may resell the common stock from time
to time in one or more transactions, at a fixed public offering
price or at varying prices determined at the time of sale. We
may offer the common stock to the public through underwriting
syndicates represented by managing underwriters or through
underwriters without a syndicate. Any public offering price and
any discounts or concessions allowed or reallowed or paid to
dealers may change from time to time.
</FONT>

<P align="left">
<B><FONT size="2">Agents; Direct Sales</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may designate agents to distribute the common
stock offered by this prospectus. Unless the applicable
prospectus supplement states otherwise, any such agent will act
on a best-efforts basis for the period
</FONT>

<P align="center"><FONT size="2">15
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">of appointment. We may authorize dealers or other
persons acting as our agents to solicit offers by institutional
investors to purchase the common stock from us under contracts
that provide for payment and delivery on a future date. We may
enter into agreements directly with purchasers that provide for
the sale of the common stock over a period of time by means of
draw-downs at our election, which the purchaser would be
obligated to accept under specified conditions. Under a
draw-down agreement, we may sell common stock at a per-share
purchase price discounted from the market price of our common
stock. We may also enter into agreements for sales of common
stock based on combinations of or variations from these methods.
We will describe in the applicable prospectus supplement the
terms and conditions of any such agreements and any related
commissions we will pay. Agents and underwriters may also engage
in transactions with us or perform services for us in the
ordinary course of business.
</FONT>
</DIV>

<P align="left">
<B><FONT size="2">Stabilization Activities</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">In connection with a firm commitment underwritten
offering of our common stock, underwriters and purchasers that
are deemed to be underwriters under the Securities Act may
engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock. For example, they may:
</FONT>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">over-allot in connection with the offering,
    creating a syndicate short position for their own account;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">bid for and purchase our common stock in the open
    market to cover short positions or to stabilize the price of our
    common stock;&nbsp;or
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><FONT size="2">&#149;&nbsp;</FONT></TD>
    <TD align="left">
    <FONT size="2">reclaim selling concessions allowed for
    distributing our common stock in the offering if the
    underwriters repurchase previously distributed common stock in
    transactions to cover short positions, stabilization
    transactions or otherwise.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Any of these activities may stabilize or maintain
the market price above independent market levels. These
activities may be conducted only in conjunction with a firm
commitment underwritten offering. Underwriters are not required
to engage in these activities and may terminate any such
activity at any time. In engaging in any such activities,
underwriters will be subject to the applicable provisions of the
Securities Act and the Exchange Act and the rules and
regulations under those acts. Regulation&nbsp;M under the
Securities Act, for example, may restrict the ability of any
person engaged in the distribution of the common stock to engage
in market-making activities with respect to the common stock,
and the anti-manipulation rules under the Exchange Act may also
apply to market sales of the common stock. These provisions may
affect the marketability of the common stock and the ability of
any person to engage in market-making activities with respect to
the common stock.
</FONT>

<P align="left">
<B><FONT size="2">Indemnification</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We may agree to indemnify underwriters, dealers,
agents or other purchasers against civil liabilities they may
incur in connection with the offer and sale of the common stock
offered by this prospectus, including liabilities under the
Securities Act. We may also agree to contribute to payments that
these persons may be required to make with respect to these
liabilities.
</FONT>

<DIV align="left">
<A name='107'></A>
</DIV>

<!-- link1 "WHERE YOU CAN FIND MORE INFORMATION" -->

<P align="center">
<B><FONT size="2">WHERE YOU CAN FIND MORE INFORMATION</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We have filed with the SEC a registration
statement under the Securities Act relating to the common stock
being offered by this prospectus. As permitted by the SEC rules,
this prospectus omits some information included in the
registration statement. For a more complete understanding of the
common stock and this offering, you should refer to the
registration statement, including its exhibits.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We file annual, quarterly and current reports, as
will as registration and proxy statements and other information
with the SEC. We fhave filed with the SEC a registration
statement on Form&nbsp;S-3 with under the Securities Act with
respect to the shares of common stock we are offering under this
prospectus. SEC rules allow us to incorporate by reference into
this prospectus the information we file with the SEC, which means
</FONT>

<P align="center"><FONT size="2">16
</FONT>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left">
<FONT size="2">we can disclose important information to you by
referring you to those documents. The information included in
the following documents is incorporated by reference and is
considered to be a part of this prospectus:
</FONT>
</DIV>
<P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">1.&nbsp;Our quarterly report on Form&nbsp;10-Q
    for the quarter ended March&nbsp;31, 2004, filed with the SEC on
    April&nbsp;30, 2004;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">2.&nbsp;Our annual report on Form&nbsp;10-K for
    the year ended December&nbsp;31, 2003, filed with the SEC on
    March&nbsp;12, 2004;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">3.&nbsp;Our current reports on Form&nbsp;8-K
    filed with the SEC on April&nbsp;6, 2004, March&nbsp;18, 2004,
    February&nbsp;4, 2004, January&nbsp;27, 2004, January&nbsp;22,
    2004, and January&nbsp;13, 2004;
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">4.&nbsp;Our definitive proxy statement dated
    March&nbsp;22, 2004, relating to our May&nbsp;20, 2004 annual
    meeting of shareholders;&nbsp;and
    </FONT></TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    <FONT size="2">5.&nbsp;The description of our common stock
    contained in our registration statements on Form&nbsp;8-A filed
    on April&nbsp;26, 1994 and October&nbsp;22, 1996 under
    Section&nbsp;12(g) of the Exchange Act, including any amendments
    or reports filed for the purpose of updating that description.
    </FONT></TD>
</TR>

</TABLE>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">We also incorporate by reference all documents we
file under Section&nbsp;13(a), 13(c), 14 or 15(d) of the
Exchange Act, (a)&nbsp;after the filing date of the initial
registration statement of which this prospectus is a part and
before the effectiveness of the registration statement and
(b)&nbsp;after the effectiveness of the registration statement
and before all of the shares registered under the registration
statement are sold. The most recent information that we file
with the SEC automatically updates and supersedes older
information. The information contained in any such filing will
be deemed to be part of this prospectus as of the date on which
the document is filed, and any older information that has been
modified or superseded will not be deemed to be a part of this
prospectus. Unless specifically stated to the contrary, none of
the information that we disclose under Item&nbsp;9 or 12 of any
Current Report on Form&nbsp;8-K that we may from time to time
furnish to the SEC will be incorporated by reference into, or
otherwise included in, this prospectus.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Upon request, we will provide without charge to
each person who receives a prospectus, including any beneficial
owner, a copy of the information that has been incorporated by
reference into this prospectus or the applicable prospectus
supplement. Please direct your request, either in writing or by
telephone, to the Secretary, Targeted Genetics Corporation,
1100&nbsp;Olive Way, Suite&nbsp;100, Seattle,
Washington&nbsp;98101, (206)&nbsp;623-7612.
</FONT>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">You may also inspect and copy the registration
statement and other documents that we have filed with the SEC,
at prescribed rates, at the public reference facility maintained
by the SEC at Room&nbsp;1024, 450&nbsp;Fifth Street, N.W.,
Washington,&nbsp;D.C. 20549. You may obtain information
regarding the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the registration statement and
other documents we have filed with the SEC are publicly
available through the SEC&#146;s website at http://www.sec.gov
or through our website at www.targetedgenetics.com.
</FONT>

<DIV align="left">
<A name='108'></A>
</DIV>

<!-- link1 "LEGAL MATTERS" -->

<P align="center">
<B><FONT size="2">LEGAL MATTERS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Unless otherwise indicated in the applicable
prospectus supplement, the validity of the common stock will be
passed on for us by Orrick, Herrington&nbsp;&#38; Sutcliffe LLP,
Seattle, Washington.
</FONT>

<DIV align="left">
<A name='109'></A>
</DIV>

<!-- link1 "EXPERTS" -->

<P align="center">
<B><FONT size="2">EXPERTS</FONT></B>

<P align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<FONT size="2">Ernst&nbsp;&#38; Young LLP, independent
registered public accounting firm, have audited our consolidated
financial statements included in our annual report on
Form&nbsp;10-K for the year ended December&nbsp;31, 2003, as set
forth in their report, which is incorporated by reference in
this prospectus and elsewhere in the registration statement. Our
consolidated financial statements are incorporated by reference
in reliance on Ernst&nbsp;&#38; Young LLP&#146;s report, given
on their authority as experts in accounting and auditing.
</FONT>

<P align="center"><FONT size="2">17
</FONT>
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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
