
<PAGE>
    AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 25, 2000
                                                     REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM S-1

                             REGISTRATION STATEMENT

                                     UNDER

                           THE SECURITIES ACT OF 1933

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

                                 AEROGEN, INC.

             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                  <C>                                  <C>
              DELAWARE                               3845                              33-0488580
  (State or other jurisdiction of        (Primary Standard Industrial               (I.R.S. Employer
   incorporation or organization)        Classification Code Number)             Identification Number)
</TABLE>

                               1310 ORLEANS DRIVE
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 543-2400

  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

                              JANE E. SHAW, PH.D.
                      CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                                 AEROGEN, INC.
                               1310 ORLEANS DRIVE
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 543-2400
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                                   COPIES TO:

<TABLE>
<S>                                                          <C>
                  ROBERT J. BRIGHAM, ESQ.                                      JAMES R. TANENBAUM, ESQ.
                   KEITH D. PISANI, ESQ.                                         ANNA T. PINEDO, ESQ.
                     Cooley Godward LLP                                     Stroock & Stroock & Lavan LLP
                   Five Palo Alto Square                                           180 Maiden Lane
                    3000 El Camino Real                                        New York, NY 10038-4982
                Palo Alto, California 94306                                     Phone: (212) 806-5400
                   Phone: (650) 843-5000                                      Facsimile: (212) 806-6006
                 Facsimile: (650) 849-7400
</TABLE>

                  APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

    If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

    If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
                                                                 PROPOSED MAXIMUM
            TITLE OF SHARES TO BE REGISTERED               AGGREGATE OFFERING PRICE (1)      AMOUNT OF REGISTRATION FEE
<S>                                                       <C>                              <C>
Common Stock, $0.001 par value..........................            $57,500,000                        $15,180
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457 under the Securities Act of 1933, as amended.

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

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                  SUBJECT TO COMPLETION, DATED AUGUST 25, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS

                                          SHARES

                                 [AEROGEN LOGO]

                                  COMMON STOCK

    This is an initial public offering of common stock by AeroGen, Inc. AeroGen
is selling      shares of common stock. The estimated initial public offering
price is between $        and $        per share.

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

    Prior to this offering, there has been no public market for our common
stock. We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the symbol AEGN.

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

<TABLE>
<CAPTION>
                                                                   PER SHARE             TOTAL
                                                                   ---------          -----------
<S>                                                                <C>                <C>
Initial public offering price.............................         $                  $
Underwriting discounts and commissions....................         $                  $
Proceeds to AeroGen before expenses.......................         $                  $
</TABLE>

    AeroGen has granted the underwriters an option for a period of 30 days to
purchase up to      additional shares of common stock to cover over-allotments.

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

           INVESTING IN OUR COMMON SHARES INVOLVES A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" BEGINNING ON PAGE 5.

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

    NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CHASE H&Q
                               CIBC WORLD MARKETS
                                                                        SG COWEN

         , 2000
<PAGE>
                               INSIDE FRONT COVER

Creating Innovative Drug Delivery Products (header, left)

    -  AeroGen Logo image (upper right)

    -  Aerosol generator image (center)

    -  Respiratory Products for Marketing by AeroGen (upper left)

    -  Systemic Drug Delivery Products for Partners (center right)

    -  Respiratory Products for Partners (center left)

    -  Aerosol Generator Our Core Technology (lower right)

    -  Broad Range of Drug Formulations Solution or Suspension of Drug (bottom
       center)

                          INSIDE FOLDOUT PANEL 1 AND 2

Product (header, upper left)

    -  Image of man using nebulizer (upper left), annotated with the following:

       --  AeroNeb Portable Nebulizer--Cleared by FDA for delivery of
           commercially available nebulizer solutions

    -  Image of patient using AeroNeb Inline Nebulizer (upper center), annotated
       with the following:

       --  AeroNeb Inline Nebulizer--In development to deliver commercially
           available nebulizer solutions and humidification

    -  Image of man using AeroDose Inhaler (upper right), annotated with the
       following:

       --  AeroDose Inhaler--In development--Respiratory Products,
           Bronchodilators, Anti-infective, Anti-inflammatory--Systemic Drug
           Delivery Products--Insulin

Platforms (header, middle left)

    -  Schematic drawing of nebulizer (middle left), annotated with the
       following:

       --  Our Home Nebulizer--Quiet, small, lightweight, portable

    -  Schematic drawing of ventilator nebulizer (middle center), annotated with
       the following:

       --  Our Ventilator Nebulizer--Efficient drug delivery

    -  Schematic drawing of Inhaler (middle right), annotated with the
       following:

       --  Our Inhaler--Breath activated, small, lightweight, hand-held,
           efficient

Core Technology (header, lower left)

    -  Image of Aerosol Generator (lower middle)--Aerosol Generator

AeroGen logo (lower left)

                               INSIDE BACK COVER

Efficiency of AeroDose Inhaler in Depositing Albuterol in the Lungs (header,
left)

    -  Six person imaging study conducted by AeroGen using radio-labelled
       albuterol

    -  Image of Throat, Lungs, Stomach (upper right)--Throat, Lungs, Stomach

    -  AeroDose (middle, right), annotated with the following:

       --  Average Lung Deposition 70%

    -  MDI (middle, left), annotated with the following:

       --  Average Lung Deposition 18%

    -  Image of Throat, Lungs, Stomach (lower left)--Throat, Lungs, Stomach

    -  AeroGen logo (lower right)
<PAGE>
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
Prospectus Summary..........................................      1

Risk Factors................................................      5

Forward-Looking Statements..................................     14

Use of Proceeds.............................................     14

Dividend Policy.............................................     14

Capitalization..............................................     15

Dilution....................................................     16

Selected Consolidated Financial Data........................     17

Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................     19

Business....................................................     23

Management..................................................     42

Principal Stockholders......................................     53

Related Party Transactions..................................     56

Description of Capital Stock................................     58

Shares Eligible for Future Sale.............................     61

Underwriting................................................     63

Legal Matters...............................................     66

Experts.....................................................     66

Where You Can Find More Information.........................     66

Index to Consolidated Financial Statements..................    F-1
</TABLE>

    "AeroGen," "AeroDose," "AeroNeb," "AeroNeb InLine" and the AeroGen logo are
our trademarks. "TOBI" is a registered trademark of PathoGenesis Corporation.
This prospectus also includes references to registered service marks and
trademarks of other companies.
<PAGE>
                               PROSPECTUS SUMMARY

    THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER
BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY, INCLUDING "RISK FACTORS" BEGINNING ON PAGE 5 AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES BEGINNING ON PAGE F-1, BEFORE MAKING AN
INVESTMENT DECISION. EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED
AND ASSUMES THE CONVERSION OF ALL OF OUR PREFERRED STOCK INTO COMMON STOCK UPON
COMPLETION OF THIS OFFERING.

                                  OUR BUSINESS

    AeroGen specializes in the development, manufacture and commercialization of
products for the controlled delivery of drugs to the lungs, which is called
pulmonary drug delivery. Drugs can be delivered via a fine mist, or aerosol, to
the lungs to treat breathing-related (respiratory) conditions such as asthma, or
through the lungs to the bloodstream (systemically) to treat diseases or
conditions outside of the lungs such as diabetes. Our core technology consists
of a proprietary aerosol generator. When incorporated in our inhaler or
nebulizer platforms, our aerosol generator delivers drugs in an aerosol of a
predetermined particle size. We believe our delivery platforms will allow us to
develop products delivering drugs formulated as liquids in solutions,
suspensions or liposomes, from single-dose, multi-dose or patient-adjustable
dosage forms. Products in development provide drug delivery from our hand-held
breath-activated inhalers, nebulizers for home use and nebulizers for patients
on mechanical ventilators.

    We intend to create and market a respiratory disease product portfolio. Our
initial products will focus on treating three respiratory diseases--asthma,
chronic obstructive pulmonary disease (COPD) and cystic fibrosis (CF)--and will
improve treatment for patients currently using nebulizers and those receiving
therapy via ventilators. These products will deliver commercially available
respiratory drugs and compounds licensed from third parties. In 1999 the U.S.
institutional and pharmacy expenditures for inhaled respiratory medications were
approximately $3.3 billion.

    We also are developing respiratory products in collaboration with partner
companies who will commercialize those products. For example, in March 2000, we
signed an agreement with PathoGenesis Corporation to develop a small, hand-held
AeroDose inhaler to deliver TOBI, an inhaled tobramycin treatment for CF. Under
the agreement, PathoGenesis received exclusive worldwide rights to commercialize
our AeroDose inhaler for use in combination with TOBI. In August 2000,
PathoGenesis announced that it had entered into an agreement to be acquired by
Chiron Corporation, a leading biotechnology company.

    In addition to our respiratory therapy activities, we intend to develop
novel pulmonary drug delivery products for systemic drug delivery. These
products will be developed in collaboration with pharmaceutical and
biotechnology companies. Our first product in development for delivery of drugs
through the lungs to the bloodstream is an AeroDose inhaler delivering insulin
to treat diabetes. We completed our first clinical trial for this product, and
are proceeding with additional trials in the United States and Europe. In May of
this year, we entered into an agreement with Becton, Dickinson and Company (BD)
under which BD will develop and supply a patient-adjustable container for use in
our AeroDose insulin product. We plan to partner this product for further
development, clinical testing and commercialization. We estimate that the
worldwide insulin market will grow from $3.2 billion in 2000 to $6.5 billion by
2005.

    The worldwide market for therapeutic proteins is estimated to be
$19.2 billion in 2001. We believe that systemic drug delivery of these molecules
via the lungs provides significant additional market opportunities for us.

                                       1
<PAGE>
    We believe that our products will address many of the limitations presented
by traditional and competing new methods of pulmonary drug delivery and will
provide the following benefits:

    -  OPTIMIZATION AND CUSTOMIZATION OF AEROSOL PARTICLE SIZE. Our aerosol
       generator delivers a low-velocity aerosol of precisely defined particle
       size, facilitating delivery of drug to the appropriate part of the
       respiratory system.

    -  EASE OF FORMULATION. Drugs can be stored in liquid or dry powder form and
       can be aerosolized in solution or suspension.

    -  FLEXIBILITY OF DOSING. Our AeroDose inhaler technology can be used to
       administer drugs as a single dose, as a unit dose from a multi-dose
       container or as a patient-adjustable dose.

    -  BREATH-ACTIVATION. We have developed a breath-activation feature which
       triggers aerosol formation and is designed to enable patients to obtain
       consistent dosing over one or more breaths.

    -  DOSAGE GUIDANCE. We can incorporate electronic features to provide
       information to the patient.

    -  CONVENIENCE. Our products are designed to be portable, lightweight and
       easy to use.

                                  OUR STRATEGY

    Our goal is to become the leading provider of aerosol-based pulmonary drug
delivery products. Key elements of our strategy include:

    -  Incorporating our core technology into adaptable delivery platforms;

    -  Developing our platforms for multiple product applications;

    -  Developing and commercializing respiratory products ourselves and with
       partner companies;

    -  Partnering with pharmaceutical and biotechnology companies for systemic
       delivery products; and

    -  Out-licensing our aerosol generator technology for use outside of the
       field of pulmonary drug delivery.
                                 --------------

    We were incorporated in the state of California in November 1991 under the
name Fluid Propulsion Technologies, Inc. In April 1997, we changed our name to
AeroGen, Inc. In March 1998, we changed our domicile to the state of Delaware.
Our principal executive offices are located at 1310 Orleans Drive, Sunnyvale,
California 94089, and our telephone number is (408) 543-2400. Our web site is
www.aerogen.com. Information on our web site is not part of this prospectus.

                                       2
<PAGE>
                                  THE OFFERING

<TABLE>
<S>                                            <C>
Common stock we are offering.................  shares

Common stock to be outstanding after this      shares
  offering...................................

Use of proceeds..............................  We intend to use the net proceeds of this
                                               offering primarily for research, development
                                               and clinical activities, manufacturing and
                                               commercialization of existing and future
                                               products, capital expenditures and general
                                               corporate purposes.

Proposed Nasdaq National Market symbol.......  AEGN
</TABLE>

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

    The share amounts in this table are based on shares outstanding as of
June 30, 2000, as adjusted for the issuance in July 2000 of preferred stock
convertible into 7,498,223 shares of common stock. This table excludes, as of
August 24, 2000:

    -  97,051 shares of common stock issuable upon exercise of warrants
       outstanding at a weighted average exercise price of $0.93 per share;

    -  3,737,192 shares of common stock issuable upon exercise of options
       outstanding at a weighted average exercise price of $0.85 per share;

    -  6,239,030 shares of common stock reserved for future grants under our
       stock option plans; and

    -  750,000 shares of common stock reserved for issuance under our employee
       stock purchase plan.

                                       3
<PAGE>
                   SUMMARY CONSOLIDATED FINANCIAL INFORMATION

    The following table sets forth summary consolidated financial data for the
periods indicated. The data has been derived from the consolidated financial
statements for the three years ended December 31, 1999 and the six month periods
ended June 30, 1999 and 2000 included elsewhere in this prospectus. It is
important that you read this information together with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" beginning on
page 19 and our consolidated financial statements and related notes beginning on
page F-1.

<TABLE>
<CAPTION>
                                                                                             SIX MONTHS        CUMULATIVE PERIOD
                                                                                                ENDED            FROM 11/18/91
                                                                 YEARS ENDED                  JUNE 30,               (DATE
                                                                 DECEMBER 31,                (UNAUDITED)         OF INCEPTION)
                                                        ------------------------------   -------------------    THROUGH 6/30/00
                                                          1997       1998       1999       1999       2000        (UNAUDITED)
                                                        --------   --------   --------   --------   --------   -----------------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
  Research and development revenues...................  $   328    $    86    $   468    $    --    $ 3,568        $  5,166
  Operating expenses:
    Research and development..........................    3,961      4,393      7,837      3,305      7,374          26,354
    General and administrative........................    1,509      1,600      2,039      1,023      1,745           8,285
    Stock-based compensation..........................       --         --        110         43        205             315
    Purchased in-process research and development.....       --         --         --         --      3,500           3,500
                                                        -------    -------    -------    -------    -------        --------
    Total operating expenses..........................    5,470      5,993      9,986      4,371     12,824          38,454
                                                        -------    -------    -------    -------    -------        --------
  Loss from operations................................   (5,142)    (5,907)    (9,518)    (4,371)    (9,256)        (33,288)
  Interest income, net................................       87        345        550        303        184           1,346
                                                        -------    -------    -------    -------    -------        --------
  Net loss............................................   (5,055)    (5,562)    (8,968)    (4,068)    (9,072)        (31,942)
  Dividend related to beneficial conversion feature of
    preferred stock...................................       --         --         --         --       (353)           (353)
                                                        -------    -------    -------    -------    -------        --------
  Net loss available to common stockholders...........  $(5,055)   $(5,562)   $(8,968)   $(4,068)   $(9,425)       $(32,295)
                                                        =======    =======    =======    =======    =======        ========
  Net loss per common share, basic and diluted........  $ (1.14)   $ (1.16)   $ (1.65)   $ (0.78)   $ (1.46)
                                                        =======    =======    =======    =======    =======
  Shares used in computing net loss per common share,
    basic and diluted.................................    4,429      4,810      5,433      5,197      6,462
                                                        =======    =======    =======    =======    =======
  Pro forma net loss per common share, basic and
    diluted (unaudited)...............................                        $ (0.27)              $ (0.25)
                                                                              =======               =======
  Shares used in computing pro forma net loss per
    common share, basic and diluted (unaudited).......                         33,428                35,701
                                                                              =======               =======
</TABLE>

    The actual column in the following table presents the actual summary
consolidated balance sheet at June 30, 2000.

    The pro forma consolidated balance sheet data summarized below reflects the
sale of 7,498,223 shares of Series F preferred stock in July 2000 for net
proceeds of approximately $16.3 million as well as the conversion of all of our
preferred stock into common stock at the closing of this offering.

    The pro forma as adjusted consolidated balance sheet data summarized below
reflects the sale of      shares of common stock in this offering at an initial
public offering price of $     per share, after deducting underwriting discounts
and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
                                                                  JUNE 30, 2000 (UNAUDITED)
                                                              ---------------------------------
                                                                                     PRO FORMA
                                                                                         AS
                                                               ACTUAL    PRO FORMA    ADJUSTED
                                                              --------   ---------   ----------
                                                                       (IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents and available-for-sale
    securities..............................................  $  7,245   $ 23,545
  Total assets..............................................    12,227     28,527
  Long-term obligations, less current position..............       286        286
  Deficit accumulated during the development stage..........   (32,295)   (32,295)
  Deferred stock-based compensation, net....................    (4,431)    (4,431)
  Total stockholders' equity (deficit)......................   (32,073)    26,111
</TABLE>

                                       4
<PAGE>
                                  RISK FACTORS

    YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED BELOW TOGETHER WITH ALL OF
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE HARMED. IN SUCH AN EVENT, THE
TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE PART OR ALL OF
YOUR INVESTMENT.

                         RISKS RELATED TO OUR BUSINESS

WE ARE A DEVELOPMENT STAGE COMPANY AND ALMOST ALL OF OUR PRODUCTS ARE IN AN
EARLY STAGE OF RESEARCH AND DEVELOPMENT, WHICH MAKES IT DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.

    You must evaluate us in light of the uncertainties and complexities present
in a development stage company. Almost all of our products are in an early stage
of research or development. Before we can begin to sell our products
commercially, we will need to invest in substantial additional development and
conduct clinical trials. To further develop our products, we will need to
address engineering and design issues, including ensuring that our products
deliver a consistent and predictable amount of drug to the lung and can be
manufactured successfully. We cannot assure you that:

    -  our research and development efforts will be successful;

    -  any of our products will prove safe and effective;

    -  we will obtain regulatory clearance or approval to sell any of our
       products; or

    -  any of our products can be manufactured in commercial quantities or at an
       acceptable cost or marketed successfully.

WE HAVE A HISTORY OF LOSSES, ANTICIPATE FUTURE LOSSES AND MAY NEVER ACHIEVE OR
MAINTAIN PROFITABILITY.

    We have never been profitable. Through June 30, 2000, we have incurred a
cumulative deficit of approximately $32.3 million. We expect to continue to
incur substantial losses over at least the next several years as we:

    -  expand our research and development efforts;

    -  expand our preclinical and clinical testing activities;

    -  expand our manufacturing efforts, including our commercial production
       capability; and

    -  build our sales and marketing capabilities and launch our products.

    To achieve and sustain profitability, we must, alone or with others,
develop, obtain regulatory approval for, manufacture, market and sell products.
We cannot assure investors that we will generate sufficient product, royalty or
research and development revenue to become profitable or to sustain
profitability.

WE MAY NEED ADDITIONAL CAPITAL. IF WE CANNOT SECURE ADDITIONAL FUNDING ON
ACCEPTABLE TERMS, WE MAY BE REQUIRED TO SLOW OUR PROGRESS, CURTAIL OUR
OPERATIONS OR GIVE UP RIGHTS TO SOME OF OUR TECHNOLOGIES OR PRODUCTS.

    Depending on the timing and nature of our marketing efforts and whether and
when we enter into additional collaborations, we may need to raise additional
funds to finance our operations. Our cash requirements may increase because of
our research and development efforts, including clinical trials, capital
expenditures, and the manufacture and marketing of our products. We may need to
seek additional funding through collaborations or through public or private
equity financings. We cannot assure investors that additional financing will be
available on acceptable terms or at all. If adequate funds are not available, we
may be required to delay, reduce the scope of, or eliminate one or more of our
research or

                                       5
<PAGE>
development programs. Arrangements with collaborative partners may require us to
relinquish rights to some of our technologies or products.

OUR TECHNOLOGY IS UNPROVEN, SO PRODUCTS USING OUR TECHNOLOGY MAY NOT WORK
EFFECTIVELY.

    Our pulmonary drug delivery technology is new and unproven. Most of our
products are currently in the research, development or clinical stages.
Extensive additional testing will need to be performed to demonstrate that:

    -  drugs may be safely and effectively delivered using our technology;

    -  our nebulizers and inhalers are safe across a range of drugs and
       formulations;

    -  our products consistently deliver accurate and predictable amounts of
       drug over time; and

    -  drug formulations are stable in our products.

    If our products do not prove to be safe and effective, we may be required to
abandon some or all of them. If we cannot develop new products, our business
will suffer.

IF CLINICAL TRIALS OF OUR PRODUCTS ARE NOT SUCCESSFUL, PRODUCTS USING OUR
AERODOSE INHALERS MAY NOT BE COMMERCIALIZED.

    Before either we or our partners can file for regulatory approval for the
commercial sale of products using our AeroDose inhalers, the Food and Drug
Administration (FDA) will require extensive clinical trials to demonstrate their
safety and efficacy. We are developing other drug and inhaler combinations, each
of which will require clinical testing. To date, we have completed limited
clinical trials using prototype patient-operated AeroDose inhalers. If we do not
successfully complete appropriate clinical trials, we will not be able to
commercialize our products.

    The results of initial clinical trials do not necessarily predict the
results of more extensive clinical trials. Furthermore, we cannot be certain
that clinical trials of our products will demonstrate that they are safe and
effective to the extent necessary to obtain regulatory approvals. Many companies
in the pharmaceutical and biotechnology industries have suffered significant
setbacks in advanced clinical trials, even after achieving promising results in
earlier trials.

WE HAVE LIMITED MANUFACTURING EXPERIENCE AND MAY NOT BE ABLE TO MANUFACTURE OUR
PRODUCTS IN COMMERCIAL QUANTITIES. WE WILL DEPEND ON KEY SUPPLIERS AND CONTRACT
MANUFACTURERS, AND THEIR FAILURE TO SUPPLY US MAY DELAY OR PREVENT
COMMERCIALIZATION OF OUR PRODUCTS.

    We are building our own manufacturing capabilities to produce key components
of our products. We currently plan to produce our aerosol generators. We plan to
use contract manufacturers to produce certain other key components and
subassemblies of our products. We may assemble some or all of our products
ourselves, or we may use contract manufacturers for the final assembly of some
or all of our products. We do not have contracts with any of our key suppliers
or contract manufacturers. In addition, most of them currently are our sole
source of supply. We may not be able to enter into or maintain satisfactory
contracts or arrangements. In addition, manufacturing our products could be
delayed by supply problems at our suppliers or contract manufacturers. There can
be no assurance that we or our contract manufacturers can successfully
manufacture in high volumes in a timely manner, at an acceptable cost or at all.
We cannot assure investors that:

    -  the design of our products will permit their manufacture on a commercial
       scale;

    -  manufacturing and quality control problems will not arise as we attempt
       to scale-up production; or

    -  any scale-up of production can be achieved in a timely manner or at a
       commercially reasonable cost.

                                       6
<PAGE>
    Failure to address these issues adequately could delay or prevent clinical
testing and commercialization of our products.

IF OUR COLLABORATION WITH PATHOGENESIS IS NOT SUCCESSFUL, THE AERODOSE TOBI
PRODUCT WILL NOT BE COMMERCIALIZED.

    The successful development and commercialization of the AeroDose TOBI
product depends on our development collaboration with PathoGenesis. PathoGenesis
has agreed to:

    -  fund our AeroDose TOBI development activities;

    -  design and conduct advanced clinical trials and obtain regulatory
       approval;

    -  purchase the AeroDose TOBI inhaler from us at a defined premium over our
       manufacturing cost; and

    -  pay us royalties if and when the AeroDose TOBI product is commercialized.

    The development and commercialization of the AeroDose TOBI product will not
occur if PathoGenesis fails to conduct these activities. PathoGenesis may
terminate the agreement at any time. We cannot assure investors that we will
receive further development funding, that PathoGenesis will commercialize the
product, or that we will receive any manufacturing or royalty payments. If
PathoGenesis terminates the agreement, our business will be impaired. In
August 2000, PathoGenesis announced that it had entered into an agreement to be
acquired by Chiron Corporation, a leading biotechnology company. There is no
assurance that Chiron will elect to continue this collaboration.

OUR INSULIN PRODUCT CURRENTLY IS OUR ONLY PRODUCT IN DEVELOPMENT FOR SYSTEMIC
DELIVERY, AND THERE ARE MANY UNCERTAINTIES WHICH COULD CAUSE THE PRODUCT TO BE
DELAYED OR NOT TO REACH THE MARKET AT ALL.

    Our insulin product faces many uncertainties. We have only completed one
Phase I clinical trial and cannot be sure that the results of additional
clinical trials will prove the safety and effectiveness of our product. Ensuring
a steady supply of insulin from a qualified supplier is critical to the success
of the product. We do not have a contract for the supply of insulin, and there
are only a limited number of suppliers of commercial quantities of insulin. If
our agreement with BD terminates or if BD's efforts to develop a
patient-adjustable container are unsuccessful, we will need to develop or obtain
a different patient-adjustable container to use with our insulin product, and
clinical trials and regulatory approval would be delayed. In addition, we have
not yet identified a marketing partner to fund the additional development and
clinical trials necessary to obtain regulatory approval and to commercialize the
product. We cannot assure you that we will be able to enter into a satisfactory
agreement with a marketing partner.

WE MAY NOT BE ABLE TO DEVELOP CERTAIN PRODUCTS IF WE DO NOT ENTER INTO
ADDITIONAL COLLABORATIVE RELATIONSHIPS OR GAIN ACCESS TO COMPOUNDS FROM THIRD
PARTIES.

    Our strategy depends partially on our ability to enter into collaborative
relationships with additional partners to conduct the clinical trials,
manufacturing, marketing and sales activities necessary to commercialize
products. To develop products to be marketed by us, we will need to purchase or
license, possibly reformulate and package drugs for use with our AeroDose
inhalers and nebulizers. We cannot assure you that we will be able to establish
these kinds of arrangements on favorable terms or at all, or that our existing
or future collaborative arrangements will be successful.

                                       7
<PAGE>
IF OUR PRODUCTS DO NOT GAIN COMMERCIAL ACCEPTANCE, WE WILL NOT GENERATE
SIGNIFICANT REVENUE.

    Our success in commercializing our products depends on many factors,
including acceptance by healthcare professionals and patients. Their acceptance
of our products will depend largely on our ability to demonstrate that our
products can compete with alternative delivery systems with respect to:

    -  safety;

    -  efficacy;

    -  the benefits associated with pulmonary delivery;

    -  ease of use; and

    -  price.

    We cannot assure investors that our products will compete effectively or
that we or our partners will be able to successfully market any products in a
timely manner.

IF WE ARE UNABLE TO DEVELOP A SUCCESSFUL SALES AND MARKETING PROGRAM, WE WILL
NOT BE ABLE TO COMMERCIALIZE OUR PRODUCTS.

    We currently have a very limited sales and marketing staff, and many of our
competitors have substantial sales and marketing programs. Our success in
commercializing our respiratory products in the United States will depend on our
ability to develop a successful sales and marketing program. Successful
worldwide commercialization will depend upon finding strong marketing partners
for our products in other countries.

OUR CORPORATE PARTNERS MAY NOT COMMERCIALIZE OUR PRODUCTS OR MAY DEVELOP
PRODUCTS THAT COMPETE AGAINST OUR PRODUCTS.

    We will depend on our corporate partners to commercialize products developed
in collaboration with us. If any of our existing or future corporate partners do
not complete the development of or commercialize products to which they have
obtained rights from us, our business could be impaired. In the drug delivery
area, it is common for corporate partners to conduct feasibility studies with
multiple partners. There can be no assurance that our existing or future
corporate partners will choose our technology over their own technology or that
of our competitors.

IF WE ARE UNABLE TO ATTRACT AND RETAIN THE HIGHLY SKILLED PERSONNEL NECESSARY
FOR OUR BUSINESS, WE MAY NOT BE ABLE TO DEVELOP OUR PRODUCTS SUCCESSFULLY.

    Because of the specialized nature of our business, we depend upon qualified
scientific, engineering, technical and managerial personnel. In particular, our
business and prospects depend upon the continued employment of Dr. Jane E. Shaw,
our Chairman and Chief Executive Officer. We do not have an employment agreement
with Dr. Shaw. There is intense competition for qualified personnel in our
business, especially for engineering personnel. In addition, our location in
northern California makes recruiting qualified personnel more difficult.
Therefore, we may not be able to attract and retain the qualified personnel
necessary to grow our business. The loss of the services of existing personnel,
as well as the failure to recruit additional key scientific, technical,
engineering and managerial personnel in a timely manner, would harm our research
and development programs and our business.

OUR ABILITY TO MARKET AND SELL OUR PRODUCTS DEPENDS UPON RECEIVING REGULATORY
APPROVALS, WHICH WE MAY NOT OBTAIN.

    Our products are subject to extensive regulation in the United States by the
FDA, and state and local government agencies, and abroad by international
regulatory authorities. These agencies regulate the

                                       8
<PAGE>
development, testing, manufacture, labeling, storage, approval, advertising,
promotion, sale and distribution of medical devices, drugs and biologics. If we
or our partners fail to obtain regulatory clearances to market our products, our
business will be harmed and we, or our collaborative partners, will not be able
to market and sell our products. Even if granted, regulatory approvals may
include significant limitations on the uses for which products may be marketed.
Once obtained, required approvals may be withdrawn, or we may not remain in
compliance with regulatory requirements. The process for obtaining necessary
regulatory approvals for drugs and biologics is generally lengthy, expensive and
uncertain. Obtaining and maintaining foreign regulatory approvals is expensive,
and we cannot be certain that we will receive approvals in any foreign country
in which we or our partners plan to market our products. If we or our partners
fail to obtain regulatory approval in the United States or in any foreign
country in which we plan to market our products, our revenues will be lower.

    The regulatory approval process for many of our products is unclear because
our products may be classified as medical devices, drugs or biologics. As a
result, we may experience greater regulatory uncertainty and longer approval
timelines.

IF OUR MANUFACTURING FACILITIES DO NOT MEET FEDERAL, STATE OR INTERNATIONAL
MANUFACTURING STANDARDS, WE MAY NOT BE ABLE TO SELL OUR PRODUCTS IN THE UNITED
STATES OR INTERNATIONALLY.

    Our manufacturing facilities are subject to periodic inspection by
regulatory authorities and our operations will continue to be regulated by the
FDA for compliance with current Good Manufacturing Practices (GMP). We also are
required to comply with ISO 9000 series standards in order to produce products
for sale in the European Union, or EU. We only recently received ISO 9001
certification for our California facility. Maintaining such certification is
difficult and costly. If we fail to comply with GMP requirements, ISO 9000
series or other international regulatory requirements, we may be required to
cease all or part of our operations until we comply with these regulations. We
cannot be certain that our facilities will be found to comply on an ongoing
basis with GMP, ISO 9000 series or other international regulatory requirements.

    The state of California requires that we maintain a license to manufacture
medical devices, and our facilities and manufacturing processes may be inspected
from time to time to monitor compliance with the applicable regulations. We will
be subject to licensing requirements and periodic inspections by the California
Department of Health Services, the county of Santa Clara and various
environmental agencies. If we are unable to maintain a license following any
future inspections, we will be unable to manufacture or ship any products.

    Currently, we lease our California facility under a lease expiring at the
end of 2001. We intend to use this facility to manufacture our products, which
requires us to qualify the facility with the FDA. If we are unable to renew our
lease on terms satisfactory to us, we may be required to move to a new facility
and dedicate substantial resources to building and qualifying new manufacturing
operations.

OUR PRODUCTS MAY NOT BE COMMERCIALLY VIABLE IF GOVERNMENT HEALTH ADMINISTRATION
AUTHORITIES, PRIVATE HEALTH INSURERS AND OTHER THIRD-PARTY PAYORS DO NOT PROVIDE
ADEQUATE REIMBURSEMENT FOR THE COST OF OUR PRODUCTS.

    In both domestic and foreign markets, sales of our potential products will
depend in part on the availability of reimbursement from third-party payors such
as government health administration authorities, private health insurers and
other organizations. Third-party payors often challenge the price and
cost-effectiveness of medical products and services. There is significant
uncertainty about the reimbursement status of newly approved healthcare
products. We cannot assure investors that any of our products will be reimbursed
by third-party payors. In addition, we cannot assure investors that our products
will be considered cost-effective or that adequate third-party reimbursement
will be available to enable us to maintain price levels sufficient to realize a
profit. Legislation and regulations affecting the

                                       9
<PAGE>
pricing of health care products may change before our products are approved for
marketing, and any such changes could further limit reimbursement.

OUR COMPETITORS MAY BE MORE SUCCESSFUL IN DEVELOPING COMPETING TECHNOLOGIES AND
GAINING MARKET ACCEPTANCE.

    We compete with pharmaceutical, biotechnology and drug delivery companies,
research organizations, individual scientists and nonprofit organizations
engaged in the development and commercialization of drug delivery systems and
new drug research and testing. We are aware of a number of companies currently
seeking to develop pulmonary delivery devices and other non-invasive
alternatives to injectable drug delivery, including oral delivery systems,
intranasal delivery systems, transdermal systems, buccal absorption and infusion
systems. Many of these companies and entities have greater research and
development capabilities, experience, manufacturing, marketing, financial and
managerial resources than we do. Accordingly, our competitors may succeed in
developing competing technologies and products, obtaining regulatory approval
for products or gaining market acceptance more rapidly than we can. If
competitors bring effective products to market before we do, there is a risk
that we may not be able to gain significant market share because our competitors
may have firmly established their products in the market. It is also possible
that a competitor may develop a technology or product that renders our
technology or products obsolete.

WE MAY BE UNABLE TO EFFECTIVELY PROTECT OUR INTELLECTUAL PROPERTY, WHICH COULD
ENABLE THIRD PARTIES TO USE OUR TECHNOLOGY AND IMPAIR OUR ABILITY TO COMPETE
EFFECTIVELY.

    Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our aerosolization technology. We cannot
assure you that the patents we have obtained, or any patents we may obtain as a
result of our pending U.S. or international patent applications, will provide
any competitive advantages for our products. We also cannot assure you that
those patents will not be successfully challenged, invalidated or circumvented
in the future. In addition, we cannot assure you that competitors, many of which
have substantial resources and have made substantial investments in competing
technologies, have not already applied for or obtained, or will not seek to
apply for and obtain, patents that will prevent, limit or interfere with our
ability to make, use and sell our products either in the United States or in
international markets. Patent applications are maintained in secrecy for a
period after filing. We may not be aware of all of the patents and patent
applications potentially adverse to our interests.

    A number of pharmaceutical, medical device and other companies, as well as
universities and research institutions, have filed patent applications or have
issued patents relating to methods and apparatuses for aerosolization and
pulmonary drug delivery. We have become aware of, and may become aware of in the
future, patent applications and issued patents that relate to certain aspects of
the technology employed in our products. We do not believe that our products
currently infringe any valid and enforceable claims of the issued patents that
we have reviewed. However, if third-party patents or patent applications contain
claims infringed by our technology and such claims are ultimately determined to
be valid, we may not be able to obtain licenses to those patents at a reasonable
cost, if at all, or be able to develop or obtain alternative technology. Our
inability to do either would have a material adverse effect on our business,
financial condition, results of operations and prospects. We cannot assure you
that we will not have to defend ourselves in court against allegations of
infringement of third-party patents, or that such defense would be successful.

    In addition to patents, we rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through confidentiality and proprietary
information agreements. We require our employees and key consultants to execute
confidentiality agreements upon the commencement of employment or a consulting
relationship with us. We cannot assure you that employees or consultants will
not breach these

                                       10
<PAGE>
agreements, that we would have adequate remedies for any breach or that our
trade secrets will not otherwise become known to or be independently developed
by competitors.

WE MAY BECOME SUBJECT TO PATENT LITIGATION, WHICH WOULD BE COSTLY TO DEFEND AND
COULD INVALIDATE OUR PATENTS.

    The pharmaceutical and medical device industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in these industries have used intellectual property litigation to
gain a competitive advantage. We cannot assure you that we will not become
subject to patent infringement claims or litigation or interference proceedings
declared by the U.S. Patent and Trademark Office, the USPTO, to determine the
priority of inventions. In 1999 we settled a patent interference with U.S.
Patent No. 5,261,601, assigned to Bespak plc. The settlement provided for a
cross-license between us and Bespak, as a result of which Bespak has a license
to certain of our technology, including the right to sublicense. The scope of
the granted license was limited to products employing technology which was
disclosed by Bespak in U.S. Patent No. 5,261,601.

    Our patent position involves complex legal and factual questions and is
generally uncertain. The field of aerosolized drug delivery is crowded, and a
substantial number of patents have been issued to others. We are aware of
several issued U.S. and international patents that cover certain aspects of
vibratory aerosolization technology. Legal standards relating to the validity
and scope of patent claims in the biotechnology and pharmaceutical field are
evolving. Therefore, the degree of protection our patents will afford is
uncertain. Patents, if issued, may be challenged, invalidated or designed
around. Thus, any patents that we own or license may not provide any, or
significant, protection against competitors. Our pending patent applications or
those we may file in the future may not result in patents being issued. Also,
patent rights may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed.

    Defending and prosecuting intellectual property suits, USPTO interference
proceedings and related legal and administrative proceedings are costly and
time-consuming. Further litigation may be necessary to enforce our patents, to
protect our trade secrets or know-how or to determine the enforceability, scope
and validity of the proprietary rights of others. Any litigation or interference
proceedings will be costly and will result in significant diversion of effort by
technical and management personnel. An adverse determination in any of the
litigation or interference proceedings to which we may become a party could
subject us to significant liabilities to third parties, require us to license
disputed rights from third parties or require us to cease using such technology,
which would have a material adverse effect on our business, financial condition,
results of operations and future growth prospects. Patent and intellectual
property disputes in the medical device area have often been settled through
licensing or similar arrangements, and could include ongoing royalties. We
cannot assure you that we can obtain the necessary licenses on satisfactory
terms, if at all.

IF WE WERE SUCCESSFULLY SUED FOR PRODUCT LIABILITY, WE COULD FACE SUBSTANTIAL
LIABILITIES THAT EXCEED OUR RESOURCES.

    Researching, developing and commercializing medical devices and
pharmaceutical products entails significant product liability risks. The use of
our products in clinical trials and the commercial sale of our products may
expose us to liability claims. These claims might be made directly by consumers
or by our partner companies or others selling such products. Companies often
address the exposure of this risk by obtaining product liability insurance.
Although we currently have product liability insurance, we cannot assure
investors that we can maintain such insurance or obtain additional insurance on
acceptable terms in amounts sufficient to protect our business or at all. A
successful claim brought against us in excess of our insurance coverage would
have a material adverse effect on our business.

                                       11
<PAGE>
WE USE HAZARDOUS AND TOXIC MATERIALS AND MUST COMPLY WITH ENVIRONMENTAL LAWS AND
REGULATIONS, WHICH CAN BE EXPENSIVE AND RESTRICT HOW WE DO BUSINESS.

    Our operations involve use of hazardous and toxic materials and generate
hazardous, toxic and other wastes. In particular, we use a special metal alloy
to build our aerosol generators that is regulated as a hazardous material. The
risk of accidental contamination or injury from hazardous and toxic materials
cannot be completely eliminated. In the event of such an accident, we could be
held liable for any damages that result, and this liability could exceed our
resources. Our operations could be shut down by government officials if we were
not in compliance with environmental laws.

WE WILL NEED TO INTEGRATE EFFECTIVELY THE ACTIVITIES OF OUR NEW IRISH SUBSIDIARY
WITH OUR CALIFORNIA ACTIVITIES IN ORDER TO OPERATE OUR COMPANY EFFICIENTLY.

    In May 2000 we acquired Cerus Limited, an Irish company with approximately
ten employees. Cerus was renamed AeroGen (Ireland) Limited and has primary
responsibility for developing and obtaining regulatory approval for our AeroNeb
InLine nebulizer. If the California and Irish locations of our businesses do not
integrate quickly and efficiently, the development and commercialization of our
products could be delayed. Currency fluctuations involving our Irish operations
may cause foreign currency translation gains and losses. We cannot predict the
effect of such exchange rate fluctuations on our combined operations.

                         RISKS RELATED TO THIS OFFERING

OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY SPEND THE PROCEEDS IN WAYS WITH WHICH YOU MAY NOT AGREE.

    Our management will have broad discretion over the use of proceeds from this
offering. We currently intend to use the proceeds of this offering for increased
research, development and clinical activities, manufacturing and
commercialization of existing and future products, capital expenditures and
general corporate purposes. Our management may allocate the net proceeds among
these purposes as it determines necessary. In addition, market factors may
require our management to allocate all or portions of the net proceeds for other
purposes. Management may not use the proceeds in a manner in which you agree.
Accordingly, you will be relying on the judgment of our management with regard
to the use of proceeds from this offering.

YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING.

    The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of our common stock. As a
result, investors purchasing common stock in this offering will incur immediate
and substantial dilution in net tangible book value per share of our common
stock. The dilution will be $     per share in the net tangible book value of
the common stock from the initial public offering price (or $     per share if
the underwriters' option to purchase additional shares is exercised in full). In
addition, investors will incur additional dilution upon the exercise of
outstanding stock options and warrants.

OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY LOSE ALL OR A PART OF YOUR
INVESTMENT.

    The market prices for securities of many companies in the life sciences
industry have historically been highly volatile, and the market from time to
time has experienced significant price and volume fluctuations unrelated to the
operating performance of particular companies. As a result, you may be unable to
sell your shares of common stock at or above the offering price. Prices for our
common stock may be influenced by many factors, including:

    -  market conditions relating to the life sciences industry;

                                       12
<PAGE>
    -  investor perception of our company;

    -  securities analysts' recommendations;

    -  delays in the development or regulatory approval of our products;

    -  announcements of technological innovations or new commercial products by
       us, our partners or competitors;

    -  failure to establish new collaborative relationships or termination of
       existing collaborative relationships;

    -  developments or disputes concerning patent or intellectual property
       rights;

    -  regulatory and pricing developments in both the United States and foreign
       countries;

    -  public concern as to the safety of drugs and drug delivery technologies;

    -  period-to-period fluctuations in financial results; or

    -  economic and other external factors.

THE SUBSTANTIAL NUMBER OF OUR SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE NEAR
FUTURE MAY CAUSE THE MARKET PRICE FOR OUR COMMON STOCK TO DECLINE.

    Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities laws and under
agreements into which some of our stockholders have entered with the
underwriters or with us. Those lock-up agreements restrict our stockholders from
selling, pledging or otherwise disposing of their shares for a period of
180 days after the date of this prospectus without the prior written consent of
Chase Securities Inc. However, Chase Securities Inc. may, in its sole
discretion, release all or any portion of the common stock from the restrictions
of the lock-up agreements. Additionally, of the 3,737,192 shares issuable upon
exercise of options to purchase our common stock outstanding as of August 24,
2000, approximately            shares will be vested and eligible for sale
180 days after the date of this prospectus.

WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

    Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions also may discourage bids at a premium over the
market price of our common stock and may adversely affect both the market price
of our common stock and the voting rights of our stockholders.

CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.

    Upon completion of this offering, our executive officers, directors and
principal stockholders will beneficially own, in the aggregate, approximately  %
of our outstanding common stock. As a result, these stockholders will be able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
could have the effect of delaying or preventing a change of control of AeroGen
and will make some transactions difficult or impossible without the support of
these stockholders.

                                       13
<PAGE>
                           FORWARD-LOOKING STATEMENTS

    This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts but rather are based on current
expectations, estimates and projections about our industry, our beliefs and our
assumptions. Words such as "anticipates", "expects", "intends", "plans",
"believes", "seeks" and "estimates", and variations of these words and similar
expressions, are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed, implied or forecasted in the forward-looking statements. In
addition, the forward-looking events discussed in this prospectus might not
occur. These risks and uncertainties include, among others, those described in
"Risk Factors" beginning on page 5 and elsewhere in this prospectus. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect our management's view only as of the date of this prospectus. Except as
required by law, we undertake no obligation to update any forward-looking
statement, whether as a result of new information, future events or otherwise.

                                USE OF PROCEEDS

    We estimate that the net proceeds to us from the sale of            shares
of our common stock to be approximately $           million, approximately
$           million if the underwriters' over-allotment option is exercised in
full, at an assumed initial public offering price of $           per share,
after deducting the underwriting discounts and commissions and estimated
offering expenses.

    We currently intend to use the net proceeds of this offering primarily for
research, development and clinical activities, manufacturing and
commercialization of existing and future products, capital expenditures and
general corporate purposes. The amounts and timing of these expenditures will
vary depending on a number of factors, including the amount of cash generated by
our operations, competitive and technological developments and the rate of
growth, if any, of our business. We also may use a portion of the net proceeds
to acquire additional businesses, products and technologies, to lease or build
additional facilities, or to establish joint ventures or other collaborative
arrangements that we believe will complement our current or future business.
However, we have no specific plans, agreements or commitments to do so and are
not currently engaged in any negotiations for any acquisition or joint venture.

    We will retain broad discretion in the allocation of the net proceeds of
this offering. Pending the uses described above, we will invest the net proceeds
of this offering in short-term interest-bearing, investment-grade securities. We
cannot predict whether the proceeds will be invested to yield a favorable
return. Based upon our current plans, we believe that our available cash, cash
equivalents and available-for-sale securities, together with the estimated net
proceeds of this offering, will be sufficient to meet our capital requirements
for at least the next 24 months.

                                DIVIDEND POLICY

    We have never paid or declared any cash dividends. We currently expect to
retain earnings to support our operations and expand our business, and therefore
we do not anticipate paying any cash dividends for the foreseeable future.

                                       14
<PAGE>
                                 CAPITALIZATION

    The following table sets forth our capitalization as of June 30, 2000:

    -  on an actual basis derived from our unaudited consolidated financial
       statements;

    -  on a pro forma basis, reflecting the sale of 7,498,223 shares of our
       Series F preferred stock in July 2000 for net proceeds of approximately
       $16.3 million, and the automatic conversion of all of our preferred stock
       into an aggregate of 39,010,653 shares of common stock, which will occur
       upon the closing of the offering; and

    -  on a pro forma as adjusted basis to reflect our receipt of the net
       proceeds from the sale of            shares of common stock in this
       public offering at an assumed initial public offering price of $     per
       share, after deducting the estimated underwriting discounts and
       commissions and estimated offering expenses.

<TABLE>
<CAPTION>
                                                                        JUNE 30, 2000
                                                            --------------------------------------
                                                                                       PRO FORMA
                                                             ACTUAL      PRO FORMA    AS ADJUSTED
                                                            ---------   -----------   ------------
                                                             (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                                         <C>         <C>           <C>
Cash, cash equivalents and available-for-sale
  securities..............................................  $  7,245     $ 23,545       $
                                                            ========     ========       ========
Long-term obligations, less current portion...............       286          286
                                                            --------     --------       --------
    Convertible preferred stock, $0.001 par value,
      40,642,430 shares authorized, 31,512,430 shares
      issued and outstanding, actual; 5,000,000 shares
      authorized, and none issued pro forma or pro forma
      as adjusted.........................................    41,884           --             --
    Stockholders' equity (deficit):
    Common stock, $0.001 par value; 62,000,000 shares
      authorized; 8,153,158 shares issued and outstanding,
      actual; 47,163,811 shares issued and outstanding,
      pro forma; 100,000,000 shares authorized and
           shares issued and outstanding, pro forma as
      adjusted............................................         8           47
    Additional paid-in capital............................     5,248       63,393
    Notes receivable from stockholders....................      (626)        (626)
    Deferred stock-based compensation, net................    (4,431)      (4,431)
    Accumulated other comprehensive income................        23           23
    Deficit accumulated during the development stage......   (32,295)     (32,295)
                                                            --------     --------       --------
        Total stockholders' equity (deficit)..............   (32,073)      26,111
                                                            --------     --------       --------
          Total capitalization............................  $  9,811     $ 26,111       $
                                                            ========     ========       ========
</TABLE>

    The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 30, 2000, and excludes
as of August 24, 2000:

    -  97,051 shares of common stock issuable upon the exercise of warrants
       outstanding at a weighted average exercise price of $0.93 per share;

    -  3,737,192 shares of common stock issuable upon the exercise of options
       outstanding at a weighted average exercise price of $0.85 per share;

    -  6,239,030 shares available for issuance or future grant under our stock
       option plans; and

    -  750,000 shares available for issuance under our employee stock purchase
       plan.

    The above information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the notes to those consolidated
financial statements included elsewhere in this prospectus.

                                       15
<PAGE>
                                    DILUTION

    Our historical net tangible book value as of June 30, 2000 was approximately
$8.6 million, or $0.22 per share, as of June 30, 2000. Historical net tangible
book value per share is equal to the amount of our total tangible assets less
total liabilities, divided by the number of shares of common stock outstanding
assuming the conversion of all shares of convertible stock outstanding as of
June 30, 2000.

    Our pro forma net tangible book value as of June 30, 2000 (as adjusted for
the Series F preferred stock issued in July 2000) was approximately
$24.9 million, or $0.53 per share, based on the pro forma number of shares of
common stock outstanding as of June 30, 2000, calculated after giving effect to
the conversion of all outstanding shares of preferred stock upon the closing of
this offering (as adjusted for the Series F preferred stock issued in
July 2000). Pro forma net tangible book value per share represents the amount of
our total tangible assets less total liabilities divided by the number of shares
of common stock outstanding.

    Dilution in pro forma net tangible book value per share, as adjusted,
represents the difference between the amount per share paid by purchasers for
shares of common stock in this offering and the pro forma net tangible book
value per share of our common stock immediately afterwards, after giving effect
to the sale of            shares in this offering and after deducting
underwriting discounts and commissions and estimated offering expenses. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution in pro forma net
tangible book value of $     per share to new investors. The following table
illustrates this dilution:

<TABLE>
<S>                                                           <C>        <C>
Assumed initial public offering price per share.............             $
    Pro forma net tangible book value per share at June 30,
      2000 (as adjusted for the Series F preferred stock
      issued in July 2000)..................................     0.53
                                                              -------
    Increase per share attributable to new investors........
                                                              -------
Pro forma net tangible book value per share, as adjusted,
  after this offering.......................................
                                                                         -------
Dilution per share to new investors.........................             $
                                                                         =======
</TABLE>

    If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after this offering would be $ per
share, the increase in net tangible book value per share to existing
stockholders would be $ per share and the dilution in net tangible book value to
new investors would be $     per share.

    The following table summarizes, on a pro forma basis, as of June 30, 2000
(as adjusted for the Series F preferred stock issued in July 2000), the
differences between the total consideration paid and the average price per share
paid by the existing stockholders and the new investors with respect to the
number of shares of common stock purchased from us based on an assumed initial
public offering price of $ per share. We have not deducted the underwriting
discounts and commissions and estimated offering expenses in our calculations.

<TABLE>
<CAPTION>
                                                                    TOTAL
                                        SHARES PURCHASED        CONSIDERATION       AVERAGE
                                       -------------------   -------------------   PRICE PER
                                        NUMBER    PERCENT     AMOUNT    PERCENT      SHARE
                                       --------   --------   --------   --------   ---------
<S>                                    <C>        <C>        <C>        <C>        <C>
Existing stockholders................                   %    $                %     $
New investors........................
                                        ------      ----     -------      ----
        Total........................                   %    $                %     $
                                        ======      ====     =======      ====
</TABLE>

    The discussion and tables do not assume the exercise of any stock options or
warrants. As of August 24, 2000, there were 3,737,192 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $0.85 per share. The exercise of options outstanding under our
stock option plans having an exercise price less than the initial public
offering price would increase the dilutive effect to new investors.

                                       16
<PAGE>
                      SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and notes to those
consolidated financial statements on page F-1 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 19. The
consolidated statements of operations data for the years ended December 31,
1997, 1998, and 1999, and the six month periods ended June 30, 1999 and 2000 and
the consolidated balance sheet data as of December 31, 1998 and 1999, are
derived from our audited consolidated financial statements, which are included
elsewhere in this prospectus. Our balance sheet data as of June 30, 2000 is
derived from our consolidated unaudited financial statements included elsewhere
in this prospectus.

    Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all the outstanding shares of preferred
stock into an equal number of shares of common stock, as if the shares had been
converted immediately upon their issuance.

<TABLE>
<CAPTION>
                                                                                            SIX MONTHS         CUMULATIVE PERIOD
                                                                                          ENDED JUNE 30,      FROM 11/18/91 (DATE
                                               YEARS ENDED DECEMBER 31,                     (UNAUDITED)          OF INCEPTION)
                                 ----------------------------------------------------   -------------------     THROUGH 6/30/00
                                   1995       1996       1997       1998       1999       1999       2000         (UNAUDITED)
                                 --------   --------   --------   --------   --------   --------   --------   -------------------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF
  OPERATIONS DATA:
    Research and development
      revenues.................  $   281    $   149    $   328    $    86    $   468    $    --    $ 3,568         $  5,166
    Operating expenses:
        Research and
          development..........      716      1,725      3,961      4,393      7,837      3,305      7,374           26,354
        General and
          administrative.......      376        706      1,509      1,600      2,039      1,023      1,745            8,285
        Stock-based
          compensation.........       --         --         --         --        110         43        205              315
        Purchased in-process
          research and
          development..........       --         --         --         --         --         --      3,500            3,500
                                 -------    -------    -------    -------    -------    -------    -------         --------
            Total operating
              expenses.........    1,092      2,431      5,470      5,993      9,986      4,371     12,824           38,454
                                 -------    -------    -------    -------    -------    -------    -------         --------
        Loss from operations...     (811)    (2,282)    (5,142)    (5,907)    (9,518)    (4,371)    (9,256)         (33,288)
        Interest income, net...       57        108         87        345        550        303        184            1,346
                                 -------    -------    -------    -------    -------    -------    -------         --------
        Net loss...............     (754)    (2,174)    (5,055)    (5,562)    (8,968)    (4,068)    (9,072)         (31,942)
    Dividend related to
      beneficial conversion
      feature of preferred
      stock....................       --         --         --         --         --         --       (353)            (353)
                                 -------    -------    -------    -------    -------    -------    -------         --------
    Net loss available to
      common stockholders......  $  (754)   $(2,174)   $(5,055)   $(5,562)   $(8,968)   $(4,068)   $(9,425)        $ 32,295
                                 =======    =======    =======    =======    =======    =======    =======         ========
    Net loss per common share,
      basic and diluted........  $ (0.09)   $ (0.26)   $ (1.14)   $ (1.16)   $ (1.65)   $ (0.78)   $ (1.46)
                                 =======    =======    =======    =======    =======    =======    =======
    Shares used in computing
      net loss per common
      share, basic and
      diluted..................    8,478      8,239      4,429      4,810      5,433      5,197      6,462
                                 =======    =======    =======    =======    =======    =======    =======
    Pro forma net loss per
      common share, basic and
      diluted (unaudited)......                                              $ (0.27)              $ (0.25)
                                                                             =======               =======
    Shares used in computing
      pro forma net loss per
      common share, basic and
      diluted (unaudited)......                                               33,428                35,701
                                                                             =======               =======
</TABLE>

                                       17
<PAGE>
    The following table contains a summary of our consolidated balance sheets on
an actual basis at December 31, 1995, 1996, 1997, 1998, 1999 and June 30, 2000.

<TABLE>
<CAPTION>
                                                                                                JUNE 30, 2000
                                                        DECEMBER 31,                             (UNAUDITED)
                                    ----------------------------------------------------   -----------------------
                                      1995       1996       1997       1998       1999      ACTUAL    PRO FORMA(1)
                                    --------   --------   --------   --------   --------   --------   ------------
                                                                    (IN THOUSANDS)
<S>                                 <C>        <C>        <C>        <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash, cash equivalents, and
    available-for-sale
    securities....................  $ 3,373    $ 1,433    $  5,904   $ 17,500   $  7,809   $  7,245     $ 23,545
  Working capital.................    3,210      1,196       5,383     16,825      7,407      7,069       23,369
  Total assets....................    3,547      1,726       7,108     18,608      9,674     12,227       28,527
  Long-term obligations, less
    current portion...............      104         66         778        480        100        286          286
  Convertible preferred stock.....    4,727      5,743      15,819     31,476     31,476     41,884           --
  Deficit accumulated during the
    development stage.............   (1,387)    (4,077)    (10,027)   (13,901)   (22,869)   (32,295)     (32,295)
  Total stockholders' equity
    (deficit).....................   (1,452)    (4,344)    (10,285)   (14,140)   (23,014)   (32,073)      26,111
</TABLE>

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

(1) Reflecting the sale of 7,498,223 shares of Series F preferred stock in
    July 2000 for net proceeds of approximately $16.3 million as well as the
    conversion of all of our preferred stock into common stock.

                                       18
<PAGE>
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

    You should read the following discussion of our financial condition and
results of operations in conjunction with the consolidated financial statements
and the related notes. This discussion may contain forward-looking statements
that involve risks and uncertainty. As a result of many factors, such as those
set forth under "Risk Factors" and elsewhere in this prospectus, our actual
results may differ materially from those anticipated in these forward-looking
statements.

OVERVIEW

    We were incorporated in November 1991. We specialize in the controlled
delivery of drugs to the lungs. Our core technology consists of a proprietary
aerosol generator. We are using our technology to develop respiratory products
for marketing by AeroGen, and we are developing products in collaboration with
pharmaceutical and biotechnology companies for both respiratory therapy and for
the delivery of drugs to the bloodstream via the lungs.

    We are in the development stage and since inception have devoted
substantially all of our efforts to develop products. We have an accumulated
deficit of approximately $32.3 million as of June 30, 2000. We expect to incur
significant additional operating losses over the next several years and expect
cumulative losses to increase primarily due to the expansion of our research and
development activities, an increase in the number and size of clinical trials,
the costs associated with manufacturing and marketing of our products, and the
general expansion of our business activities. To date, we have not had product
sales and do not anticipate receiving revenue from product sales in 2000. We
anticipate that our quarterly results will fluctuate for the foreseeable future.
Therefore, period to period comparisons should not be relied upon as predictive
of the results in future periods. Our sources of working capital have been
equity financings, research and development revenues, equipment lease financings
and interest earned on investments.

    We perform feasibility and initial development work to customize our
AeroDose inhalers to deliver specific drugs, and we have been compensated for
expenses incurred by us in performing this work in several cases. Once
feasibility is demonstrated with respect to a potential product, we seek to
enter into an agreement with the corporate partner owning the rights to the
compound that will be used in the product. We currently have such an agreement
with PathoGenesis to develop an AeroDose inhaler to deliver TOBI for the
treatment of CF.

    Our collaborative agreement with PathoGenesis provides for reimbursement of
research and development expenses incurred under an approved workplan. If the
product continues to commercialization, we expect to receive royalties from
PathoGenesis. We expect to receive similar payments from other partners for the
development of products under other collaborations and royalties based on
partner sales of products. We also expect to receive revenue from the
manufacturing of these products. We recognize revenues as reimbursable research
and development expenses are incurred.

    In May 2000, we acquired all the voting stock of Cerus Limited, now AeroGen
(Ireland) Limited for a total purchase price of approximately $5.2 million (for
a total of 1,725,000 shares of Series E convertible preferred stock and
transaction costs of approximately $0.1 million). Cerus was a development stage
company developing products under a license from us using our core aerosol
generator technology.

    The acquisition was accounted for using the purchase method of accounting.
The purchase price, which for financial accounting purposes was valued at
$5.2 million, was allocated to the assets acquired and the liabilities assumed
based on their estimated fair values at the date of acquisition, as determined
by management. As a result of this transaction, we recorded expense associated
with the purchase of in-process research and development of $3.5 million, net
tangible assets of $0.4 million, and intangible assets (including goodwill) of
$1.3 million, the majority of which will be amortized over six years. Financial
statements of Cerus are included elsewhere in this prospectus.

                                       19
<PAGE>
    We may incur additional stock-based compensation expense in the future as a
result of both additional options or other securities issued to employees and
consultants at below deemed fair market value and fluctuations in the market
value of our stock which have a direct impact on the value of these securities
held by nonemployees.

    We had federal and state net operating loss carryforwards as of
December 31, 1999 of approximately $21.8 million and $13.9 million, and
$13.3 million, and $10.2 million for 1998, respectively. We also had federal and
state research and development tax credit carryforwards as of December 31, 1999
and 1998 of approximately $0.4 million and $0.2 million, respectively. The net
operating loss and credit carryforwards will expire at various dates through the
year 2014, if not utilized. Due to the uncertainty regarding the ultimate
utilization of the net operating loss and credit carryforwards, we have not
recorded any benefit for losses, and a valuation allowance has been recorded for
the entire amount of the net deferred asset. Utilization of net operating losses
and credits may be substantially limited due to the change in ownership
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before they can be used.

RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999

    RESEARCH AND DEVELOPMENT REVENUES.  Revenues increased to approximately
$3.6 million for the six months ended June 30, 2000 from none for the six months
ended June 30, 2000. This revenue increase resulted from development activities
performed for PathoGenesis and a biotechnology company.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
increased to $7.4 million for the six months ended June 30, 2000 from
$3.3 million for the six months ended June 30, 1999. This increase is
attributable to increases in research and development personnel and other costs
associated with research and development revenues, as well as expenses
associated with our clinical trials of our AeroDose insulin product.

    Research and development expenses represent expenses related to our own
research and development projects, as well as the costs related to research and
development activities for our partners. Research and development expenses
include salaries and benefits for scientific and development personnel,
laboratory supplies, consulting services, clinical expenses and the expenses
associated with the development of manufacturing processes, including related
overhead. We expect research and development spending to increase significantly
over the next several years as we increase clinical trials, expand our research
and development activities to support our products and those we develop in our
collaborations, and initiate commercial manufacturing. The increase in research
and development expenditures cannot be predicted reliably, as it depends in part
upon our success in continuing existing development collaborations, as well as
entering into new partnering agreements.

    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
increased to $1.7 million for the six months ended June 30, 2000 from
$1.0 million for the six months ended June 30, 1999. The increase is associated
with increased personnel, higher legal expenses and increased facility rent for
additional space. We expect general and administrative expenses to increase as
we expand our research and development efforts, commercialize our products and
operate as a public company.

    STOCK-BASED COMPENSATION EXPENSES.  Stock-based compensation expenses were
$0.2 million for the six months ended June 30, 2000 and $43,248 for the six
months ended June 30, 1999.

    PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT.  In conjunction with the
acquisition of Cerus, we recorded a $3.5 million expense during the six months
ended June 30, 2000, which was associated with the purchase of in-process
research and development. The purchased research and development represents the
value of new technologies that were in various stages of development where no
alternative future use was

                                       20
<PAGE>
identified. The purchased research and development was appraised by independent
valuation which utilized various methods, including the income approach.

    DIVIDEND RELATED TO BENEFICIAL CONVERSION FEATURE OF PREFERRED STOCK.  A
dividend relating to a beneficial conversion feature of our preferred stock of
$0.4 million was recorded in the six months ended June 30, 2000. This arose due
to the issuance of 961,539 shares of Series E convertible preferred stock in
May 2000 for net proceeds of $2.5 million.

COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

    RESEARCH AND DEVELOPMENT REVENUES.  Research and development revenues were
$0.5 million in 1999, $0.1 million in 1998 and $0.3 million in 1997. Revenue
increases in 1999 from 1998 resulted primarily from development activities
performed for and funded by a biotechnology company. Revenue decreases in 1998
as compared to 1997 resulted from decreased emphasis on obtaining revenues in
connection with the performance of feasibility studies.

    RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses were
$7.8 million in 1999, $4.4 million in 1998 and $4.0 million in 1997. Research
and development expenses in 1999 increased over 1998 due to the hiring of
additional scientific and technical personnel and to increased product research
and development costs. Research and development expenses in 1998 increased over
1997 due to the expansion of our research and development efforts.

    GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses
were $2.0 million in 1999, $1.6 million in 1998 and $1.5 million in 1997.
General and administrative expenses increased in 1999 principally due to
staffing, travel and professional services expenses.

    STOCK-BASED COMPENSATION EXPENSES.  Stock-based compensation expenses were
$109,855 in 1999, none in 1998 and none in 1997.

    INTEREST INCOME.  Interest income was $0.6 million in 1999, $0.5 million in
1998 and $0.1 million in 1997. The increase in interest income was primarily due
to higher average cash and investment balances, resulting from the completion of
private placements of our convertible preferred stock in April and November 1997
and in August 1998.

    INTEREST EXPENSE.  Interest expense was $0.1 million in 1999 and 1998, and
there was minimal interest expense in 1997. The increases from 1997 were due to
borrowings under an equipment lease financing agreement.

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, we have financed our operations primarily through the
private placement of preferred stock and the interest earned on related
proceeds. We have received approximately $52.8 million aggregate net proceeds
from sales of our preferred stock through July 31, 2000. As of July 31, 2000, we
had cash, cash equivalents and short-term investments of approximately
$21.5 million.

    From inception through June 30, 2000, expenditures for operating activities
and capital acquisitions were approximately $30.4 million. The development of
our technology and proposed products will require a commitment of substantial
funds to conduct the costly and time-consuming research and clinical trials
required to develop and refine our technology and proposed products and to bring
any such products to market. Our future capital requirements and operating
expenses will depend on many factors including, but not limited to, research and
development activities, the timing, cost, extent and results of clinical trials,
our success in licensing drugs for use in our products, regulatory approvals,
the status of competitive products, manufacturing and marketing costs associated
with commercialization of products, costs involved in obtaining and maintaining
patents, as well as our ability to enter into collaborative agreements.

                                       21
<PAGE>
    Based upon our current plans, we believe that our cash, cash equivalents and
investments, together with the estimated net proceeds from this offering, will
enable us to sustain operations for at least the next 24 months. Our forecast of
the period of time through which our financial resources will be adequate to
support our operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially. The factors described
above will impact our future capital requirements and the adequacy of our
available funds. We may be required to raise additional funds through public or
private financings, collaborative relationships or other arrangements. We cannot
be certain that such additional funding, if required, will be available on terms
attractive to us, or at all. Furthermore, any additional equity financing may be
dilutive to existing stockholders and debt financing, if available, may involve
restrictive covenants. Collaborative arrangements, if necessary to raise
additional funds, may require us to relinquish rights to certain of our products
or technologies, or marketing territories. Our failure to raise capital when
needed could have a material adverse effect on our business. See "Risk Factors."

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    Our exposure to market risk is principally limited to our cash equivalents
and investments which are comprised primarily of short-term fixed rate
instruments. Accordingly, we are not subject to interest rate risk to any
material degree.

    Due to our Irish operations, we have some market risk exposure to adverse
changes in foreign exchange rates. As a policy, we do not engage in speculative
or leveraged transactions, nor do we hold financial instruments for trading
purposes.

RECENT ACCOUNTING PRONOUNCEMENTS

    In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. We have
complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. As
amended, SFAS No. 133 will be effective for fiscal years beginning after
June 15, 2000. We do not currently hold derivative instruments or engage in
hedging activities and we do not believe that the implementation of SFAS
No. 133 will have any significant impact on our financial position or results of
operations.

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). This interpretation clarifies the
definition of employee for purposes of applying APB No. 25, "Accounting for
Stock Issued to Employees," the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and the
accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN No. 44 did not and will not have any material impact on our
financial statements.

                                       22
<PAGE>
                                    BUSINESS

                                    OVERVIEW

    AeroGen specializes in the development, manufacture and commercialization of
products for the controlled delivery of drugs to the lungs, which is called
pulmonary drug delivery. Drugs can be delivered via a fine mist, or aerosol, to
the lungs to treat breathing-related (respiratory) conditions such as asthma, or
through the lungs to the bloodstream (systemically) to treat diseases or
conditions located outside of the lungs such as diabetes. Our core technology
consists of a proprietary aerosol generator. When incorporated in our nebulizer
or inhaler platforms, our aerosol generator delivers drugs in an aerosol of a
predetermined particle size. We believe our delivery platforms will allow us to
deliver drugs formulated as liquids in solutions, suspensions or liposomes, in
single-dose, multi-dose and patient-adjustable dosage forms. Products in
development provide drug delivery from our hand-held breath-activated inhalers,
nebulizers for home use and nebulizers to treat patients on mechanical
ventilators.

    We believe our technology has the potential to improve therapy by providing
a cost-effective, convenient and patient friendly alternative to existing
respiratory dosage forms, injections and other forms of drug delivery. Our
strategy includes using our core aerosol generator technology to develop
respiratory products for marketing by us as well as collaborating with
pharmaceutical and biotechnology companies to develop products for improved
respiratory therapy and delivery of drugs to the bloodstream. We also
out-license our technology for uses outside the field of pulmonary drug
delivery.

    The respiratory products under development for marketing by us are targeted
to treat pediatric asthma, COPD, CF and mechanically ventilated patients. These
products will deliver available respiratory drugs and compounds licensed from
third parties. We also are developing respiratory products in collaboration with
partner companies who will market those products. For example, in March 2000, we
signed an agreement with PathoGenesis to develop a small, hand-held AeroDose
inhaler to deliver TOBI, an inhaled tobramycin treatment for CF.

    Our first product in development to deliver a drug through the lungs to the
bloodstream is an AeroDose inhaler delivering insulin to treat diabetes. We
completed our first clinical trial for the product, and are proceeding with
additional trials. In May of this year we entered into an agreement with BD
under which BD will develop and supply a patient-adjustable container for use in
our AeroDose insulin product.

                              INDUSTRY BACKGROUND

PULMONARY DRUG DELIVERY

    Pulmonary drug delivery is widely used to treat respiratory diseases and is
believed to be a viable means to deliver drugs to the bloodstream via the lungs.
The drugs must be transformed into an aerosol for inhalation by the patient.
This aerosol must be delivered at a low-velocity to deposit drugs in the lungs
effectively. The size of the aerosol particles generally determines where the
drug will be deposited in the lungs. Aerosols containing large particles,
greater than three microns in diameter, typically get deposited in the upper
airways of the lung, where they may be useful in treating diseases such as
asthma, COPD and CF. Aerosols containing small particles, less than three
microns in diameter, are more likely to pass through the upper airways into the
deep lung, where they may be absorbed into the bloodstream to treat diseases
such as diabetes.

THE RESPIRATORY DISEASE MARKET

    The worldwide prevalence of respiratory diseases is estimated to exceed one
billion patients. The most prevalent respiratory diseases are obstructive
airways diseases such as asthma and COPD. Respiratory diseases are associated
with impaired quality of life, reduced life expectancy and significant treatment

                                       23
<PAGE>
costs. We estimate that worldwide pharmaceutical expenditures for the treatment
of obstructive airways diseases will be approximately $9.9 billion in 2000.

    In 1999 U.S. institutional and pharmacy expenditures for inhaled respiratory
medications was approximately $3.3 billion. In addition to an increased
prevalence of disease, recent research has indicated growth in medication
expenditures per patient, largely driven by an increased number of prescriptions
per patient filled each year and a shift to newer, costlier therapies. We
currently are focusing on treating three respiratory diseases--asthma, COPD and
CF--as well as improving treatments for patients using nebulizers and those
receiving therapy via ventilators.

    Asthma is a chronic inflammatory disorder involving constriction of the
muscles lining the bronchial airways due to external stimuli, such as exercise
or allergens. The World Health Organization estimates that 100 to 150 million
people worldwide suffer from asthma. According to the Center for Disease
Control, the number of people in the United States diagnosed with asthma has
more than doubled from 6.7 million in 1980 to 17.3 million in 1998, including an
estimated 4.8 million children.

    COPD is a general term used to characterize the presence of chronic
bronchitis and emphysema. Chronic bronchitis is characterized by a persistent,
productive cough caused by excessive airway mucous secretion. As the disease
progresses, there is a chronic reduction in lung function, with at least partial
reversibility following administration of bronchodilators. Emphysema is a
chronic disease caused by irreversible destruction of elastin, a protein in the
lungs critical to maintaining integrity of the alveolar walls, or air sacs.
Emphysema is irreversible and treatment is oriented towards reducing irritation
and making the patient more comfortable. The major cause of chronic bronchitis
and emphysema is cigarette smoking, followed by environmental pollution, genetic
makeup, and chronic occupational exposure to high concentrations of irritating
gases.

    Worldwide, COPD is the only leading cause of death that still has a rising
mortality. It is estimated that by 2020, COPD will be fifth among the medical
conditions that will be the most costly to society. The National Center for
Health Statistics estimates that in 1994 there were 16 million people in the
United States diagnosed with COPD. We estimate that the number of people in the
United States diagnosed with COPD currently exceeds 30 million and will continue
to rise based on the aging of the population and improved diagnosis.

    CF is a genetic disorder associated with dysfunction of the pancreas and
liver. CF primarily affects digestion and nutrition. Secondary effects seen in
the lungs include thick mucous secretions formed and retained in the airways.
Eighty-five percent of CF patients experience deterioration in lung function,
increased incidence of lung infection and respiratory failure over time. CF is
the most common life-shortening inherited disease in the United States,
affecting about 30,000 people, or one in every 3,300 newborns. Outside the
United States, CF affects about 40,000 people, mainly in countries with large
Caucasian populations. In the 1950s, the typical life expectancy was four years
after diagnosis. Today, however, many CF patients live well into their 30s.
Earlier diagnosis and more aggressive and effective treatment have been credited
with the dramatic increase in longevity.

    In 1999 the U.S. institutional and pharmacy expenditures for nebulized
solutions were approximately $570 million. We estimate that U.S. sales of
nebulizer devices will exceed $150 million in 2000, with approximately half of
the sales for home use. The majority of sales are captured by compressor
nebulizers, typically sold to patients at approximately $125 per device.

    Ventilated patients require a breathing device because they are not able to
breathe on their own. We estimate that in the United States there are
approximately one million patients admitted to hospitals annually who require
ventilation; on average each patient spends five days on a ventilator. We
estimate that in the United States there currently are 90,000 ventilators
installed in hospitals and approximately 8,000 ventilators purchased annually.
We believe that this growth is based on the high prevalence of chronic lung
diseases and an aging population. Aerosol therapy is frequently prescribed for
patients

                                       24
<PAGE>
receiving mechanical ventilation to deliver drugs and to humidify the air
reaching the lungs. The United States hospital and alternate care market for
nebulizers and humidifiers currently exceeds $300 million annually. We estimate
that annual sales of nebulized solutions to ventilated patients exceeds
$50 million.

THE SYSTEMIC DRUG DELIVERY MARKET

    The physiology of the lungs makes pulmonary delivery an attractive method of
delivering drugs to the bloodstream. The absorptive surface area of the lung is
as high as 70 square meters, and is only one to two cells thick. This large
surface area is available for the free exchange of oxygen, carbon dioxide and
other molecules between the air and the bloodstream. This permits drugs
deposited in the lungs through aerosols to be transported rapidly into the
bloodstream.

    Pulmonary drug delivery is being evaluated for non-invasive delivery of
drugs to the bloodstream to treat non-respiratory diseases. There is increasing
interest in pulmonary drug delivery as a result of the inability of currently
available dosage forms to deliver molecules such as proteins and peptides to the
bloodstream effectively. It is estimated that the protein and peptides market
will approximate $19.2 billion in 2001. For these large molecules, oral delivery
is not feasible due to rapid breakdown of the molecules following ingestion.
Dosage forms such as intravenous or intramuscular injections and implants, while
effective for delivering proteins, have many drawbacks, including pain,
inconvenience, expense, risk of infection and poor compliance. Alternatives like
transdermal and nasal dosage forms do not allow reproducible delivery of large
molecules.

    In addition, pulmonary delivery is being evaluated to deliver drugs such as
insulin, which require rapid input to the bloodstream for optimal therapy. We
estimate that the worldwide insulin market will grow from $3.2 billion in 2000
to $6.5 billion by 2005.

TRADITIONAL METHODS OF PULMONARY DRUG DELIVERY AND THEIR LIMITATIONS

    Three basic classifications of devices currently are being used for
pulmonary drug delivery: metered dose inhalers (MDIs), dry powder inhalers
(DPIs) and nebulizers. These devices were developed originally for local
treatment of respiratory diseases, including asthma and COPD, and have inherent
limitations in delivering drugs directly to the bloodstream.

        METERED DOSE INHALERS.  MDIs have been in existence for over 40 years
    and are the most widely used device for pulmonary drug delivery. They
    consist of a portable canister containing the drug as a suspension or
    solution mixed with a volatile propellant, most often a chlorofluorocarbon.
    MDIs require a patient to inhale the drug in a single breath. In order to
    administer the drug, the patient must activate the inhaler by pressing down
    on the canister while simultaneously inhaling slowly and evenly. Even with
    repeat training, up to 50% of patients using MDIs have difficulty
    coordinating activation of the device with their breathing. Once the inhaler
    is activated, particles are released at an initial velocity of at least
    30 miles per hour. Research has shown that MDIs only deliver 10% to 20% of
    the drug to the lungs. Most of the remainder of the drug is deposited at the
    back of the throat and swallowed. To overcome these limitations, patients
    are sometimes prescribed holding chambers, or spacers, to use with their
    MDIs. These spacers increase the complexity of use and reduce the
    portability of MDIs.

        DRY POWDER INHALERS.  Traditional DPIs were introduced to overcome the
    problems inherent with the use of MDIs. DPIs are inhalers that deliver dry
    powdered aerosols without using a propellant. DPIs are breath activated and
    thus eliminate the need for the press and breath coordination associated
    with MDIs. We believe that traditional DPIs have meaningful limitations that
    may prevent their broad use in pulmonary drug delivery. DPIs usually require
    a single strong, deep inhalation to create the aerosol and deliver the drug.
    Children, the elderly and patients with breathing difficulties often cannot
    achieve the deep inhalation necessary to receive the required dose. In
    addition, these devices do not allow the patient to inhale the desired drug
    in multiple breaths and

                                       25
<PAGE>
    moisture entering into the DPI from the environment or a patient's own
    breath can result in dose-to-dose variation.

        NEBULIZERS.  Traditional nebulizers create a continuous aerosol that can
    be inhaled by patients through a mask or mouthpiece. Nebulizers allow
    patients to breathe regularly, thereby requiring less patient coordination
    and cooperation than MDIs and DPIs. Nebulizers typically require an external
    power source and therefore are bulky and generally noisy. Nebulizer
    treatments are time-consuming, with each treatment typically taking up to 15
    minutes, and inefficient, with less than 20% of the drug reaching the lungs.
    The remainder of the drug either is aerosolized during the patient's
    exhalation and released into the surrounding air or remains in the
    nebulizer. Because of these limitations, nebulizers are only appropriate for
    relatively inexpensive, small-molecule drugs that can be formulated and
    stored as liquids.

        Aerosol delivery to mechanically ventilated patients currently uses
    either an MDI or a nebulizer. Drugs are administered by opening the tubing
    connecting the patient to the ventilator, which may result in infection. In
    addition, it requires significant time and the associated expense of an
    attendant respiratory therapist, and is inefficient with only a very small
    amount of the administered drug reaching the lungs. Ventilator performance
    may be impaired due to the introduction of additional air into the
    ventilator tubing when drug is administered. This can affect adversely the
    ability to monitor the patient's pulmonary function.

NEW METHODS OF PULMONARY DRUG DELIVERY

    Several companies are developing technology to improve the efficiency and
accuracy of pulmonary drug delivery. Because systemic drug delivery requires the
ability to create and deliver small particles to the deep lung, research has
centered around developing devices capable of consistently delivering fine
particle aerosols. One technique involves the processing of drugs into
sophisticated dry powders. Another uses mechanical pressure to aerosolize custom
formulations of existing liquid drugs. Both of these technologies will require
extensive investment in new formulations, new packaging, new materials, and
customized manufacturing, as well as an extensive validation effort for Good
Manufacturing Practices. The dry powder technology also will face the challenge
of consistently creating a cloud of uniform fine particles in varying
environmental conditions that can include high humidity and electrostatic
charge.

                                  OUR SOLUTION

    We have developed a proprietary aerosol generator to facilitate the
consistent and accurate formation of an aerosol to deliver drugs to the lungs.
Our core technology is being incorporated into each of our delivery platforms.
We believe that our platforms overcome many of the limitations presented by
traditional and new methods of pulmonary drug delivery, and may be used to treat
respiratory diseases as well as to deliver drugs to the bloodstream for systemic
therapy. Our AeroDose inhaler is designed to safely and effectively deliver
drugs of various molecular sizes while eliminating many of the limitations
associated with MDIs, DPIs and current commercial nebulizers. Our AeroNeb
nebulizer uses our aerosol generator technology to provide end users with a
small, portable nebulizer that quietly and efficiently administers currently
approved nebulizer solutions. Our AeroNeb InLine nebulizer also uses our aerosol
generator technology and is designed to improve the delivery of medications to
patients on ventilators. We believe our products will provide the following
benefits:

        OPTIMIZATION AND CUSTOMIZATION OF AEROSOL PARTICLE SIZE.  Our aerosol
    generator delivers a low-velocity aerosol of precisely defined particle
    size. Our aerosol generator enables us to provide either an aerosol with
    particles averaging three to four microns in diameter for respiratory
    therapy, or an aerosol with particles averaging one to two microns in
    diameter for deposition in the deep lung for systemic drug delivery.

        EASE OF FORMULATION.  Drugs can be stored in liquid or dry powder form
    and can be aerosolized in solution or suspension. Our aerosol generator uses
    no propellants or pressure, and generates no

                                       26
<PAGE>
    heat, so it is not likely to degrade drug molecules. In many cases, we can
    use existing drug formulations, eliminating the need to demonstrate the
    stability of new formulations.

        FLEXIBILITY OF DOSING.  Our AeroDose inhaler technology can be used to
    administer drugs as a single dose, or as a unit dose from a multi-dose
    container. Under collaboration with BD, we are developing an AeroDose
    inhaler that will use a patient-adjustable container to deliver the required
    dose of insulin.

        BREATH-ACTIVATION.  We have developed a breath-activation feature which
    triggers aerosol formation and is designed to enable patients to obtain
    consistent dosing over one or more breaths. This feature is designed so that
    drug will be aerosolized only when the patient's inhalation rate has reached
    a predetermined threshold, which can be adjusted for a particular target
    patient population. If a patient exhales or coughs, the aerosolization will
    stop and only resume when the patient begins inhaling again at the
    predetermined rate. Our electronic controls are designed to allow us to
    customize inhalers for both relaxed and controlled breathing, facilitating
    delivery of drug to the desired portion of the lung.

        DOSAGE GUIDANCE.  We can incorporate electronic features to provide
    information to the patient. Lights can indicate when a dose is ready for
    inhalation and when the total dose has been inhaled. Additional features may
    include indicators of patient compliance with the prescribed regimen and
    lock-out features to prevent abuse or overdose.

        CONVENIENCE.  Our products are designed to be lightweight and easy to
    use for patients and care-providers. AeroDose inhalers fit in the palm of
    the hand and can be carried in a shirt pocket or small purse. The AeroNeb
    nebulizer is portable, quieter and more compact than currently
    commercialized nebulizers. The AeroNeb InLine nebulizer is lightweight,
    allowing it to be placed close to the ventilated patient's windpipe,
    providing efficient generation of aerosol close to the lung. We believe our
    products will require minimal patient training, will be easy to use for the
    very young and the elderly and have the potential to increase compliance
    with prescribed treatment regimens.

                                  OUR STRATEGY

    Our goal is to become the leading provider of aerosol-based pulmonary drug
delivery products. Key elements of our strategy include:

        INCORPORATING OUR CORE TECHNOLOGY INTO ADAPTABLE DELIVERY
    PLATFORMS.  Our core aerosol generator technology is being incorporated into
    our inhaler and nebulizer platforms.

        DEVELOPING OUR PLATFORMS FOR MULTIPLE PRODUCT APPLICATIONS.  Our
    platforms are being customized to develop a wide range of products, from the
    pocket-size AeroDose inhalers to the AeroNeb InLine nebulizers for use in
    intensive care units.

        DEVELOPING AND COMMERCIALIZING RESPIRATORY PRODUCTS OURSELVES AND WITH
    PARTNER COMPANIES.  We are developing a line of AeroDose inhaler and
    nebulizer products which we will market ourselves. Our initial products will
    deliver available respiratory drugs. We also are actively working to license
    proprietary drugs from third parties that will be combined with our
    platforms to develop respiratory products for our portfolio. We intend to
    retain U.S. marketing rights to our AeroDose inhaler products, and license
    marketing rights to partners outside the United States. We plan to market
    our nebulizer products, the AeroNeb and the AeroNeb InLine, ourselves in the
    United States and through distributors in other countries. Our products
    developed with partner companies, such as the AeroDose TOBI product, will be
    marketed by our partners.

        PARTNERING WITH PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES FOR SYSTEMIC
    DELIVERY PRODUCTS.  We are pursuing collaborative arrangements with
    pharmaceutical and biotechnology companies to develop products to deliver
    drugs systemically via the lungs. We are developing an AeroDose inhaler for
    an inhaled insulin product to treat diabetes. Under an agreement with BD,
    this

                                       27
<PAGE>
    product will incorporate BD's patient-adjustable container. We intend to
    enter into a collaboration with a marketing partner to further develop and
    commercialize this product.

        OUT-LICENSING OUR AEROSOL GENERATOR TECHNOLOGY FOR USE OUTSIDE OF THE
    FIELD OF PULMONARY DRUG DELIVERY.  Our aerosol generator technology has
    proven to be of interest to industries focusing outside the field of
    pulmonary drug delivery. We have an agreement with a multinational consumer
    products company covering the use of our technology in the fields of air
    fresheners and insect repellants. Under the terms of this agreement, we are
    to receive royalties based on net sales of units and refill cartridges. We
    will continue to seek out-licensing opportunities outside the pulmonary drug
    delivery field where our technology can provide significant value.

           OUR CORE TECHNOLOGY AND PULMONARY DRUG DELIVERY PLATFORMS

AEROSOL GENERATOR

    Our aerosol generator contains a domed, or curved, plate which contains
multiple apertures, or holes, of a discrete shape and size. The aperture plate
is produced through an electroforming, or plating, process using a metal alloy
which is strong, corrosion resistant and durable. The plate is placed within a
vibrational element and when energy is applied to this element the plate
vibrates. This creates a micro-pumping action that draws solutions in contact
with the concave surface of the plate through the apertures to form a fine
particle aerosol. The aerosol particle size formed is proportional to the size
and shape of the holes in the aperture plate. The same manufacturing process is
used to produce aperture plates with holes of various sizes. We are able to
optimize the flow rate and produce a low velocity aerosol by controlling the
voltage and frequency applied to the vibrational element. Thus, when the aerosol
generator is incorporated into a delivery platform, it is capable of producing
aerosols of consistent particle size.

    [Picture of a cross-section of our aerosol generator, annotated with the
following:

              --Vibrational Element
               --Drop of Liquid
               --Aperture Plate
               --Fine Particle Aerosol]

We have demonstrated the ability to aerosolize drugs in solutions or suspensions
and drugs formulated in liposomes. We believe that our core technology will be
applicable to aerosolization of both small- and large-molecule drugs being
developed by the biotechnology industry. Results to date indicate that the
aerosol generator does not affect the stability of proteins and peptides.

AERODOSE INHALERS

    Each inhaler consists of our proprietary aerosol generator, electronic
circuitry, batteries, an inhalation sensor and a drug container. These
components are incorporated into a small, compact inhaler that is easy to use
and can be carried in a shirt pocket or small purse.

    We are incorporating several dosing options into our AeroDose inhalers. We
believe that this versatility enables us to explore multiple applications of our
platforms to deliver a variety of drugs. Our proprietary valves permit accurate
dosing in the range of 15 to 3,000 microliters. Currently, we are developing
four distinct dosing options for our inhalers:

    SINGLE-DOSE CANISTER.  The single-dose canister can contain dosing volumes
from 100 to 3,000 microliters. When the patient places the canister in the
inhaler, a proprietary adapter punctures the canister and initiates the release
of drug to the aerosol generator. Drug flow is automatically coordinated with a
patient's breathing until all of the prescribed dose is inhaled. We use standard
nebulizer form-fill-seal technology for the single-dose canister. For drugs such
as TOBI, which are already packaged using form-fill-seal technology, we are able
to use currently available high capacity manufacturing systems

                                       28
<PAGE>
to produce the single-dose canister without having to design and manufacture new
drug packaging materials.

    MULTI-DOSE CANISTER.  Our multi-dose canister is designed to deliver
multiple small doses of drugs. Our metering valve is designed to maintain
sterility over multiple activations of the canister. The valve is designed to
provide accurate dispensing of small volumes of solutions as well as the
homogeneous suspensions required for the delivery of certain respiratory
steroids. The disposable canister holds up to 6,000 microliters of solution and
reproducibly dispenses a fixed dose which can be set between 15 and 150
microliters. When activated by the patient, the valve dispenses a precise unit
dose of drug-containing solution to the aerosol generator. Each fixed dose
remains on the aperture plate until the patient activates the aerosol generator
by inhaling at a predetermined rate.

    DUAL CHAMBER CANISTER.  The dual chamber canister is intended to accommodate
drugs that are not stable in solution during storage. While most injected drugs
exist in liquid formulations, some proteins may require storage as a dry powder
to extend shelf life or minimize the need for refrigeration. In a dual chamber
canister, drug is stored as a powder in one chamber and a solvent is stored in
the second chamber. The patient depresses the barrel to mix the solvent with the
drug powder, thereby creating a solution. The dual chamber canister can then
function with the ease of our standard single-dose canister or multi-dose
canister.

    PATIENT-ADJUSTABLE CONTAINER.  In our collaboration, BD is developing a
patient-adjustable container to enable variable dosing of insulin by means of
our AeroDose inhaler. This container is designed to allow patients to adjust
their insulin dose before each meal based on their anticipated caloric intake.

    We are incorporating electronic controls into our inhalers to provide
flexibility, control and reproducibility of drug delivery that is consistent
across our inhalers. A patient can receive a visual signal that a dose of drug
has been dispensed to the aperture plate and is ready for inhalation. Once the
patient's inhalation rate exceeds a predetermined rate, the aerosol generator is
activated and the drug is aerosolized and inhaled. The patient's inhalation rate
can be monitored throughout the inhalation cycle, allowing drug aerosolization
to occur only while the patient's inhalation rate is above a minimum flow rate
for optimal deposition of drug in the lung. A patient can also stop inhalation
mid-dose and take multiple breaths to inhale a single dose. Our electronic
controls can inform a patient when the complete dose has been aerosolized.
Additional electronic features to customize an inhaler for a specific drug
application or dosing regimen can include a dose counter, lock-out features and
patient identification to prevent misuse.

AERONEB PORTABLE NEBULIZER

    Our first commercial product, the AeroNeb portable nebulizer, offers many
improved features compared to standard nebulizers used by patients and care
providers in the home setting. This portable nebulizer weighs less than 12
ounces and can operate on four standard "AA" batteries, a car cigarette lighter
or AC current. The AeroNeb nebulizer operates silently, in any position and with
less wasted medication and faster medication delivery rates than standard
compressor nebulizers. It incorporates a liquid feed design and generates
negligible heat, minimizing drug degradation. The AeroNeb nebulizer was designed
and approved for use with commercially available nebulizer solutions of
respiratory drugs and is expected to be introduced into the U.S. market in the
first half of 2001.

AERONEB INLINE NEBULIZER

    We are developing an application of our aerosol generator technology to
deliver drugs to patients during mechanical ventilation. The AeroNeb InLine
nebulizer is small and lightweight allowing it to be positioned close to the
patient's windpipe, thereby optimizing drug delivery and humidification of the
inhaled air. The AeroNeb InLine nebulizer is designed to allow the addition of
medication to a nebulizer cup without opening the ventilator tubing, thereby
potentially reducing a major source of infections. The drug is aerosolized
without the use of a compressor and avoids the introduction of additional air
into the

                                       29
<PAGE>
ventilator tubing when the drug is administered. The AeroNeb InLine nebulizer
can be designed to synchronize with the patient's breathing cycle, thereby
optimizing drug delivery.

                                    PRODUCTS

    We intend to incorporate our versatile and flexible core aerosol generator
technology into a portfolio of products, some developed for commercialization by
us and some developed with partners for marketing by them. We also intend to
out-license our technology for applications outside of the field of pulmonary
drug delivery.

OUR PRODUCTS FOR RESPIRATORY DISEASES

    We intend to create and market a respiratory disease product portfolio
consisting of our nebulizers and our AeroDose inhalers combined with available
drugs. We have developed an improved, portable and lightweight quiet nebulizer
which we will introduce into the U.S. market in the first half of 2001. We are
also developing nebulizers customized for delivery of drugs to patients on
mechanical ventilators. We are developing our AeroDose inhalers for delivery of
drugs which are currently administered by nebulizers to the lungs of the young
and the elderly. Our initial target diseases are pediatric asthma, COPD and CF.
The types of drugs currently used to treat these diseases include
anti-inflammatories, bronchodilators, immuno-modulators, leukotriene modifiers
and mucolytics.

    In 1999 the U.S. institutional and pharmacy expenditures for inhaled
respiratory medications were approximately $3.3 billion. Market growth in this
area has resulted from increased incidence of disease, diagnosis, medication
expenditures, improved compliance and a shift to newer, costlier therapies. U.S.
sales of inhaled respiratory drugs by dosage form in 1999 are listed in the
following table.

<TABLE>
                 1999 UNITED STATES SALES OF INHALED RESPIRATORY DRUGS
                                                           (IN MILLIONS)
DRUG                                         NEBULIZER     MDI       DPI        TOTAL
<S>                                          <C>         <C>        <C>        <C>
Beta agonists (e.g., albuterol)                $189       $  811      $ 50      $1,050
Anticholinergics (ipratropium)                  165          275        --         440
Combinations (albuterol and ipratropium)         --          192        --         192
Steroids (e.g., budesonide)                      --        1,016        93       1,109
Pulmozyme-Registered Trademark-                  92           --        --          92
TOBI                                             60           --        --          60
Other (e.g., acetylcysteine, cromolyn)           60           96        --         156
    TOTAL                                      $566       $2,390      $143      $3,099
</TABLE>

        Excludes approximately $200 million in sales through home
        healthcare and other miscellaneous sources. Source: IMS Health,
        except for information relating to TOBI, which was published by
        PathoGenesis in its Annual Report on Form 10-K for the year
        ended December 31, 1999.

    We estimate that U.S. sales of nebulizer devices will exceed $150 million in
2000, with close to half of sales for home use. The majority of sales are
captured by compressor nebulizers, typically sold to patients at approximately
$125 per device.

    PEDIATRIC ASTHMA.  We estimate that the U.S. population of asthma patients
under age six will be approximately three million by 2001. The two most commonly
prescribed classes of drugs for treatment are beta agonists and steroids. For
pediatric asthma patients under age six, 50% of albuterol prescriptions specify
the use of a nebulizer.

                                       30
<PAGE>
    CHRONIC OBSTRUCTIVE PULMONARY DISEASE.  COPD is estimated to affect
approximately 30 million people in the United States, mostly over the age of 45,
of whom approximately 50% remain undiagnosed. The Centers for Disease Control
and Prevention predicts that the incidence will grow in concert with the aging
population. The most commonly prescribed drugs to treat COPD are beta agonists
and anticholinergics, with approximately 55% of the prescriptions for these
drugs specifying the use of a nebulizer.

    CYSTIC FIBROSIS.  CF affects approximately 30,000 patients in the United
States and about 70,000 worldwide. CF patients spend up to a total of three and
one-half hours per day taking inhaled medications, oral medications, enzymes,
vitamins and receiving chest physiotherapy. Approximately 40% of the albuterol
prescriptions for the treatment of CF specify the use of a nebulizer. The
proprietary drugs TOBI and Pulmozyme are currently only available in nebulizer
solutions and represent approximately 50% of nebulizer uses for this patient
population.

OUR RESPIRATORY PRODUCTS IN DEVELOPMENT

<TABLE>
<S>                    <C>                    <C>                    <C>
                        AEROGEN'S PRODUCTS FOR RESPIRATORY THERAPY
PRODUCT                DOSING OPTION          INTENDED MARKET        DEVELOPMENT STAGE

AeroDose (albuterol)   Single- and            Pediatric asthma,      Preclinical
                         multi-dose canister    COPD and CF            development
AeroDose               Single- and            Pediatric asthma,      Preclinical
  (ipratropium)          multi-dose canister    COPD and CF            development
AeroDose (budesonide)  Single- and            Pediatric asthma,      Feasibility
                         multi-dose canister    COPD and CF
AeroDose (anti-        To be determined       Pediatric asthma,      Feasibility
  inflammatory)                                 COPD and CF
AeroNeb portable       Continuous             All patients using     510(k) cleared; U.S.
  nebulizer                                     nebulizers             launch targeted
                                                                       first half of 2001
AeroNeb InLine         Continuous             All patients on        510(k) filing
  nebulizer                                     mechanical             targeted first half
                                                ventilation            of 2001
</TABLE>

"Preclinical development" means customizing the AeroDose inhaler for a
particular application.
"Feasibility" means formulation studies to ascertain compatibility of compounds
of interest with our aerosol generator.

    AERODOSE INHALER.  We believe that our AeroDose inhaler is particularly
suited to address the most common complaints of physicians and their patients
who require aerosolized medication. Our inhaler is designed to combine the
convenience and portability of an MDI with the ease of administration of a
nebulizer, while minimizing drug waste and ensuring reproducible dosing. In a
six person imaging study, we compared lung deposition of drug following delivery
of the same dose of albuterol from an MDI and an AeroDose inhaler. The AeroDose
inhaler deposited, on average, 70% of the emitted dose in the lungs, compared to
the MDI, which deposited, on average, 18%. We estimate that our AeroDose
inhalers have the potential to reduce the typical prescribed dose of drug for a
nebulizer or MDI by more than half, while still delivering the same therapeutic
dose to a patient's lungs.

                                       31
<PAGE>
    Our AeroDose inhalers are designed to be cost competitive inhalers that span
the needs of the youngest and oldest patients in our target markets. We believe
our AeroDose inhalers also will address the coordination problems experienced by
other patient using MDIs. Even with repeat training, approximately 50% of
patients using MDIs have difficulty coordinating activation of the device with
their breathing.

    The initial drugs targeted for development include albuterol, ipratropium
and budesonide. Our activities will be focused on U.S. regulatory approval and
market introduction. The rights to our products outside the United States will
be licensed to partners who will undertake the studies and other activities
necessary to obtain regulatory approvals. We also plan to explore the potential
for commercializing appropriate drug combinations once individual formulations
have been developed including:

    -  AERODOSE (ALBUTEROL).  Albuterol solution for inhalation is approved for
       use by the FDA and is marketed by several different manufacturers. In the
       United States, nebulized albuterol sales in 1999 were approximately
       $189 million, while MDI albuterol sales were approximately $811 million.
       We expect that our supplier will purchase albuterol in bulk, formulate it
       and package it into single-dose and multi-dose canisters.

    -  AERODOSE (IPRATROPIUM).  Ipratropium solution for inhalation is approved
       for use by the FDA and is marketed by several different manufacturers. In
       the United States, nebulized ipratropium sales in 1999 were approximately
       $165 million, while MDI ipratropium sales were close to $500 million
       (including sales in combination with albuterol). We expect that our
       supplier will purchase ipratropium in bulk, formulate it and package it
       into single-dose and multi-dose canisters.

    -  AERODOSE (BUDESONIDE).  We believe that there is an unmet need for a
       budesonide dosage form suitable for use by pediatric asthma and COPD
       patients. Current treatment options for our target patient populations
       are limited to oral delivery, injections and use of an MDI or DPI. We
       have completed feasibility testing of a suspension of budesonide. We
       expect that our supplier will purchase budesonide in bulk, formulate it
       and package it into single-dose and multi-dose canisters. We believe that
       because budesonide is a steroid, it will likely require more clinical
       trials prior to regulatory approval than products using drug solutions of
       albuterol or ipratropium.

    -  AERODOSE (ANTI-INFLAMMATORY).  We are conducting feasibility studies with
       a proprietary approved anti-inflammatory drug currently available only in
       an oral dosage form. If our studies are successful, we intend to pursue
       licensing of the compound. We anticipate that the compound will require
       more preclinical studies prior to initiating clinical trials because
       inhalation is a novel method of delivery for such compound. The
       regulatory path is therefore likely to be more comprehensive and take
       longer than for drugs already approved for use in a nebulizer.

    AERONEB PORTABLE NEBULIZER.  Our quiet and portable AeroNeb nebulizer will
be our first commercial product. It has been designed and approved for use with
commercially available nebulizer solutions. The product will provide us with
commercial experience in the respiratory disease market and our initial target
clinical disease area for AeroDose inhalers. We plan to introduce the AeroNeb
portable nebulizer in the U.S. market in the first half of 2001.

    The AeroNeb nebulizer may also be used by partners and potential partners in
Phase I clinical studies to evaluate the potential use of our AeroDose inhalers
for delivery of their drugs under appropriate feasibility or development
agreements.

    AERONEB INLINE NEBULIZER.  The AeroNeb InLine nebulizer incorporates our
proprietary aerosol generator. We believe that the AeroNeb InLine nebulizer has
the potential to provide drug delivery and humidification to hospitalized
patients on ventilators. We have developed a means of integrating the electronic
circuits of the ventilator with our nebulizer. We are in discussions with a
ventilator company to make the AeroNeb InLine nebulizer an integral part of its
line of ventilator products. We expect that our first AeroNeb InLine nebulizer
will be sold as a stand-alone product that can be attached to any ventilator. We
plan to make a 510(k) submission to the FDA for this version of the AeroNeb
InLine nebulizer in the

                                       32
<PAGE>
first half of 2001. We intend to market the product ourselves in the United
States and through distributors elsewhere.

PARTNERED PRODUCTS FOR RESPIRATORY THERAPY

<TABLE>
<S>                     <C>                  <C>             <C>                     <C>
                              PARTNERED PRODUCTS FOR RESPIRATORY THERAPY
PARTNER                 PRODUCT              DOSING OPTION   INTENDED MARKET         DEVELOPMENT STAGE
PathoGenesis            AeroDose TOBI        Single-dose     Respiratory infection   Phase I
                          (tobramycin)         canister

Biotechnology Company   AeroNeb nebulizer    Continuous      Respiratory             Phase I
                          (undisclosed)

Biotechnology Company   AeroDose             Single-dose     Respiratory             Preclinical
                          (undisclosed)        canister                                development

Pharmaceutical Company  Undisclosed          To be           Respiratory             Feasibility
                          products             determined
</TABLE>

"Phase I" means testing the product in a small number of patients or normal
volunteers, primarily for safety, at one or more dosage strengths.
"Preclinical development" means customizing the AeroDose inhaler for a
particular application.
"Feasibility" means formulation studies to ascertain compatibility of compounds
of interest with our aerosol generator.

    AERODOSE TOBI (TOBRAMYCIN).  We are collaborating with PathoGenesis to
develop a customized version of the AeroDose inhaler to deliver TOBI, an
anti-infective drug used to treat CF. TOBI was approved in late 1997 as a
nebulized solution for use by CF patients with PSEUDOMONAS AERUGINOSA lung
infections. More than 60% of CF patients are chronically infected with
PSEUDOMONAS AERUGINOSA by age 17. TOBI has been designated an orphan drug by the
FDA which provides seven years of marketing exclusivity in the United States for
PathoGenesis. PathoGenesis' sales of TOBI were approximately $39.6 million for
the first six months of 2000. Market studies completed by PathoGenesis have
shown that the total time required for treatments of the CF patient can have an
impact on the patient's compliance with the recommended TOBI treatment regimen
and on the physician's assessment of a patient's likelihood of compliance. TOBI
currently is given via nebulizer twice a day during alternate months, with each
administration taking approximately 15 to 20 minutes per session.

    PathoGenesis and we believe that due to the efficiencies of the AeroDose
inhaler, the administration time per dose of TOBI can potentially be shortened
to five to ten minutes or less. In addition, the breath activation feature of
the AeroDose inhaler will allow for more efficient drug delivery and less drug
waste. By making these improvements, we believe that we can broaden the market
acceptance of TOBI by delivering an effective dose more quickly through our
hand-held, portable AeroDose inhaler.

    In March 2000, we entered into a development and supply agreement with
PathoGenesis to develop and commercialize the custom AeroDose inhaler and
PathoGenesis' formulation of TOBI. PathoGenesis is responsible for the
development and manufacture of the portion of the final product that contains
the drug. We are responsible for developing and manufacturing the custom
AeroDose inhaler. PathoGenesis will conduct the clinical testing needed for
regulatory approval of the final product. In July 2000, PathoGenesis announced
that it had begun Phase I testing of the AeroDose TOBI product.

    Under the agreement, PathoGenesis received exclusive worldwide
commercialization rights for the AeroDose inhaler when it is sold for use with
TOBI. We also granted PathoGenesis exclusive worldwide commercialization rights
to the AeroDose inhaler for the delivery of all other aminoglycoside drugs,

                                       33
<PAGE>
provided that we and PathoGenesis agree upon the terms of development of other
drug products and the royalties and other payments to be made to AeroGen
resulting from the sale of these products.

    We receive reimbursement of our costs to develop the AeroDose TOBI product.
We also will receive reimbursement for our manufacturing costs and a small
profit for each inhaler we provide to PathoGenesis, as well as royalties on
product sales. Upon entering into this agreement, PathoGenesis made a
$2.5 million equity investment in our Series E convertible preferred stock.
Unless terminated earlier by either party, the agreement will continue on a
country-by-country basis until the last patent covering the product expires, or
on January 20, 2015, whichever is later.

    In August 2000, PathoGenesis announced that it had entered into an agreement
to be acquired by Chiron Corporation, a leading biopharmaceutical company.

    OTHER RESPIRATORY PRODUCTS UNDER DEVELOPMENT WITH PARTNERS.  We intend to
collaborate with pharmaceutical and biotechnology companies to develop novel
pulmonary drug delivery products for respiratory therapy. Such collaborations
typically take one of two approaches: either a partner contacts us with a
proprietary drug to be delivered to the lungs, or we proactively identify
product opportunities and approach potential partners after obtaining
preclinical data, if possible.

    The flexibility of our technology to facilitate improved respiratory therapy
has attracted potential development partners. We currently are partnering with
three companies exploring respiratory therapies, of which one biotechnology
product is in Phase I trials, one biotechnology product is in preclinical
development and various products with one pharmaceutical company are currently
undergoing feasibility studies. We currently are conducting feasibility
activities with potential partners with both small and large molecules for
respiratory therapy.

    Feasibility studies can be paid for by potential partners or by us, and can
include IN VITRO (laboratory) testing and drug deposition studies. These studies
may be followed by some early clinical trials. Generally, the agreements and the
activities can be cancelled at any time by our partners. In the drug delivery
area, it is common for corporate partners to conduct feasibility studies with
multiple partners. Once feasibility of a particular drug has been established,
our partners typically fund additional development work and may make an equity
investment under the terms of our agreements with them. Following collaborative
development of a product, the partner will commercialize the product and pay us
a royalty on sales. We currently intend to manufacture AeroDose inhalers and
supply them to our partners at our cost plus a small profit.

PRODUCTS FOR SYSTEMIC THERAPY

    In addition to our respiratory therapy activities, our strategy includes
collaborating with pharmaceutical and biotechnology companies to develop novel
pulmonary drug delivery products for systemic therapy. We will pursue these
opportunities in the same manner as our partnered respiratory products; either
the potential partners will come to us, or we will propose products to them
after obtaining preclinical data, if possible.

    AERODOSE (INSULIN).  We are developing a special AeroDose inhaler for
delivery of insulin to diabetic patients which will incorporate a
patient-adjustable container being developed by BD. The estimated 800,000 Type I
(insulin dependent) diabetic patients in the United States require multiple
injections of insulin per day. We estimate that three of the nine million Type
II (non-insulin dependent) patients are currently injecting themselves with
insulin. Type II patients frequently fail to modify their lifestyle and are
reluctant to use injection-based therapy. We believe that once a non-invasive
form of insulin is approved, a significant portion of Type II patients may begin
treatment. Recent studies clearly demonstrate that injected insulin can
substantially limit the complications of diabetes. We estimate that the
worldwide insulin market will grow from $3.2 billion in 2000 to $6.5 billion by
2005.

                                       34
<PAGE>
    Our AeroDose insulin product is designed to be the first patient-adjustable
inhaler allowing a patient to precisely adjust their insulin dose based on
anticipated caloric intake. After extensive focus group testing with patients
and physicians, we believe that the AeroDose insulin inhaler will be an
attractive method for delivering inhaled insulin due to its small size and ease
of use.

    We have completed a Phase I clinical study using a prototype
patient-operated AeroDose inhaler with insulin in the United Kingdom in twelve
normal volunteers. The study compared insulin inhalation to subcutaneous
injection, focusing on both the absorption of insulin into the bloodstream and
its glucose-lowering effects. Subjects used separate AeroDose inhalers, which
were configured for slow, deep inhalations and production of a small-particle
aerosol appropriate for systemic drug delivery. Results indicated that the
absorption and glucose-lowering effects of inhaled insulin, relative to injected
insulin, were consistent with the published literature indicating that typically
10% to 15% of inhaled drug reaches the systemic circulation. There were no
reported respiratory complaints and no measurable differences in lung function
after inhalation versus injection. We recently began an additional Phase I
clinical trial in Europe, where we are studying optimal aerosolization
parameters. Phase II trials are planned for the first half of 2001. These
studies, in the United States and Europe, are designed to provide additional
evidence of AeroDose inhaler performance and inter- and intra-subject
variability in circulating levels of insulin following inhalation.

    In May of this year, we entered into an agreement with BD under which BD
will develop and supply a patient-adjustable container for use in our AeroDose
insulin inhaler. Under the agreement, we will develop the customized AeroDose
inhaler at our own cost and BD will develop the container at its own cost. We
will have the marketing rights to the product and BD will receive royalties on
product sales and a portion of any payments we receive from any future marketing
partner. BD will supply the container, without drug. Upon entering into the
agreement, BD made a $2.5 million equity investment in our Series E convertible
preferred stock.

    We plan to partner our AeroDose insulin product for further development,
clinical testing and commercialization.

    OTHER PHARMACEUTICAL AND BIOTECHNOLOGY COLLABORATIONS FOR SYSTEMIC
THERAPIES.  In addition to insulin, we are continuing to evaluate the market
opportunities for other drugs that we believe can be delivered to the
bloodstream using our AeroDose inhaler. We intend to collaborate with
pharmaceutical and biotechnology companies for development, clinical testing and
commercialization of these AeroDose products.

TECHNOLOGY OUT-LICENSING

    Our aerosol generator technology has proven to be of value to industries
focusing outside the field of pulmonary drug delivery. In October 1999, we
entered into an exclusive license agreement with a consumer company permitting
them to use our aerosol generator in the fields of air fresheners and insect
repellants worldwide. We expect the initial product will be introduced in Europe
in 2001. Under the license agreement, we will receive royalties based on net
sales of units and refills, and the license gives us access to any improvements
in our technology made by the consumer company during conduct of their
development and manufacturing activities. We have the right to terminate the
agreement with respect to either the air freshener products or insect repellant
products if such products are not introduced within specific time limits. We
will continue to explore out-licensing opportunities for our technologies
outside the field of pulmonary drug delivery.

                                 MANUFACTURING

    We plan to manufacture our aerosol generators and outsource the manufacture
of the other components used in our products. We manufacture the aperture plates
and assemble our aerosol generators at our facility in Sunnyvale, California. We
design the remaining components of our products, such as

                                       35
<PAGE>
molded parts and electronic circuitry, and outsource the manufacture of these
parts to qualified vendors. The manufacture of containers and sterile drug
filling will be outsourced, minimizing the need for capital investment in
specialized drug filling facilities that require GMP approval. We currently are
planning to have our AeroNeb nebulizer and our AeroNeb InLine nebulizer
manufactured for us by a qualified vendor in the EU, incorporating aerosol
generators that we will supply. We plan to assemble our AeroDose inhalers in our
California facilities.

                              SALES AND MARKETING

    We are evaluating options for the sales and marketing of our respiratory
products. We anticipate developing a U.S. sales force, through outsourced or
internal efforts or both, to support our respiratory products. Our strategy
includes maintaining the marketing rights for these products in the United
States and commercializing the products in other countries through distributors
or marketing partners. Using a targeted sales strategy, we plan to market the
AeroNeb portable nebulizer in the United States to certain home medical
equipment dealers, retail pharmacies, physicians and patients. We are
considering medical device distribution companies or respiratory equipment
companies as our partners to commercialize the AeroNeb and AeroNeb InLine
nebulizers. We currently expect that the products we develop in collaboration
with partner companies will be commercialized by our partners.

                                  COMPETITION

    There is intense competition in the drug delivery market. We compete with
pharmaceutical and biotechnology companies, hospitals, research organizations,
individual scientists and nonprofit organizations engaged in developing
non-invasive drug delivery dosage forms and new drug research and development.
Competing non-invasive alternatives to injectable drug delivery include oral,
intranasal, buccal, transdermal and colonic absorption dosage forms. We also
compete with entities producing and developing injectable drugs. Several of
these entities are working on sustained-release injectable systems. While these
systems still require injections, the lower number of injections could allow
these products to compete effectively with non-invasive therapies.

    The pulmonary drug delivery market in particular is intensely competitive.
Several companies, including Aradigm Corporation, Dura Pharmaceuticals, Inc.,
Inhale Therapeutics and Sheffield Pharmaceuticals, Inc. are developing competing
pulmonary drug delivery dosage forms. These competing dosage forms are designed
both to treat respiratory disease and to deliver drugs systemically. Several of
our competitors have collaborative arrangements with partners to develop
inhalers for insulin. We also face competition from existing pulmonary drug
delivery dosage forms such as MDIs, DPIs and nebulizers, which have been used
effectively to treat respiratory disease in certain patient populations for
years. There can be no assurance that our competitors will not develop and
introduce products or technologies that are competitive with or superior to
ours.

    Many of our competitors have greater research and development capabilities,
experience, manufacturing, marketing, financial and managerial resources than we
do. Accordingly, they may succeed in developing competing products and
technologies, obtaining regulatory approval for products or gaining market
acceptance more rapidly than we can. We believe that our products will compete
on the basis of patient convenience, efficiency, dose reproducibility, safety
and cost.

                  INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

    Our ability to compete effectively depends in part on developing and
maintaining the proprietary aspects of our aerosolization technology. We own
five issued U.S. patents and one allowed U.S. patent application. In addition,
we have eight pending U.S. patent applications and eight pending international

                                       36
<PAGE>
patent applications. None of our issued patents expire earlier than 2009. These
patents are directed at, among other things, the following:

    -  apparatus and methods for generating aerosols, such as delivering the
       liquid to be aerosolized in surface tension with a vibrating membrane,
       dispersing the liquid through tapered apertures in the vibrating
       membrane, and incorporating the tapered apertures in a dome-shaped
       aperture plate;

    -  particular aspects of the liquid feed system; and

    -  particular embodiments of the aerosolization devices.

    The pending patent applications include coverage for numerous improvements
on the fundamental aspects of our aerosolization technology.

    We cannot assure you that the patents we have obtained, or any patents that
we may obtain as a result of our U.S. or international patent applications, will
provide any competitive advantages for our products or that they will not be
successfully challenged, invalidated or circumvented in the future. In addition,
we cannot assure you that competitors, many of whom have substantial resources
and have made substantial investments in competing technologies, will not seek
to apply for and obtain patents that will prevent, limit or interfere with our
ability to make, use and sell our products either in the United States or in
international markets.

    A number of other companies, universities and research institutions have
filed patent applications or have issued patents relating to vibratory
aerosolization technology. In addition, we have become aware of, and may become
aware of in the future, patent applications and issued patents that relate to
our products. We do not believe that our products currently infringe any valid
and enforceable claims of the issued patents that we have reviewed. However, if
third-party patents or patent applications contain claims infringed by our
technology and such claims are ultimately determined to be valid, we cannot
assure you that we would be able to obtain licenses to those patents at a
reasonable cost, if at all, or be able to develop or obtain alternative
technology. The inability to do either would have a material adverse effect on
our business, financial condition, results of operations and future growth
prospects. We cannot assure you that we will not have to defend ourselves in
court against allegations of infringement of third-party patents.

    In addition to patents, we rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through confidentiality and proprietary
information agreements. We require our employees and key consultants to execute
confidentiality agreements upon the commencement of employment or a consulting
relationship with us. These agreements generally provide that all confidential
information developed or made known to the individual by us during the course of
the individual's relationship with us is to be kept confidential and not
disclosed to third parties. These agreements also provide that inventions
conceived by the individual in the course of rendering services to us will be
our exclusive property. We cannot assure you that employees and consultants will
not breach the agreements, that we would have adequate remedies for any breach
or that our trade secrets will not otherwise become known to or be independently
developed by competitors.

    The pharmaceutical and medical device industries have been characterized by
extensive litigation regarding patents and other intellectual property rights,
and companies in these industries have employed intellectual property litigation
to gain a competitive advantage. We cannot assure you that we will not become
subject to patent infringement claims or litigation or interference proceedings
declared by the United States Patent and Trademark Office, or USPTO, to
determine the priority of inventions. In 1999 we settled a patent interference
involving U.S. Patent No. 5,261,601, assigned to Bespak concerning methods and
apparatus for dispensing atomized sprays by vibrating a membrane to atomize the
liquid in contact with the membrane through flared holes in the membrane. The
settlement provided for a cross-license between us and Bespak, as a result of
which Bespak has a license to certain of our technology. The scope of the
granted license was limited to products employing technology which was disclosed
by Bespak in

                                       37
<PAGE>
U.S. Patent No. 5,261,601. The license would not extend to any of our technology
which was not disclosed in this patent.

    Our patent position involves complex legal and factual questions and is
generally uncertain. The field of aerosolized drug delivery is crowded, and a
substantial number of patents have been issued to others. We are aware of
several issued U.S. and international patents that cover certain aspects of
vibratory aerosolization technology. Legal standards relating to the validity
and scope of patent claims in the biotechnology and pharmaceutical field are
evolving. Therefore, the degree of protection our patents will afford is
uncertain. Patents, if issued, may be challenged, invalidated or designed
around. Thus, any patents that we own or license may not provide any, or
significant, protection against competitors. Our pending patent applications or
those we may file in the future may not result in patents being issued. Also,
patent rights may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed.

    The defense and prosecution of intellectual property litigation, USPTO
interference proceedings and related legal and administrative proceedings are
both costly and time-consuming. If others violate our proprietary rights,
litigation may be necessary to enforce our patents, to protect trade secrets or
know-how owned by us or to determine the enforceability, scope and validity of
the proprietary rights of others. Any litigation or interference proceedings
will be costly and cause significant diversion of effort by our technical and
management personnel. An adverse determination, other litigation or interference
proceedings to which we may become a party could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require us to cease using such technology. Although patent and
intellectual property disputes in the medical device area have often been
settled through licensing or similar arrangements, costs associated with such
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot be sure that we could obtain necessary licenses on
satisfactory terms, if at all. Adverse determinations in a judicial or
administrative proceeding or failure to obtain necessary licenses could prevent
us from manufacturing and selling our products, which would have a material
adverse effect on our business, financial condition, results of operations and
future growth prospects.

                             GOVERNMENT REGULATION

    Our products are subject to extensive regulation by numerous governmental
authorities, principally the FDA in the United States, as well as numerous state
and foreign regulatory agencies. We need to obtain clearance of our products by
the FDA before we can begin marketing our products in the United States. Similar
approvals also are required in other countries before our products can be
marketed in those countries.

    Product development and approval within this regulatory framework is
uncertain, can take a number of years and requires substantial resources. The
nature and extent of the governmental premarket review process for our products
will vary depending on the regulatory categorization of particular products.
Because certain of our products may be characterized as either devices, drugs or
biologics, the regulatory path for our products is not clear.

    Our products regulated as medical devices will be classified into one of
three classes on the basis of the controls deemed by the FDA to be necessary to
reasonably ensure their safety and effectiveness. The class for any particular
product, as follows, will determine the regulatory route:

    -  CLASS I:  general controls, e.g., labeling, premarket notification and
       adherence to GMP quality system regulation, or QSR;

    -  CLASS II:  general controls and special controls, e.g., performance
       standards and postmarket surveillance; and

                                       38
<PAGE>
    -  CLASS III:  premarket approval (PMA).

    510(K) CLEARANCE.  Before a new device can be marketed, its manufacturer
must obtain marketing clearance through either a premarket notification under
Section 510(k) of the Federal Food, Drug and Cosmetic Act or approval of a
premarket approval application, or PMA. A 510(k) clearance typically will be
granted if a company establishes that its device is "substantially equivalent"
to a legally marketed Class I or II medical device or to a Class III device for
which the FDA has not yet required the submission of a PMA, referred to as a
predicate device. A 510(k) clearance must contain information to support the
claim of substantial equivalence, which may include laboratory test results or
the results of clinical studies. A clinical trial generally requires an
investigational device exemption (IDE) application approved, before the study
begins, by the FDA for a specified number of patients, unless the product is
approved for more abbreviated IDE requirements. The IDE must be supported by
appropriate data, such as animal and laboratory testing results. Clinical trials
may begin if the FDA and the appropriate institutional review boards approve the
IDE. Trials must be conducted in conformance with FDA regulations and
institutional review boards' requirements. The sponsor or the FDA may suspend
the trials at any time if it is believed that they pose unacceptable health
risks or the FDA finds deficiencies in the way they are being conducted. Data
from clinical trials are often subject to varying interpretations that could
delay, limit or prevent FDA approval. Commercial distribution of a device
subject to the 510(k) requirement may begin only after the FDA issues an order
finding the device to be substantially equivalent to a predicate device. It
generally takes from four to 12 months from the date of submission to obtain
clearance of a 510(k) submission, but it may take longer. The FDA may determine
that a proposed device is not substantially equivalent to a legally marketed
device, that additional information is needed before a substantial equivalence
determination may be made, or that the product must be approved through the PMA
process. An FDA determination of "not substantially equivalent," a request for
additional information, or the requirement of a PMA could delay market
introduction of products that fall into this category. Furthermore, for any
devices cleared through the 510(k) process, modifications or enhancements that
could significantly affect safety or effectiveness, or constitute a major change
in the intended use of the device, require new 510(k) submissions. We have
received 510(k) clearance for our AeroNeb nebulizer.

    PMA APPROVAL.  If a device does not qualify for the 510(k) premarket
notification procedure, a company must file a PMA. The PMA requires more
extensive pre-filing testing than required for a 510(k) premarket notification
and usually involves a significantly longer review process. A PMA must be
supported by valid scientific evidence that typically includes extensive data,
including preclinical and clinical trial data, to demonstrate the safety and
efficacy of the device. If clinical trials are required, and the device presents
a "significant risk," an IDE application must be filed with the FDA and become
effective prior to the commencing clinical trials. If the device presents a
"nonsignificant risk" to trial subjects, clinical trials may begin on the basis
of appropriate institutional review board approval.

    A PMA may be denied if applicable regulatory criteria are not satisfied, and
the FDA may impose certain conditions upon the applicant, such as postmarket
testing and surveillance. The PMA review and approval process can be expensive,
uncertain and lengthy, and approvals may not be granted. A number of devices for
which premarket approval has been sought have never been approved for marketing
and sale. After approval of a PMA, a new PMA or a new PMA supplement is required
if certain modifications are made to the device, its labeling or its
manufacture.

    NDA AND BLA APPROVAL.  Our AeroDose inhaler products may be regulated as
drugs or biologics if approval is requested for the inhaler with a new chemical
entity or a new biologic. In this instance, an Investigational Drug Application
(IND) will be required before Phase II studies in patients can be conducted.
Approval of a New Drug Application (NDA), or a Biologics License Application
(BLA), will be required before the product can be marketed. In addition to
reports of the preclinical and clinical trials conducted under an effective IND
application, the NDA or BLA includes information pertaining to the preparation
of the drug substance, the manufacture of the inhaler, analytical methods,
details on the

                                       39
<PAGE>
manufacture of finished products and proposed packaging and labeling. Submission
of an NDA or BLA does not assure FDA approval for marketing. The application
review process generally takes several years to complete. The process may take
substantially longer if, among other things, the FDA has questions or concerns
about the safety or efficacy of a product. In general, the FDA requires at least
two properly conducted, adequate and well-controlled clinical studies
demonstrating efficacy with sufficient levels of statistical assurance.

    There can be no assurance that approval for any of our products will be
granted on a timely basis, or at all. Notwithstanding the submission of safety
and efficacy data, the FDA ultimately may decide that the application does not
satisfy all of its regulatory criteria for approval. The FDA also may require
additional clinical tests (i.e., Phase IV clinical trials) following NDA or BLA
approval to confirm safety and efficacy. Upon approval, a product may only be
marketed for the approved indications.

    In addition, the FDA may in some circumstances impose restrictions on the
use of a product that may be difficult and expensive. Product approvals may be
withdrawn if compliance with regulatory requirements is not maintained or if
problems occur after the product reaches the market. The FDA also requires
reporting of certain safety and other information that becomes known to a
manufacturer of an approved product.

    The process for approval of products regulated as drugs and biologics
outside the United States is similar to the NDA/BLA process in the United
States.

    EUROPEAN UNION APPROVAL.  Commercialization of medical devices in the EU is
regulated under a system which presently requires that all medical products sold
in the EU bear the CE mark, an international symbol of adherence to quality
assurance standards and demonstrated clinical effectiveness. Compliance with the
Medical Device Directive--as certified by a recognized European Competent
Authority--permits the manufacturer to affix the CE mark on its products. We
cannot be certain that we will obtain the CE mark approval, or that we will not
have delays in obtaining the CE mark approval for any product.

    POST-APPROVAL REQUIREMENTS.  Regulatory approval, if granted, may entail
limitations on the indicated uses for which a product may be marketed, and
product approvals, once granted, may be withdrawn if problems occur after
initial marketing. Manufacturers of FDA-regulated products are subject to
pervasive and continuing governmental regulation, including recordkeeping
requirements and reporting of adverse experiences associated with product use.
Compliance with these requirements is costly, and failure to comply properly can
result in withdrawal of a product approval.

    GMP REQUIREMENTS.  We will be required to adhere to applicable regulations
setting forth the FDA's current Good Manufacturing Practices, which include
testing, control and documentation requirements. Other countries have similar
requirements. Failure to comply with GMP and other applicable regulatory
requirements may result in, among other things, warning letters, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure of the government to review pending marketing
approval applications, withdrawal of marketing approvals and criminal
prosecution.

    HAZARDOUS MATERIALS.  Our operations involve use of hazardous and toxic
materials and generate hazardous, toxic and other wastes. We are subject to
federal, state and local laws and regulations governing the use, storage,
handling and disposal of such materials and certain waste products. Although we
believe that our safety procedures for using, handling, storing and disposing of
such materials comply with the standards required by state and federal laws and
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials.

                                       40
<PAGE>
                                   EMPLOYEES

    We had approximately 96 full-time employees as of June 30, 2000, 80 of whom
are engaged in product development and research activities. Ten of these
employees are at our Irish facility. Our employees are not represented by a
collective bargaining agreement. All employees participate in an employee stock
option plan and receive options that generally vest over a four-year period. We
believe our relations with our employees are good.

                                   FACILITIES

    We lease two contiguous facilities, approximately 25,000 square feet and
13,000 square feet, respectively, in Sunnyvale, California. The leases on these
laboratory, manufacturing and office spaces expire in December 2001. AeroGen
Ireland leases a laboratory and office facility of approximately 2,500 square
feet in Galway, Ireland. The lease in this office expires at the end of this
year and we expect to renew it.

                               LEGAL PROCEEDINGS

    We are not a party to any material legal proceedings.

                                       41
<PAGE>
                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

    The following persons are our executive officers, senior management and
directors as of June 30, 2000:

<TABLE>
<CAPTION>
NAME                                     AGE      POSITION
----                                   --------   --------
<S>                                    <C>        <C>
Jane E. Shaw, Ph.D...................     61      Chairman, Chief Executive Officer and Director
Yehuda Ivri..........................     49      Chief Technical Officer and Director
Casper L. de Clercq..................     36      Vice President, Sales, Marketing and Business
                                                  Development
Carol A. Gamble......................     48      Vice President and General Counsel
Deborah K. Karlson...................     48      Chief Financial Officer
Michael A. Klimowicz.................     50      Vice President, Product Development
John S. Power........................     42      Vice President, European Operations
Thomas R. Baruch(1)..................     61      Director
Jean-Jacques Bienaime(1)(2)..........     47      Director
Phyllis I. Gardner, M.D(1)...........     50      Director
Philip M. Young(2)...................     60      Director
</TABLE>

------------------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

    JANE E. SHAW, PH.D. has served as Chairman of our Board of Directors and as
our Chief Executive Officer since 1998. Dr. Shaw was a founder and consultant of
The Stable Network, a consulting company that focuses on improving the
productivity and profitability of biopharmaceutical companies, from 1994 to
1998. Dr. Shaw held various scientific and management positions in ALZA
Corporation, a pharmaceutical company, from 1970 to 1994, most recently as
President and Chief Operating Officer from 1987 to 1994. Dr. Shaw received a
B.S. and Ph.D. in Physiology from Birmingham University in England. Dr. Shaw
serves as a director of McKesson HBOC, Inc., a healthcare supply management
company, Intel Corporation, a semiconductor chip maker, Boise Cascade
Corporation, an office products and building materials company, and IntraBiotics
Pharmaceuticals, a biopharmaceutical company.

    YEHUDA IVRI founded AeroGen in 1991 and has served as a member of our Board
of Directors since its inception. Mr. Ivri has served as our Chief Technical
Officer since 1996 and previously as Chief Scientist and Vice President.
Mr. Ivri received an M.S. in Mechanical Engineering from the Technion-Israel
Institute of Technology.

    CASPER L. DE CLERCQ has served as our Vice President of Business Development
since 1998 and our Vice President of Sales, Marketing and Business Development
since 1999. Mr. de Clercq was Director of Market Development at
Heartport, Inc., a cardiovascular device company, from 1996 to 1998, and Co-
founder and Vice President of Business Development at Biointerventions, Co., a
biotechnology company, from 1994 to 1995. Mr. de Clercq held various positions
at Diagnostic Products Corporation, a medical device company, from 1987 to 1991,
and was a consultant at Bain & Company, an international strategy consulting
firm, from 1984 to 1987. Mr. de Clercq received a B.A. in Biochemistry from
Dartmouth College, an M.B.A. from Stanford University Graduate School of
Business and an M.S. in Biological Science from Stanford University.

    CAROL A. GAMBLE has served as Vice President and General Counsel since
May 2000. Previously Ms. Gamble was with ALZA Corporation, a pharmaceutical
company, from 1988 to 2000, most recently as Senior Vice President and Chief
Corporate Counsel. Ms. Gamble was a partner with the law firm of Heller, Ehrman,
White & McAuliffe. Ms. Gamble received a B.S. in Education from Syracuse
University and a J.D. from the University of California, Berkeley.

    DEBORAH K. KARLSON has served as our Chief Financial Officer since
February 2000 and Vice President of Finance and Administration since 1999.
Ms. Karlson was a financial consultant from 1992 until 1999,

                                       42
<PAGE>
and provided consulting services to AeroGen from 1997 to 1999. Previously,
Ms. Karlson was a manager with Deloitte & Touche LLP, an accounting firm. She
received a B.A. in Accounting and Economics and an M.B.A. in Finance and
Accounting from the Syracuse University School of Management.

    MICHAEL A. KLIMOWICZ has served as our Vice President, Product Development
since 1998. Mr. Klimowicz held a number of senior management positions at Alaris
Medical Systems, a medical device company, from 1990 to 1998, most recently as
Director of Product Development. Mr. Klimowicz was the Director of Biomedical
Engineering at Psicor Inc., a medical services company, from 1987 to 1990.
Mr. Klimowicz received a B.S. in Electrical Engineering from Western Michigan
University.

    JOHN S. POWER has served as our Vice President, European Operations and as
our Managing Director, AeroGen Ireland since May 2000. Mr. Power was the
Managing Director of Cerus Limited (now AeroGen Ireland), from 1998 to 2000.
Mr. Power was Engineering Manager in Mechanical Development at Nellcor Puritan
Bennett LTD, a medical products company, from 1993 to 1997. Mr. Power was an
engineering consultant to various companies from 1988 to 1992. Mr. Power
obtained I. Eng. Engineering Council Status from the Chesterfield College of
Technology.

    THOMAS R. BARUCH has served as a director of AeroGen since 1996. He has been
a General Partner at CMEA Ventures, a venture capital firm, since 1988
(previously an affiliated fund of New Enterprise Associates). Mr. Baruch was a
special partner of New Enterprise Associates from 1990 to 1996. Mr. Baruch
received a B.S. in Engineering from Rensselaer Polytechnic Institute and a J.D.
from Capital University. Mr. Baruch serves as a director of Netro Corporation, a
telecommunications company, Symyx Technologies, a technology research company,
Physiometrix Inc., a medical products company and Aclara Biosciences, Inc., a
life science company.

    JEAN-JACQUES BIENAIME has served as a director of AeroGen since 1999.
Mr. Bienaime has been President, Chief Executive Officer and a director of
SangStat, a transplant company, since 1998. Mr. Bienaime held various positions
at Rhone Poulenc Rorer Inc., a leading pharmaceutical company, from 1992 to
1998, most recently as Senior Vice President of Corporate Marketing and Business
Development. Mr. Bienaime received an M.B.A. from the Wharton School at the
University of Pennsylvania and a degree in Economics from Ecole Superieure de
Commerce de Paris in France. Mr. Bienaime serves as a director of the Fox Chase
Cancer Center in Philadelphia.

    PHYLLIS I. GARDNER, M.D. has served as a director of AeroGen since
May 2000. Dr. Gardner is currently the Senior Associate Dean for Education and
Student Affairs and Associate Professor of Molecular Pharmacology and Medicine
at Stanford University School of Medicine and has been with the university since
1984. Dr. Gardner was Vice President of Research, and Principal Scientist of
ALZA Corporation and Head of ALZA Technology Institute from 1996 to 1998.
Dr. Gardner was Principal Scientist and consultant to ALZA from 1994 to 1996.
Dr. Gardner received a B.S. in Biology from the University of Illinois and an
M.D. from Harvard Medical School.

    PHILIP M. YOUNG has served as a director of AeroGen since 1994. Mr. Young
has been a General Partner with U.S. Venture Partners, a venture capital firm,
since 1990. Mr. Young was a Managing Director of Dillon Read & Co., a financial
services company, and Concord Partners, a venture capital firm managed by Dillon
Read, from 1986 to 1990. Mr. Young was President and CEO of Oximetrix, Inc., a
privately held manufacturer of high technology medical instruments and sterile
disposable products, from 1978 to 1986. Mr. Young received a B.S. in Mechanical
Engineering from Cornell University, an M.S. in Engineering Physics from George
Washington University and an M.B.A. from Harvard Business School, where he was a
Baker Scholar. Mr. Young serves as a director of Vical Inc., a biotechnology
company, Compugen, Ltd., a bioinformatics company, The Immune Response
Corporation, a biopharmaceutical company, and Zoran Corporation, a digital
solutions provider.

                                       43
<PAGE>
CLASSIFIED BOARD

    Upon the closing of this offering, we will have authorized six directors. In
accordance with the terms of our certificate of incorporation, the terms of
office of our Board of Directors will be divided into three classes. As a
result, a portion of our Board of Directors will be elected each year. The
division of the three classes and their respective election dates are as
follows:

    -  the class I directors' term will expire at the annual meeting of
       stockholders to be held in 2001;

    -  the class II directors' term will expire at the annual meeting of
       stockholders to be held in 2002; and

    -  the class III director's term will expire at the annual meeting of
       stockholders to be held in 2003.

    Our class I directors will be Philip M. Young and Phyllis I. Gardner, M.D.
Our class II directors will be Thomas R. Baruch and Jane E. Shaw, Ph.D. Our
class III directors will be Jean-Jacques Bienaime and Yehuda Ivri. At each
annual meeting of stockholders after the initial classification, the successors
to directors whose terms will then expire will be elected to serve from the time
of election and qualification until the third annual meeting following election.
In addition, our bylaws provide that the authorized number of directors may be
changed by an amendment to the bylaws duly adopted by the Board of Directors or
by the stockholders, or by a duly adopted amendment to our certificate of
incorporation. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the total number of
directors.

BOARD COMMITTEES

    We established the audit committee of the Board of Directors in August 2000.
The audit committee reviews our internal accounting procedures and consults with
and reviews the services provided by our independent accountants. Our audit
committee currently consists of Thomas R. Baruch, Phyllis I. Gardner, M.D. and
Jean-Jacques Bienaime.

    We established the compensation committee of the Board of Directors in
August 2000. The compensation committee administers our stock plans, reviews and
approves the compensation and benefits of all our officers and establishes and
reviews general policies relating to compensation and benefits of our employees.
Our compensation committee currently consists of Philip M. Young and
Jean-Jacques Bienaime.

SCIENTIFIC ADVISORS

    We have retained advisors to provide guidance and counsel on key scientific
and medical aspects of our business. These advisors provide us an agreed upon
minimum number of days per year. They provide input on research, development and
clinical strategy. In addition, once a year they each convene a group of
consultants and organize a two-day symposium addressing a scientific or clinical
topic of particular relevance to our product development activities. Each
advisor is paid an annual retainer and receives options to purchase common
stock.

    RICHARD N. DALBY, PH.D., M.R. PHARM. S., B. PHARM., is currently our Chief
Scientific Advisor. Dr. Dalby is guiding our efforts to study and optimize the
delivery of aerosolized formulations in the lung, based on his expertise in
aerosol science, pharmaceutics and respiratory cell biology. Since 1997,
Dr. Dalby has held various positions in the Department of Pharmaceutical
Sciences at the University of Maryland, including the Vice Chair for Academic
Affairs. Dr. Dalby received a Ph.D. from the University of Kentucky and a B.
Pharm. from the Nottingham University School of Pharmacy.

    ALAN R. LEFF, M.D., is currently our Chief Medical Advisor. Dr. Leff assists
us in identifying and assessing new opportunities. He also provides guidance for
our development programs, based on his

                                       44
<PAGE>
expertise in respiratory pharmacology, cell biology and immunology. Dr. Leff has
held various positions at The University of Chicago where he is currently Senior
Director for Research and Development for Biological Sciences. Since 1993,
Dr. Leff has been the Director of the Asthma and Allergic and Immunologic
Disease Cooperative Research Center (National Institute of Allergy and
Infectious Diseases) and Professor of Pharmacological and Physiological
Sciences. From 1996 to 1997 he was Co-Chairman, Asthma Committee, NIAID Task
Force on Immunology, National Institutes of Health. Between 1994 and 1999,
Dr. Leff was editor for the AMERICAN JOURNAL OF RESPIRATORY and CRITICAL CARE
MEDICINE. Dr. Leff received an A.B. from Oberlin College and an M.D. from the
University of Rochester School of Medicine and Dentistry.

DIRECTOR COMPENSATION

    Directors currently receive no cash compensation from us for their services
as members of the Board of Directors or for attendance at committee meetings. In
August 1999, we granted Mr. Bienaime, in connection with his participation on
our Board of Directors, an option to purchase 50,000 shares of common stock at
$0.20 per share under our 1996 Stock Option Plan. One year from the date of
grant, 12,500 shares covered by Mr. Bienaime's option will become exercisable;
the balance of the shares covered by Mr. Bienaime's option will vest in equal
monthly installments over the following three years. In April 2000, we granted
Dr. Gardner, in connection with her participation on our Board of Directors, an
option to purchase 50,000 shares of common stock at $0.20 per share under our
1996 Stock Option Plan. One year from the date of grant, 12,500 shares covered
by Dr. Gardner's option will become exercisable; the balance of the shares
covered by Dr. Gardner's option will vest in equal monthly installments over the
following three years.

    In August 2000, we adopted the 2000 Non-employee Directors' Stock Option
Plan to provide for the automatic grant of options to purchase shares of common
stock to our directors who are not our employees. Any director elected after the
closing of this offering will receive an initial option to purchase 45,000
shares of common stock. Starting at the annual stockholder meeting in 2001, all
non-employee directors will receive an annual option to purchase 15,000 shares
of common stock.

EXECUTIVE COMPENSATION

    The following table sets forth summary information concerning the
compensation paid to our Chief Executive Officer and four most highly
compensated executive officers for services during the year ended December 31,
1999. All option grants were made under our 1996 Stock Option Plan.

                                       45
<PAGE>
                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                           NUMBER OF
                                                         ANNUAL            SHARES OF
                                                      COMPENSATION        COMMON STOCK
                                                   -------------------     UNDERLYING
NAME AND PRINCIPAL POSITION                         SALARY     BONUS        OPTIONS        OTHER
---------------------------                        --------   --------   --------------   --------
<S>                                                <C>        <C>        <C>              <C>
Jane E. Shaw, Ph.D. .............................  $240,000        --            --            --
  Chief Executive Officer
Michael A. Klimowicz ............................  $175,000   $44,501            --            --
  Vice President, Product Development
Casper L. de Clercq .............................  $160,000        --        50,000            --
  Vice President, Sales, Marketing & Business
  Development
Yehuda Ivri .....................................  $156,000        --            --       $30,000(1)
  Chief Technical Officer
Deborah K. Karlson(2) ...........................  $126,154        --       150,000            --
  Chief Financial Officer
</TABLE>

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

(1) Consists of $25,000 reimbursement for travel and lodging plus $5,000 tax
    gross-up on an interest-free loan.

(2) Ms. Karlson joined AeroGen in March 1999. Her annualized salary for 1999 was
    $160,000. Ms. Karlson was appointed Chief Financial Officer in
    February 2000.

                                    OPTIONS

    The following table sets forth each grant of stock options during the fiscal
year ended December 31, 1999 to each of the individuals listed on the previous
table.

    The exercise price of each option was equal to the fair market value of our
common stock, as determined by the board of directors on the date of grant. The
exercise price may be paid in cash, in shares of our common stock valued at the
fair market value on the exercise date or, after the effective date of this
offering, through a cashless exercise procedure involving a same-day sale of the
purchased shares.

    The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the SEC and does not represent our
prediction of our stock price performance. The potential realizable values at 5%
and 10% appreciation are calculated by

    -  multiplying the number of shares of common stock issuable upon exercise
       of a given option by the assumed initial public offering price of $
       per share;

    -  assuming that the aggregate stock value derived from that calculation
       compounds at the annual 5% or 10% rate shown in the table until the
       expiration of the options; and

    -  subtracting from that result the aggregate option exercise price.

    The options listed in the following table under "Number of Shares of Common
Stock Underlying Options Granted" are subject to vesting. For Mr. de Clercq, the
options vest in equal monthly installments over 48 months of service. For
Ms. Karlson, the options vest in equal monthly installments over 36 months of
service. For all the other individuals, the options vest as to 25% of the total
shares after one year and as to 1/48th of the total shares each month over the
next 36 months. Each of the options has a ten year term, subject to earlier
termination if the optionholder's service with us ends.

                                       46
<PAGE>
    Percentages shown under "Percent of Total Options Granted to Employees in
1999" are based on an aggregate of 1,063,500 options granted to our employees
under our stock option plans during the fiscal year ended December 31, 1999.

                             OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
                                                                                               POTENTIAL
                                                                                           REALIZABLE VALUE
                                                                                              AT ASSUMED
                                  NUMBER OF                                                 ANNUAL RATES OF
                                  SHARES OF       PERCENT OF                                  STOCK PRICE
                                 COMMON STOCK    TOTAL OPTIONS                             APPRECIATION FOR
                                  UNDERLYING      GRANTED TO     EXERCISE                     OPTION TERM
                                   OPTIONS         EMPLOYEES     PRICE PER   EXPIRATION   -------------------
NAME                               GRANTED          IN 1999        SHARE        DATE         5%        10%
----                            --------------   -------------   ---------   ----------   --------   --------
<S>                             <C>              <C>             <C>         <C>          <C>        <C>
Casper L. de Clercq...........      50,000            4.7%         $0.20      08/04/09
Deborah K. Karlson............     150,000           14.1%         $0.20      03/18/09
</TABLE>

  AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND YEAR-END
                                  OPTION VALUE

    The following table sets forth the number and value of securities underlying
unexercised options that are held by each of the individuals listed on the
previous page as of December 31, 1999.

    Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1999" are based on the assumed initial public offering price of
$           , without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares issuable
upon exercise of the option, less the exercise price payable for these shares.
Our 1994 and 1996 Stock Option Plans and 2000 Equity Incentive Plan allow for
the early exercise of options granted to employees. All options exercised early
are subject to repurchase by us at the original exercise price, if the
optionholder's service with us ends prior to the date when the options would
have vested based upon the original vesting schedule.

<TABLE>
<CAPTION>
                                                    NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                         UNDERLYING                   IN-THE-MONEY
                            SHARES                 UNEXERCISED OPTIONS AT              OPTIONS AT
                           ACQUIRED                   DECEMBER 31, 1999             DECEMBER 31, 1999
                             UPON      VALUE     ---------------------------   ---------------------------
                           EXERCISE   REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
                           --------   --------   -----------   -------------   -----------   -------------
<S>                        <C>        <C>        <C>           <C>             <C>           <C>
Michael A. Klimowicz.....    --         --          73,125        196,875
Casper L. de Clercq......    --         --           5,208         44,792
Deborah K. Karlson.......    --         --         120,000        150,000
</TABLE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    None of our executive officers serves as a member of the Board of Directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or compensation committee.

BENEFIT PLANS

    Since 1994, we have established five plans under which employees, officers,
non-employee directors and consultants may purchase or receive common stock
through incentive stock options and nonstatutory stock options, restricted stock
purchase awards and stock bonuses. These plans are the 1994 Stock Option Plan,
the 1996 Stock Option Plan, the 2000 Equity Incentive Plan, the 2000 Employee
Stock Purchase

                                       47
<PAGE>
Plan and the 2000 Non-employee Directors' Stock Option Plan. In addition, we
have established a defined contribution plan intended to be tax-qualified under
Sections 401(a) and 401(k) of the Internal Revenue Code, as amended and the
executive severance benefit plan described above.

2000 EQUITY INCENTIVE PLAN

    We adopted the 2000 Equity Incentive Plan in August 2000.

    RESERVED SHARES.  We have reserved 3,000,000 shares for issuance under the
Equity Incentive Plan. On the date of each annual stockholder meeting for
ten years, starting with the year 2001, the number of shares in this reserve
will automatically increase by the least of 6,000,000 shares, 4 1/2% of the
outstanding common stock on a fully-diluted basis or a lesser number as
determined by our Board of Directors. If stock awards granted under the Equity
Incentive Plan expire or otherwise terminate without being exercised, the shares
not acquired pursuant to the stock issuance under the Equity Incentive Plan.

    ADMINISTRATION.  The Equity Incentive Plan is administered by our Board of
Directors or a committee appointed by the Board which determines recipients and
types of awards to be granted, including the exercise price, number of shares
subject to the award and the exercisability.

    ELIGIBILITY.  Our Board of Directors may grant incentive stock options that
qualify under Section 422 of the Internal Revenue Code, to employees, including
officers, of AeroGen or an affiliate of AeroGen. Our Board of Directors may
grant nonstatutory stock options, stock bonuses and restricted stock purchase
awards to employees, including officers, or our directors and consultants. A
restricted stock purchase award is an offer to purchase our shares at a price
either at or near the fair market value of the shares. A stock bonus, on the
other hand, is a grant of our shares at no cost to the recipient in
consideration for past services rendered. We may reacquire the shares under
either type of award at the original purchase price, which is zero in the case
of a stock bonus, if the recipient's service to us or an affiliate terminates
before the shares vest.

    No incentive stock option may be granted to any person who, at the time of
the grant, owns, or is deemed to own, stock possessing more than 10% of the
total combined voting power of AeroGen or any affiliate of AeroGen, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant and the term of the option does not
exceed five years from the date of grant. The aggregate fair market value,
determined at the time of grant, of the shares of common stock with respect to
which incentive stock options are exercisable for the first time by an optionee
during any calendar year under all of our plans may not exceed $100,000.

    Section 162(m) of the Internal Revenue Code denies a deduction to
publicly-held corporations for compensation paid to specific employees in a
taxable year to the extent that the compensation exceeds $1,000,000. When we
become subject to Section 162(m), our Board of Directors may not grant options
under the Equity Incentive Plan to an employee covering an aggregate of more
than 3,000,000 shares in any calendar year.

    OPTION TERMS.  The maximum option term is ten years. The exercise prices of
options granted under the Equity Incentive Plan are determined by our Board of
Directors, provided that the exercise price for an incentive stock option cannot
be less than 100% of the fair market value of the common stock on the date of
the option grant, and the exercise price for a nonstatutory stock option cannot
be less than 85% of the fair market value of the common stock on the date of the
option grant.

    Generally an option terminates three months after the optionholder's service
with us terminates. If the termination is due to the optionholder's disability,
the exercise period generally is extended to 12 months. If the termination is
due to the optionholder's death, or if the optionholder dies within three months
after his or her service terminates, in either case before the end of the option
term, the exercise period generally is extended to 18 months following death.

                                       48
<PAGE>
    OTHER PROVISIONS.  The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock options may be
transferable under limited circumstances. Otherwise, the option exercise rights
will pass by the optionholder's will or by the laws of descent and distribution.

    Our Board of Directors determines the purchase price of other stock awards,
but the purchase price may not be less than 85% of the fair market value of
AeroGen's common stock on the grant date. However, our Board of Directors may
award stock bonuses in consideration of past services without a purchase
payment. Shares sold or awarded under the Equity Incentive Plan may, but need
not, be restricted and subject to a repurchase option in favor of AeroGen in
accordance with a vesting schedule that our Board of Directors determines. Our
Board of Directors may accelerate the vesting of the restricted stock.

    Transactions not involving receipt of consideration by us, including a
merger, consolidation, reorganization, stock dividend, or stock split, may
change the nature, class and number of shares subject to the Equity Incentive
Plan and to outstanding awards. In that event, our Board of Directors will
appropriately adjust the Equity Incentive Plan as to the nature, class and the
maximum number of shares subject to the term of the Equity Incentive Plan,
including the Section 162(m) limitation. Our Board of Directors also will adjust
outstanding awards as to the nature, class, number of shares and price per share
subject to the awards.

    Upon a change in control of AeroGen the surviving entity will either assume,
continue or substitute outstanding awards under the Equity Incentive Plan. If
the awards are not assumed, continued or substituted, then the vesting of the
awards will accelerate.

    OPTIONS ISSUED.  As of July 31, 2000, no shares or options had been issued
under the Equity Incentive Plan. The Equity Incentive Plan will not be effective
until the effective date of this offering. The Equity Incentive Plan will
terminate in 2010 unless our Board of Directors terminates it sooner. See the
description below regarding stock options previously granted under the 1996
Stock Option Plan.

1994 AND 1996 STOCK OPTION PLANS

    In 1994, we adopted our 1994 Stock Option Plan. The 1994 plan will terminate
in November 2004 unless it is terminated earlier by our Board of Directors. In
1996, we adopted our 1996 Stock Option Plan. The 1996 plan will terminate in
March 2006 unless our Board of Directors terminates it sooner. In August 2000
our Board of Directors amended and restated the 1996 Stock Option Plan (Restated
1996 Plan) to provide for the same terms and conditions as the Equity Incentive
Plan described above. However, the original terms of the 1996 Plan as described
in this section will continue to apply to stock options granted under the
original 1996 Plan prior to August 2000.

    OPTION TERMS.  The option terms under the 1994 Plan and original 1996 Plan
are similar to the Equity Incentive Plan described above. However, an option
terminates 30 days under the original 1996 Plan and three months under the 1994
Plan after the optionholder's service with us terminates. In addition, if the
termination is due to the optionholder's disability or death, the exercise
period generally is extended to six months under the original 1996 Plan, and
twelve months under the 1994 Plan, from termination of service.

    Acceptable consideration for the purchase of common stock issued under the
1994 Plan and original 1996 Plan is determined by our Board of Directors and
generally includes cash, surrender of shares of our common stock with a fair
market value equal to the exercise price, services rendered or a promissory
note.

    Generally, an optionholder may not transfer a stock option other than by
will or the laws of descent or distribution unless the optionholder holds a
nonstatutory stock option that provides otherwise. However, an optionholder may
designate a beneficiary who may exercise the option following the optionholder's
death.

                                       49
<PAGE>
    ELIGIBILITY.  The eligibility to receive awards under the 1994 Plan and the
original 1996 Plan are the same as the 2000 Equity Incentive Plan.

    The 1994 Plan and the original 1996 Plan provide for the grant of stock
awards, including:

    -  incentive stock options, as defined in Section 422 of the Internal
       Revenue Code, that may be granted solely to employees (including
       officers);

    -  nonstatutory stock options; and

    -  under the original 1996 Plan, restricted stock purchase awards and stock
       bonuses that may be granted to employees (including officers),
       non-employee directors and consultants.

    RESTRICTED STOCK AND STOCK BONUS AWARDS.  The purchase price for each
restricted stock award granted must be at least 85% of the fair market value of
the stock on the date of the award or at the time the purchase is consummated.
Rights to acquire shares under a stock bonus or restricted stock bonus agreement
may not be transferred other than by will or by the laws of descent and
distribution. Some restricted stock awards made following the completion of this
offering may be otherwise transferable if the stock purchase agreement so
provides. Restricted stock purchase awards and stock bonuses granted under the
original 1996 Plan may include a repurchase option in favor of us that varies
according to a service vesting schedule determined by our Board of Directors.
Stock bonuses may be awarded in consideration for past services without a
purchase payment.

    CHANGE IN CONTROL.  Upon specified changes in control, all outstanding
options under the 1994 Plan and the original 1996 Plan will be either assumed or
substituted. Under the original 1996 Plan, upon a change in control outstanding
options also may be continued, cashed out or accelerated as determined under the
change in control agreement.

    AUTHORIZED SHARES.  As of August 24, 2000, an aggregate of 8.3 million
shares of common stock had been authorized for issuance under the 1994 Plan and
the original 1996 Plan. As of August 24, 2000, options to purchase a total of
3,737,192 shares of our common stock were held by all participants under the
1994 Plan and the original 1996 Plan. At that date, a total of 2,486,155 shares
of our common stock remained available for grant under the 1994 Plan and the
1996 original Plan. Shares subject to stock options that have expired or
otherwise terminated without having been exercised in full again become
available for the grant of awards under the 1994 Plan and the original 1996
Plan.

    ADMINISTRATION.  The 1994 Plan and original 1996 Plan are administered in
the same manner as the Equity Incentive Plan as described above.

2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

    We adopted the 2000 Non-employee Directors' Stock Option Plan in
August 2000.

    RESERVED SHARES.  We authorized the issuance of 750,000 shares of our common
stock pursuant to the Non-employee Directors' Stock Option Plan and in August
2000 the stockholders approved the plan. Under the Non-employee Directors' Stock
Option Plan, each new non-employee director who is subsequently elected or
appointed for the first time after this offering will automatically be granted
an option to purchase 45,000 shares of common stock. This is the non-employee
director's initial grant.

    On the date of each annual stockholder meeting, beginning in the year 2001,
each non-employee director will be granted an option to purchase 15,000 shares
of common stock. This is the non-employee director's annual grant.

    Options granted under the Non-employee Directors' Stock Option Plan are
granted at 100% of the fair market value of the common stock on the date of
grant. Options granted under the Non-employee Directors' Stock Option Plan have
a ten-year term and vest as follows: initial grants vest as to 1/3rd of the

                                       50
<PAGE>
shares 12 months after the date of grant and 1/36th of the shares each month for
24 months thereafter; and annual grants vest as to 1/36th of the shares monthly
for three years. The Non-employee Directors' Stock Option Plan will terminate if
and when terminated by our Board of Directors.

    CHANGE IN CONTROL.  Upon certain changes in control of AeroGen, the vesting
of all outstanding options under the Non-employee Directors' Stock Option Plan
will automatically accelerate and the options will terminate if not exercised
prior to the change in control.

    OPTIONS ISSUED.  No options have been granted under the Non-employee
Directors' Stock Option Plan.

2000 EMPLOYEE STOCK PURCHASE PLAN

    We adopted the Employee Stock Purchase Plan in August 2000.

    RESERVED SHARES.  We authorized the issuance of 750,000 shares of our common
stock pursuant to purchase rights granted to our U.S. employees and to employees
of our designated U.S. affiliates. On the date of each annual stockholders'
meeting, for 20 years, beginning in 2001, the number of shares in the reserve
automatically will be increased by the least of 1% of our outstanding shares on
a fully-diluted basis, 750,000 shares or such lesser number of shares as
determined by our Board of Directors.

    ELIGIBILITY.  The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offering
purchase rights to eligible employees. Generally, all U.S. employees of AeroGen
and any U.S. affiliate designated by our Board of Directors may participate in
the purchase plan, excluding part-time and seasonal employees. However, no
employee may participate in the purchase plan if immediately after we grant the
employee a purchase right, the employee has voting power over 5% or more of our
outstanding common stock. As of the date of this prospectus, no shares of common
stock have been purchased under the purchase plan.

    ADMINISTRATION.  Under the purchase plan, our Board of Directors may specify
offerings of up to 27 months. The first offering will begin on the effective
date of this initial public offering. Unless our Board of Directors otherwise
determines, our common stock is purchased for accounts of participating
employees at a price per share equal to the lower of 85% of the fair market
value of a share on the first day of this offering, or 85% of the fair market
value of a share on the purchase date.

    Our Board of Directors may provide that employees who become eligible to
participate after the offering period begins nevertheless may enroll in the
offering. These employees will purchase our stock at the lower of 85% of the
fair market value of a share on the day they began participating in the purchase
plan, or 85% of the fair market value of a share on the purchase date.

    Under the initial offering, employees may authorize payroll deductions of up
to 15% of their base compensation, excluding sales commissions and bonuses, for
the purchase of stock under the purchase plan, and may end their participation
in the offering at any time up to five days before a purchase date.
Participation ends automatically on termination of employment.

    OTHER PROVISIONS.  Our Board of Directors may grant eligible employees
purchase rights under the purchase plan only to the extent the purchase rights,
together with any other purchase rights granted under other employee stock
purchase plans established by us or our affiliate, if any, do not permit the
employee's rights to purchase our stock to accrue at a rate that exceeds $25,000
of the fair market value of our stock for each calendar year in which the
purchase rights are outstanding. Our Board of Directors also may limit the
number of shares that an employee may purchase on any purchase date.

                                       51
<PAGE>
    Upon a change of control of AeroGen, our Board of Directors may provide that
the successor corporation will assume or substitute outstanding purchase rights.
Alternatively, our Board of Directors may shorten the offering and provide that
shares will be purchased for participants immediately before the change in
control.

401(k) PLAN

    We maintain a 401(k) Plan for eligible employees. An employee participant
may contribute up to 20% of his or her total annual compensation to the 401(k)
Plan, up to the legal annual limit. The annual limit for calendar year 2000 is
$10,500. Each participant is fully vested in his or her salary deferral
contributions. Participant contributions are held and invested by the 401(k)
Plan's trustee. We may make discretionary contributions as a percentage of
participant contributions, subject to established limits. To date, we have made
no discretionary contributions to the 401(k) Plan on behalf of the participants.
The 401(k) Plan is intended to qualify under Section 401(a) of the Internal
Revenue Code, so that contributions by employees or by us to the 401(k) Plan,
and income earned on the 401(k) Plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that contributions by us, if any,
will be deductible by us when made.

LIMITATION OF LIABILITY AND INDEMNIFICATION

    Our certificate of incorporation and bylaws contain provisions permitted
under Delaware law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in circumstances involving wrongful acts,
including:

    -  for any breach of the director's duty of loyalty to us or our
       stockholders;

    -  for acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

    -  for any acts under Section 174 of the Delaware General Corporation Law;
       or

    -  for any transaction from which the director derives an improper personal
       benefit.

    These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief including an injunction or rescission, in the
event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. We intend to enter
into separate indemnification agreements with our directors and executive
officers that provide each of them indemnification protection in the event the
amended and restated certificate of incorporation and amended and restated
bylaws are subsequently amended. We believe that these provisions and agreements
will assist us in attracting and retaining qualified individuals to serve as
directors and officers.

EMPLOYEE CONFIDENTIALITY AGREEMENTS

    At the time of commencement of employment, our employees generally sign
offer letters specifying basic terms and conditions of employment. In general,
our employees are not subject to written employment agreements. Each employee
has entered into a standard form confidential information and invention
assignment agreement that provides that the employee will not disclose any of
our confidential information received during the course of employment and that,
with some exceptions, the employee will assign to us any and all inventions
conceived or developed during the course of employment.

                                       52
<PAGE>
                             PRINCIPAL STOCKHOLDERS

    The following table sets forth certain information regarding the beneficial
ownership of our common stock as of July 31, 2000, and as adjusted to reflect
the sale of our common stock offered by this prospectus, by:

    -  each of the individuals listed on the "Summary Compensation Table" above;

    -  each of our officers and directors;

    -  each person, or group of affiliated persons, who is known by us to own
       beneficially 5% or more of our common stock; and

    -  all current directors and executive officers as a group.

    Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
held by that person that are currently exercisable or exercisable within
60 days of July 31, 2000, and not subject to repurchase as of that date, are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person.

    Except as indicated in the notes to this table, and except pursuant to
applicable community property laws, each stockholder named in the table has sole
voting and investment power with respect to the shares shown as beneficially
owned by them. Percentage ownership is based on            shares of common
stock outstanding on July 31, 2000, after giving effect to the conversion of all
outstanding shares of preferred stock into common stock upon the closing of this
offering, and            shares of common stock outstanding after completion of
this offering. This table assumes no exercise of the underwriters'
over-allotment option.

    Unless otherwise indicated, the address of each of the individuals named
below is: c/o AeroGen, Inc., 1310 Orleans Drive, Sunnyvale, CA, 94089.

<TABLE>
<CAPTION>
                                                                         PERCENT BENEFICIALLY
                                                                                OWNED
                                                        NUMBER OF       ----------------------
                                                          SHARES         PRIOR TO      AFTER
                                                       BENEFICIALLY         THE         THE
BENEFICIAL OWNER                                          OWNED          OFFERING     OFFERING
----------------                                     ----------------   -----------   --------
<S>                                                  <C>                <C>           <C>
FIVE PERCENT STOCKHOLDERS:
Entities affiliated with US Venture Partners(1) ...      5,808,427         12.32
  2180 Sand Hill Road
  Suite 300
  Menlo Park, California 94025
CMEA, Ltd Partnership .............................      4,341,881          9.21
  235 Montgomery Street, Suite 920
  San Francisco, California 94104
Entities affiliated with InterWest Partners(3) ....      3,793,651          8.05
  3000 Sand Hill Road
  Building 3, Suite 255
  Menlo Park, California 94025
MF Private Capital, Inc. ..........................      2,714,286          5.76
  45 Milk Street, Suite 600
  Boston, Massachusetts 02109-5105
</TABLE>

                                       53
<PAGE>

<TABLE>
<CAPTION>
                                                                         PERCENT BENEFICIALLY
                                                                                OWNED
                                                        NUMBER OF       ----------------------
                                                          SHARES         PRIOR TO      AFTER
                                                       BENEFICIALLY         THE         THE
BENEFICIAL OWNER                                          OWNED          OFFERING     OFFERING
----------------                                     ----------------   -----------   --------
<S>                                                  <C>                <C>           <C>
Entities affiliated with Advent Partners,                2,546,584          5.70
  L.P.(2) .........................................
  75 State Street
  30th Floor
  Boston, Massachusetts 02109
DIRECTORS AND EXECUTIVE OFFICERS:
Jane E. Shaw, Ph.D.(4).............................      1,444,444          2.97
Yehuda Ivri........................................      3,780,000          8.01
Thomas R. Baruch(5)................................      4,341,881          9.21
Jean-Jacques Bienaime(6)...........................         13,541             *
Casper L. de Clercq(7).............................        284,583             *
Carol A. Gamble(8).................................             --            --
Phyllis I. Gardner, M.D.(9)........................         15,208             *
Deborah K. Karlson(10).............................        270,000             *
Michael A. Klimowicz(11)...........................        270,000             *
John S. Power(12)..................................      1,180,262           2.5
Philip M. Young(13)................................      5,808,427         12.32
All directors and executive officers as a group
  (11 persons)(14).................................     17,408,346          36.9
</TABLE>

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

   * Less than 1%

 (1) Includes 5,024,289 shares held by US Venture Partners IV, L.P., 609,885
     shares held by Second Ventures II, L.P. and 174,253 shares held by USVP
     Entrepreneur Partners II.

 (2) Includes 1,396,236 shares held by Noptek, L.P, 965,889 shares held by
     Advent Israel, L.P., 48,300 shares held by Advent Partners, L.P., 19,232
     shares held by Advent International L.P. II and 116,927 shares held by
     Advent Israel, Bermuda, L.P.

 (3) Includes 112,460 shares held by InterWest Investors VI, L.P. and 3,681,191
     shares held by InterWest Partners VI, L.P.

 (4) Includes 1,400,000 shares held by Dr. Shaw (of which 437,500 are subject to
     repurchase at the original purchase price in the event of termination of
     Dr. Shaw's employment with us, which repurchase right lapses over time) and
     44,444 shares held by the Carpenter Family Trust, in which Dr. Shaw has an
     economic interest.

 (5) All of these shares are held by CMEA. Mr. Baruch, a director of AeroGen, is
     a partner of CMEA. In such capacity, Mr. Baruch is deemed to have an
     indirect interest in an indeterminate portion of the shares beneficially
     owned by CMEA. Mr. Baruch disclaims beneficial ownership of the shares held
     by CMEA, within the meaning of Rule 13d-3 under the Securities Act of 1934.

 (6) Includes 13,541 shares issuable upon the exercise of options exercisable
     within 60 days of July 31, 2000.

 (7) Includes 14,583 shares issuable upon exercise of options exercisable within
     60 days of July 31, 2000 and 146,250 shares which are subject to repurchase
     at the original purchase price in the event of termination of Mr. de
     Clercq's service with us, which repurchase right lapses over time.

 (8) No shares vest until one year after beginning of service.

                                       54
<PAGE>
 (9) Includes 5,208 shares issuable upon the exercise of options exercisable
     within 60 days of July 31, 2000, and 6,250 subject to repurchase at the
     original purchase price in the event of termination of Dr. Gardner's
     service with us, which repurchase right lapses over time.

 (10) Includes 75,000 shares which are subject to repurchase at the original
      purchase price in the event of termination of Ms. Karlson's service with
      us, which repurchase right lapses over time.

 (11) Includes 146,250 shares which are subject to repurchase at the original
      purchase price in the event of termination of Mr. Klimowicz's service with
      us, which repurchase right lapses over time.

 (12) Includes 590,131 shares issued in conjunction with the acquisition of
      Cerus Limited, subject to repurchase in the event of termination of
      Mr. Power's service with us, which repurchase right lapses over time.

 (13) All of these shares are held by USVP and its affiliates. Mr. Young, a
      director of AeroGen, is a partner of USVP. In such capacity, Mr. Young is
      deemed to have an indirect interest in an indeterminate portion of the
      shares beneficially owned by USVP and its affiliates. Mr. Young disclaims
      beneficial ownership of the shares held by USVP and its affiliates, within
      the meaning of Rule 13d-3 under the Securities Act of 1934.

 (14) Includes shares described in the notes above as applicable to our
      directors and current executive officers.

                                       55
<PAGE>
                           RELATED PARTY TRANSACTIONS

    The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts and as of
the dates shown below.

<TABLE>
<CAPTION>
                                                          SHARES OF CONVERTIBLE PREFERRED STOCK
                             COMMON      -----------------------------------------------------------------------
PURCHASER (1)                 STOCK       SERIES A     SERIES B     SERIES C    SERIES D    SERIES E    SERIES F
-------------              -----------   ----------   ----------   ----------   ---------   ---------   --------
<S>                        <C>           <C>          <C>          <C>          <C>         <C>         <C>
DIRECTORS AND EXECUTIVE
  OFFICERS
Jane E. Shaw, Ph.D.......    1,400,000                                     --          --          --    44,444
Casper L. de Clercq......      270,000                                     --          --          --        --
Michael A. Klimowicz.....      270,000                                                                       --
Deborah K. Karlson.......      270,000                                     --          --          --        --
John S. Power(2).........                                                  --          --   1,180,262        --
ENTITIES AFFILIATED WITH
  DIRECTORS
Entities affiliated with
  US Venture
  Partners(3)............           --    1,282,052    1,602,565    2,666,667     257,143          --        --
CMEA.....................           --    1,282,052    1,282,052    1,333,333          --          --   444,444

OTHER 5% STOCKHOLDERS
Entities affiliated with
  Advent Partners,
  L.P.(4)................           --    1,153,847      897,437      495,300          --          --        --
Entities affiliated with
  InterWest
  Partners(5)............           --                              3,000,000     571,429          --   222,222
MF Private Capital,
  Inc....................           --                                     --   2,714,286          --        --

Price per Share..........  $0.10-$0.20        $0.39        $0.78        $1.00       $1.75       $2.97     $2.25
Date(s) of Purchase......    1/98-4/00   5/94-10/94   11/95-5/96   4/97-11/97        8/98        3/00      7/00
</TABLE>

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

(1) See "Principal Stockholders" for more detail on shares held by these
    purchasers.

(2) Consists of shares of Series E preferred stock issued to Mr. Power in
    exchange for his proportionate share of voting shares of stock of Cerus
    Limited in connection with the acquisition of Cerus by AeroGen, whereby
    Cerus became a subsidiary of AeroGen.

(3) Affiliates of US Venture Partners include U.S. Venture Partners IV, L.P.,
    Second Ventures II, L.P., and USVP Entrepreneur Partners II, L.P.

(4) Affiliates of Advent Partners, L.P. include Noptek, L.P., Advent Israel,
    L.P., Advent Partners, L.P., Advent International, L.P. II, and Advent
    Israel, Bermuda, L.P.

(5) Affiliates of InterWest Partners include InterWest Investors VI, L.P. and
    InterWest Partners VI, L.P.

    REGISTRATION RIGHTS AGREEMENT.  We have entered into an agreement with the
preferred stockholders identified above, excluding Mr. Power, pursuant to which
they will have registration rights with respect to their shares of common stock
following this offering. Upon the completion of this offering, all shares of our
outstanding preferred stock will be automatically converted into an equal number
of shares of common stock.

    INDEMNIFICATION AGREEMENTS.  We intend to enter into indemnification
agreements with our directors and officers for the indemnification of and
advancement of expenses to these persons to the full extent permitted by law. We
also intend to execute such agreements with our future directors and officers.

    TRANSACTIONS WITH OFFICERS AND DIRECTORS.  Mr. Ivri, AeroGen's Founder and
Chief Technical Officer, has three notes payable to us. On May 6, 1994, we
received a promissory note for the principal amount of

                                       56
<PAGE>
$69,009. The note bears annual interest of 6.43% with principal and interest due
the earlier of May 5, 2003, or 90 days after the date of termination of
Mr. Ivri's service with us. On August 15, 1996, we received a promissory note
for the principal amount of $200,000. The note bears no interest and the entire
principal balance is due the earliest of (i) August 14, 2001, (ii) 90 days after
Mr. Ivri's common stock is no longer subject to a lock-up agreement with the
underwriters, or (iii) the date Mr. Ivri's service with us terminates pursuant
to Mr. Ivri's resignation or is terminated by us for cause. On July 21, 2000, we
received a promissory note for the principal amount of $50,000. The note bears
interest at the rate of 6.62%, and the principal and interest are payable on the
earlier of (i) July 21, 2005 or (ii) the date at which Mr. Ivri's service with
us terminates. These latter two notes are secured by 500,000 shares of
Mr. Ivri's common stock.

    In 1998, we received a recourse note from Dr. Shaw, our Chairman and Chief
Executive Officer, in the aggregate principal amount of $140,000 in connection
with her purchase of 1,400,000 shares of common stock. The note bears annual
interest of 5.93%, with original principal and interest due January 28, 2002.
Certain portions of the common stock may be repurchased by us at the original
purchase price if Dr. Shaw's service with us terminates. This repurchase right
lapses over time.

    In 1998, Mr. de Clercq, our Vice President, Sales, Marketing and Business
Development, signed a note in the aggregate principal amount of $53,730 to
acquire 270,000 shares of common stock. The note bears annual interest of 4.51%,
with original principal and interest due November 19, 2002. Certain portions of
the common stock may be repurchased by us at the original purchase price if
Mr. de Clercq's service with us terminates. This repurchase right lapses over
time.

    In 2000, we received a recourse note from each of Ms. Karlson, our Chief
Financial Officer, and Mr. Klimowicz, our Vice President, Product Development,
in the aggregate principal amount of $51,730 and $53,730, respectively, to
acquire 270,000 shares of common stock. The notes bear annual interest at 6.7%,
with original principal and interest due April 17, 2004. A portion of the shares
purchased by each employee may be repurchased by us at the original purchase
price if his or her service with us terminates. This repurchase right lapses
over time.

    In March 1998 we granted Dr. Gardner an option to purchase 10,000 shares of
common stock at $0.10 per share under our 1996 Stock Option Plan in connection
with Dr. Gardner providing consulting services to us. After one year from the
date of grant, 2,500 shares covered by the option will vest, the remaining
shares will vest in equal monthly installments over the following three years.

    We believe that all of the transactions set forth above were made in our
best interest. All future transactions, including loans, between us and our
officers, directors, principal stockholders and their affiliates will be
approved by a majority of the board of directors, including a majority of the
independent and disinterested directors, and will continue to be on terms no
less favorable to us than could be obtained form unaffiliated third parties.

                                       57
<PAGE>
                          DESCRIPTION OF CAPITAL STOCK

    The following information describes our common stock and preferred stock, as
well as options and warrants to purchase our common stock, and provisions of our
certificate of incorporation and our bylaws, all as in effect upon the closing
of this offering. This description is only a summary. You should also refer to
our certificate of incorporation, bylaws and warrants which we have filed with
the SEC as exhibits to our registration statement of which this prospectus forms
a part.

    Upon the closing of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
preferred stock, $0.001 par value.

COMMON STOCK

    As of June 30, 2000, there were 47,159,128 shares of common stock
outstanding, as adjusted for the sale of 7,498,223 shares of Series F Preferred
Stock in July 2000, that were held of record by approximately 70 stockholders,
after giving effect to the conversion of our preferred stock into common stock
at a one-to-one ratio. There will be            shares of common stock
outstanding, assuming no exercise of the underwriters' over-allotment option and
no exercise of outstanding options, after giving effect to the sale of the
shares of common stock offered by this prospectus and the conversion of shares
of preferred stock discussed below.

    The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that may
be applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive ratably any dividends
out of assets legally available therefor as our board of directors may from time
to time determine. Upon liquidation, dissolution or winding up of AeroGen,
holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.

PREFERRED STOCK

    Prior to this offering, there were 39,010,653 shares of convertible
preferred stock outstanding. All outstanding shares of convertible preferred
stock will be converted into 39,010,653 shares of common stock upon the closing
of this offering.

    Our certificate of incorporation provides that our Board of Directors will
have the authority, without further action by the stockholders, to issue up to
5,000,000 shares of preferred stock in one or more series. Our Board of
Directors will be able to fix the rights, preferences, privileges and
restrictions of the preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of this series. The issuance of preferred stock could adversely affect the
voting power of holders of common stock, and the likelihood that holders of
preferred stock will receive dividend payments and payments upon liquidation may
have the effect of delaying, deferring or preventing a change in control of
AeroGen, which could depress the market price of our common stock. We have no
present plan to issue any shares of preferred stock.

WARRANTS

    As of August 24, 2000, we have outstanding warrants to purchase:

    -  32,051 shares of common stock at an exercise price of $0.78 per share;

                                       58
<PAGE>
    -  65,000 shares of Series C preferred stock, at an exercise price of $1.00
       per share, which shares are convertible into 65,000 shares of common
       stock.

    The warrants to purchase common stock were issued to Venture Lending &
Leasing, Inc. and will expire no later than June 30, 2002. The warrants to
purchase Series C preferred stock were issued to Venture Lending & Leasing, Inc.
and Venture Lending & Leasing II, Inc. and will expire no later than
October 14, 2004.

REGISTRATION RIGHTS OF STOCKHOLDERS

    Upon completion of this offering, under the Fourth Amended and Restated
Information and Registration Rights Agreement dated July 7, 2000 the holders of
37,285,653 shares of common stock and warrants to purchase 65,000 shares of
common stock, or their transferees, will be entitled to rights to register these
shares under the Securities Act. If we propose to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders, the holders of these shares will be entitled to notice of the
registration and will be entitled to include, at our expense, their shares of
common stock. In addition, the holders of 35,362,575 of these shares may require
us, at our expense and on not more than three occasions at any time beginning
approximately six months from the date of the closing of this offering, to
file a registration statement under the Securities Act with respect to their
shares of common stock, and we will be required to use our best efforts to
effect the registration. Further, the holders may require us at our expense to
register their shares on Form S-3 when this form becomes available to us. These
rights shall terminate on the earlier of five years after the effective date of
this offering, or when a holder is able to sell all its shares pursuant to
Rule 144 under the Securities Act in any 90-day period.

ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS

    We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:

    -  prior to the date, our board of directors approved either the business
       combination or the transaction that resulted in the stockholder becoming
       an interested stockholder;

    -  upon consummation of the transaction that resulted in the stockholder
       becoming an interested stockholder, the interested stockholder owned at
       least 85% of our voting stock of the corporation outstanding at the time
       the transaction commenced, excluding those shares owned by persons who
       are directors and also officers, and employee stock plans in which
       employee participants do not have the right to determine confidentially
       whether shares held subject to the plan will be tendered in a tender or
       exchange offer; or

    -  on or subsequent to the date, the business combination is approved by the
       board of directors and authorized at an annual or special meeting of
       stockholders, and not by written consent, by the affirmative vote of at
       least two-thirds of the outstanding voting stock that is not owned by the
       interested stockholder.

Section 203 defines "business combination" to include:

    -  any merger or consolidation involving the corporation and the interested
       stockholder;

    -  any sale, transfer, pledge or other disposition involving the interested
       stockholder of 10% or more of the assets of the corporation;

    -  subject to exceptions, any transaction that results in the issuance or
       transfer by the corporation of any stock of the corporation to the
       interested stockholder; or

                                       59
<PAGE>
    -  the receipt by the interested stockholder of the benefit of any loans,
       advances, guarantees, pledges or other financial benefits provided by or
       through the corporation.

    In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.

    Our bylaws provide that candidates for director may be nominated only by the
Board of Directors or by a stockholder who gives written notice to us no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. The Board of Directors may consist of
one or more members to be determined from time to time by the Board of
Directors. The Board of Directors currently consists of six members divided into
three different classes. As a result, only one class of directors will be
elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective terms. Between stockholder
meetings, the Board of Directors may appoint new directors to fill vacancies or
newly created directorships.

    Our certificate of incorporation requires that upon completion of this
offering, any action required or permitted to be taken by our stockholders must
be effected at a duly called annual or special meeting of stockholders and may
not be effected by a consent in writing. Our certificate of incorporation also
provides that the authorized number of directors may be changed only by
resolution of the Board of Directors. Delaware law and these charter provisions
may have the effect of deterring hostile takeovers or delaying changes in
control of our management, which could depress the market price of our common
stock.

SECTION 2115

    We currently are subject to Section 2115 of the California Corporations
Code. Section 2115 provides that, regardless of a company's legal domicile,
provisions of California corporate law relating to shareholder rights, election
and removal of directors and distributions to shareholders will apply to that
company if the company meets the requirements of Section 2115. We will not be
subject to Section 2115 if:

    -  we are qualified for trading as a national market security on The Nasdaq
       National Market, and we have at least 800 stockholders of record as of
       the record date of our most recent annual meeting, or

    -  during any income year less than 50% of our outstanding voting securities
       are held of record by persons having addresses in California.

    Our certificate of incorporation includes a provision requiring cumulative
voting for directors whenever Section 2115 of the California Corporations Code
applies to us. Under cumulative voting, a minority stockholder holding a
sufficient percentage of a class of shares may be able to ensure the election of
one or more directors. We expect that, following this offering, Section 2115
will not apply to us.

TRANSFER AGENT

    The transfer agent and registrar for our common stock is       .

                                       60
<PAGE>
                        SHARES ELIGIBLE FOR FUTURE SALE

    Prior to this offering, there has been no public market for our common
stock. The market price of our common stock after this offering could decline as
a result of the sale of a large number of shares of our common stock in the
market, or the perception that such sales could occur. Furthermore, since no
shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.

    Upon completion of this offering, we will have outstanding an aggregate of
           shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining            shares of common
stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.

    As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be available
for sale in the public market as follows:

    -  no shares will be eligible for immediate sale on the date the
       registration statement of which this prospectus is a part is declared
       effective;

    -  no shares will be eligible for sale prior to 180 days from the date the
       registration statement of which this prospectus is a part is declared
       effective;

    -             shares will be eligible for sale upon the expiration of the
       lock-up agreements, described below, 180 days after the date this
       offering is declared effective;

    -             shares will be eligible for sale at various times after the
       date of this offering is declared effective; and

    -             shares will be eligible for sale upon the exercise of vested
       options or warrants 180 days after the date this offering is declared
       effective.

    LOCK-UP AGREEMENTS.  All of our officers, directors, stockholders, option
holders and warrant holders have agreed not to transfer or dispose of, directly
or indirectly, any shares of our common stock or any securities convertible into
or exercisable or exchangeable for shares of our common stock, for a period of
180 days after the date the registration statement of which this prospectus is a
part is declared effective. Transfers or dispositions can be made sooner with
the prior written consent of Chase Securities Inc.

    RULE 144.  In general, under Rule 144 as currently in effect, beginning
90 days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated, who
has beneficially owned restricted securities for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of:

    -  1% of the number of shares of our common stock then outstanding, which
       will equal approximately            shares immediately after this
       offering; or

    -  the average weekly trading volume of our common stock on the Nasdaq
       National Market during the four calendar weeks preceding the filing of a
       notice on Form 144 with respect to the sale.

    Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.

                                       61
<PAGE>
    RULE 144(k).  Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
shares of our common stock will qualify as "144(k) shares" within 180 days after
the date the registration statement of which this prospectus is a part, is
declared effective.

    RULE 701.  In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchase or receive shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.

    REGISTRATION RIGHTS.  Upon completion of this offering, the holders of
           shares of our common stock, or their transferees, will be entitled to
rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in the
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness of
such registration.

    STOCK OPTIONS.  Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance under our 2000 Equity Incentive Plan, 1996 Stock
Option Plan, 1994 Stock Option Plan, 2000 Non-employee Directors' Stock Option
Plan, and 2000 Employee Stock Purchase Plan. The registration statement is
expected to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under the registration
statements will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market beginning 180 days after
the effective date of the registration statement of which this prospectus is a
part.

                                       62
<PAGE>
                                  UNDERWRITING

    Chase Securities Inc., CIBC World Markets Corp. and SG Cowen Securities
Corporation are the representatives of the underwriters. Subject to the terms
and conditions of the underwriting agreement, the underwriters named below,
through their representatives, have severally agreed to purchase from us the
following respective numbers of shares of common stock:

<TABLE>
<CAPTION>
                                                               NUMBER
                                                                 OF
NAME                                                           SHARES
----                                                          --------
<S>                                                           <C>
Chase Securities Inc........................................
CIBC World Markets Corp.....................................
SG Cowen Securities Corporation.............................
                                                              -------
Total.......................................................
                                                              =======
</TABLE>

    The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in our business and the receipt of certain certificates,
opinions and letters from us and our counsel. The underwriters are committed to
purchase all of the shares of common stock offered by us if they purchase any
shares.

    The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters. Such amounts are shown assuming
both no exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares.

                     UNDERWRITING DISCOUNTS AND COMMISSIONS

<TABLE>
<CAPTION>
                                                 WITHOUT            WITH
                                              OVER-ALLOTMENT   OVER-ALLOTMENT
                                                 EXERCISE         EXERCISE
                                              --------------   --------------
<S>                                           <C>              <C>
Per Share...................................     $                $
Total.......................................     $                $
</TABLE>

    We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately      .

    The underwriters propose to offer the shares of common stock directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at that price less a concession not in excess
of $     per share. The underwriters may allow and such dealers may re- allow a
concession not in excess of $     per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the underwriters. The representatives have advised us
that the underwriters do not intend to confirm discretionary sales in excess of
5% of the shares of common stock offered in this offering.

    We have granted to the underwriters a 30-day option to purchase up to
additional shares of common stock at the initial public offering price, less the
underwriting discount set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters will
have a firm commitment to purchase approximately the same percentage thereof
which the number of shares of common stock to be purchased by it shown in the
above table bears to the total number of shares of common stock offered hereby.
We will be obligated, pursuant to this option, to sell shares to the
underwriters to the extent the option is exercised. The underwriters may
exercise this option only to cover over-allotments made in connection with the
sale of shares of common stock offered by us.

                                       63
<PAGE>
    This offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of this offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

    We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
the underwriters may be required to make in respect of these liabilities.

    All of our securityholders and all of our executive officers and directors
have agreed or will agree prior to completion of this offering, that they will
not, without the prior written consent of Chase Securities Inc., offer, sell or
otherwise dispose of any shares of capital stock, options or warrants to acquire
shares of capital stock or securities exchangeable for or convertible into
shares of capital stock owned by them for a period of 180 days following the
date of this prospectus. We have agreed that we will not, without the prior
written consent of Chase Securities Inc., offer, sell or otherwise dispose of
any shares of capital stock, options or warrants to acquire shares of capital
stock or securities exchangeable for or convertible into shares of capital stock
for a period of 180 days following the date of this prospectus, except that we
may issue shares upon the exercise of options and warrants granted prior to the
date hereof. We also may grant additional options or other awards under our
stock option plans. Without the prior written consent of Chase Securities Inc.,
any additional options granted shall not be exercisable during this 180-day
period.

    The representatives of the underwriters participating in this offering may
over-allot or effect transactions which stabilize, maintain or otherwise affect
the market price of the common shares at levels above those which might
otherwise prevail in the open market, including by entering stabilizing bids,
effecting syndicate covering transactions or imposing penalty bids. A
stabilizing bid means the placing of any bid or effecting of any purchase, for
the purpose of pegging, fixing or maintaining the price of the shares of common
stock. A syndicate covering transaction means the placing of any bid on behalf
of the underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the underwriters to reclaim a selling concession from a
syndicate member in connection with the offering when common shares sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.

    In connection with this offering, the underwriters may make short sales of
our common stock and may purchase our shares on the open market to cover
positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of shares than they are required to purchase in
this offering. "Covered" short sales are sales made in an amount not greater
than the underwriters' over-allotment option to purchase additional shares in
this offering. The underwriters may close out any covered short position by
either exercising their over-allotment option or purchasing shares in the open
market. In determining the source of shares to close out the covered short
position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase shares through the over-allotment option. "Naked" short
sales are sales in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the shares in the
open market after pricing that could adversely affect investors who purchase in
this offering. Similar to other purchase transactions, the underwriters'
purchases to cover the syndicate short sales may have the effect of raising or
maintaining the market price of our common stock or preventing or retarding a
decline in the market price of our common stock. As a result, the price of our
common stock may be higher than the price that might otherwise exist in the open
market.

                                       64
<PAGE>
    Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the shares of common stock was
determined by negotiations among us and the representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, our revenues and earnings, market valuations of
other companies engaged in activities similar to our business operations, our
management and other factors deemed relevant.

    In addition, at our request, the underwriters have reserved up to
shares of common stock for sale at the initial public offering price to our
directors, business associates and related persons. The number of shares
available for sale to the general public will be reduced if such persons
purchase the reserved shares. Any reserved shares which are not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.

    In connection with this offering, certain underwriters and selling group
members, if any, who are qualified market makers on the Nasdaq National Market
may engage in passive market making transactions in our shares of common stock
on the Nasdaq National Market in accordance with Rule 103 of Regulation M under
the Securities Exchange Act of 1934, as amended. In general, a passive market
maker must display its bid at a price not in excess of the highest independent
bid of such security; if all independent bids are lowered below the passive
market maker's bid, however, the passive market maker must then lower its bid
when certain purchase limits are exceeded.

                                       65
<PAGE>
                                 LEGAL MATTERS

    The validity of the common stock offered hereby will be passed upon for us
by Cooley Godward LLP, Palo Alto, California. As of the date of this prospectus,
partners and associates of Cooley Godward LLP have been granted options to
purchase an aggregate of 50,000 shares of our common stock through an investment
partnership. Stroock & Stroock & Lavan LLP, New York, New York, is acting as
counsel for the underwriters in connection with certain legal matters relating
to the shares of common stock offered by this prospectus.

                                    EXPERTS

    The consolidated financial statements of AeroGen, Inc. as of December 31,
1998 and 1999 and for each of the three years ended December 31, 1999 and for
the period from November 18, 1991 (date of inception) to December 31, 1999,
included in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

    The financial statements of Cerus Limited as of December 31, 1998 and 1999
and for each of the two years ended December 31, 1999 and for the period from
December 16, 1997 (date of inception) to December 31, 1999, included in this
prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

                      WHERE YOU CAN FIND MORE INFORMATION

    We have filed with the SEC a registration statement on Form S-1 (including
exhibits, schedules and amendments) under the Securities Act with respect to the
shares of common stock to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For further
information with respect to us and the shares of common stock to be sold in this
offering, reference is made to the registration statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. Whenever we make reference in
this prospectus to any contract or other document of ours, the reference may not
be complete, and you should refer to the exhibits that are a part of the
registration statement for a copy of the contract or document.

    You may read and copy all or any portion of the registration statement or
any other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these documents,
upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also available
to you on the SEC's web site (http://www.sec.gov).

    As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act, and, in accordance with
those requirements, will file periodic reports, proxy statements and other
information with the SEC.

                                       66
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
AEROGEN, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)

  Report of Independent Accountants.........................     F-2
  Consolidated Balance Sheets...............................     F-3
  Consolidated Statements of Operations.....................     F-4
  Consolidated Statements of Stockholders' Equity
    (Deficit)...............................................     F-5
  Consolidated Statements of Cash Flows.....................     F-8
  Notes to Consolidated Financial Statements................     F-9

CERUS LIMITED
(A COMPANY IN THE DEVELOPMENT STAGE)

  Report of Independent Accountants.........................    F-29
  Balance Sheets............................................    F-30
  Statements of Operations..................................    F-31
  Statements of Stockholders' Equity........................    F-32
  Statements of Cash Flows..................................    F-33
  Notes to Financial Statements.............................    F-34
</TABLE>

                                      F-1
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of AeroGen, Inc.

    In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
AeroGen, Inc. (a company in the development stage) and its subsidiary at
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 and for
the cumulative period from November 18, 1991 (date of inception) through
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

San Jose, California
February 25, 2000,
 (except for Note 11 as to which
the date is July 21, 2000
and Note 12 as to which the date is
August 24, 2000)

                                      F-2
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                            PRO FORMA
                                                                                                          STOCKHOLDERS'
                                                                                                            EQUITY AT
                                                                     DECEMBER 31,                           JUNE 30,
                                                              --------------------------     JUNE 30,         2000
                                                                 1998           1999           2000       (SEE NOTE 9)
                                                              -----------   ------------   ------------   -------------
                                                                                           (UNAUDITED)     (UNAUDITED)
<S>                                                           <C>           <C>            <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $17,499,487   $  1,821,945   $ 7,244,701
  Available-for-sale securities.............................           --      5,986,918            --
  Accounts receivable.......................................           --        319,051     1,430,946
  Prepaid expenses and other current assets.................      118,072        390,748       523,984
                                                              -----------   ------------   -----------
    Total current assets....................................   17,617,559      8,518,662     9,199,631
Property and equipment, net.................................      865,671      1,009,846     1,608,146
Goodwill and other intangible assets, net...................           --             --     1,252,077
Other assets................................................      125,000        145,093       167,593
                                                              -----------   ------------   -----------
    Total assets............................................  $18,608,230   $  9,673,601   $12,227,447
                                                              ===========   ============   ===========

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable..........................................  $   344,372   $    455,700   $ 1,020,770
  Accrued liabilities.......................................      171,801        301,056       911,890
  Notes payable, current portion............................      276,518        354,470       197,800
                                                              -----------   ------------   -----------
    Total current liabilities...............................      792,691      1,111,226     2,130,460
Notes payable, less current portion.........................      379,509             --            --
Other long-term liabilities.................................      100,000        100,000       286,155
                                                              -----------   ------------   -----------
    Total liabilities.......................................    1,272,200      1,211,226     2,416,615
                                                              -----------   ------------   -----------

Commitments (Note 5)

Convertible preferred stock, par value: $0.001:
  Authorized: 27,994,352 shares;
  Issued and outstanding: 27,864,352 shares at December 31,
    1998
    and 1999, 31,512,430 shares at June 30, 2000 (unaudited)
    and none pro forma (unaudited)
  (Liquidation preference: $32,245,302 at December 31, 1998
    and 1999, $41,730,305 at June 30, 2000 (unaudited)).....   31,476,099     31,476,099    41,883,900     $        --
                                                              -----------   ------------   -----------     -----------

Stockholders' equity (deficit):

  Common stock, par value: $0.001:
    Authorized: 40,000,000 shares;
    Issued and outstanding: 6,547,787, 6,928,821 and
      8,153,158 shares at December 31, 1998, 1999 and June
      30, 2000 (unaudited), respectively; and 39,665,588 pro
      forma (unaudited).....................................        6,548          6,929         8,153          39,665
  Additional paid-in capital................................      247,567        949,905     5,247,795      47,100,183
  Notes receivable from stockholders........................     (492,795)      (510,318)     (626,137)       (626,137)
  Deferred stock-based compensation, net....................           --       (558,360)   (4,431,433)     (4,431,433)
  Accumulated other comprehensive income (loss).............           --        (32,576)       23,167          23,167
  Deficit accumulated during the development stage..........  (13,901,389)   (22,869,304)  (32,294,613)    (32,294,613)
                                                              -----------   ------------   -----------     -----------
    Total stockholders' deficit.............................  (14,140,069)   (23,013,724)  (32,073,068)    $ 9,810,832
                                                              -----------   ------------   -----------     ===========
      Total liabilities, convertible preferred stock and
        stockholders' equity (deficit)......................  $18,608,230   $  9,673,601   $12,227,447
                                                              ===========   ============   ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-3
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                         CUMULATIVE                                  CUMULATIVE
                                                                         PERIOD FROM                                 PERIOD FROM
                                                                        NOVEMBER 18,                                NOVEMBER 18,
                                                                        1991 (DATE OF       SIX MONTHS ENDED        1991 (DATE OF
                                     YEARS ENDED DECEMBER 31,           INCEPTION) TO           JUNE 30,            INCEPTION) TO
                              ---------------------------------------   DECEMBER 31,    -------------------------     JUNE 30,
                                 1997          1998          1999           1999           1999          2000           2000
                              -----------   -----------   -----------   -------------   -----------   -----------   -------------
                                                                                               (UNAUDITED)           (UNAUDITED)
<S>                           <C>           <C>           <C>           <C>             <C>           <C>           <C>
Research and development
  revenues..................  $   327,780   $    85,450   $   468,220   $  1,597,762    $        --   $ 3,568,467   $  5,166,229
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
Operating expenses:
  Research and
    development.............    3,961,130     4,392,901     7,837,312     18,979,330      3,305,242     7,374,076     26,353,406
  General and
    administrative..........    1,509,204     1,599,912     2,038,843      6,540,294      1,022,396     1,744,927      8,285,221
  Stock-based
    compensation............           --            --       109,855        109,855         43,248       205,589        315,444
  Purchased in-process
    research and
    development.............           --            --            --             --             --     3,500,000      3,500,000
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
    Total operating
      expenses..............    5,470,334     5,992,813     9,986,010     25,629,479      4,370,886    12,824,592     38,454,071
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
Loss from operations........   (5,142,554)   (5,907,363)   (9,517,790)   (24,031,717)    (4,370,886)   (9,256,125)   (33,287,842)
Interest income.............      116,544       466,926       626,003      1,420,312        348,842       206,756      1,627,068
Interest expense............      (29,239)     (121,946)      (76,128)      (257,899)       (46,007)      (23,344)      (281,243)
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
Net loss....................   (5,055,249)   (5,562,383)   (8,967,915)   (22,869,304)    (4,068,051)   (9,072,713)   (31,942,017)
Dividend related to
  beneficial conversion
  feature of preferred
  stock.....................           --            --            --             --             --      (352,596)      (352,596)
                              -----------   -----------   -----------   ------------    -----------   -----------   ------------
Net loss available to common
  stockholders..............  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(22,869,304)   $(4,068,051)  $(9,425,309)  $(32,294,613)
                              ===========   ===========   ===========   ============    ===========   ===========   ============
Net loss per common share,
  basic and diluted.........  $     (1.14)  $     (1.16)  $     (1.65)                  $     (0.78)  $     (1.46)
                              ===========   ===========   ===========                   ===========   ===========
Shares used in computing net
  loss per common share,
  basic and diluted.........    4,429,151     4,809,593     5,433,341                     5,197,457     6,462,166
                              ===========   ===========   ===========                   ===========   ===========
Pro forma net loss per
  common share, basic and
  diluted (unaudited).......                              $     (0.27)                                $     (0.25)
                                                          ===========                                 ===========
Shares used in computing pro
  forma net loss per common
  share, basic and diluted
  (unaudited)...............                               33,427,693                                  35,701,151
                                                          ===========                                 ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-4
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
   FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO JUNE 30, 2000
<TABLE>
<CAPTION>

                                                                                             NOTES
                                                         COMMON STOCK        ADDITIONAL    RECEIVABLE      DEFERRED
                                                     ---------------------    PAID-IN         FROM       STOCK-BASED
                                                      SHARES      AMOUNT      CAPITAL     STOCKHOLDERS   COMPENSATION
                                                     ---------   ---------   ----------   ------------   ------------
<S>                                                  <C>         <C>         <C>          <C>            <C>
Issuance of common stock to founder for cash in
  November 1991....................................  4,000,000   $   2,000   $      --     $      --     $        --
Note receivable from stockholder...................         --          --          --       (69,009)             --
Issuance of common stock at $0.04 per share for
  cash and note receivable in July 1994............  1,000,000      40,000          --       (35,000)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1994........................  5,000,000      42,000          --      (104,009)             --
Issuance of common stock pursuant to exercise of
  stock options for cash in April..................     10,000         400          --            --              --
Repurchase of common stock in connection with
  cancellation of note receivable from stockholders
  in May...........................................   (791,700)    (31,668)         --        31,668              --
Repayment of note receivable from stockholder in
  November.........................................         --          --          --         3,332              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --        (7,120)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1995........................  4,218,300      10,732          --       (76,129)             --
Issuance of common stock at $0.08 per share for
  services rendered in May.........................     19,250       1,540          --            --              --
Notes and receivable from stockholders.............                                 --      (200,000)             --
Issuance of common stock pursuant to exercise of
  stock options for cash...........................     20,000       1,400          --            --              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --        (4,709)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1996........................  4,257,550      13,672          --      (280,838)             --

<CAPTION>
                                                                       DEFICIT
                                                      ACCUMULATED    ACCUMULATED
                                                         OTHER        DURING THE         TOTAL
                                                     COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                     INCOME (LOSS)      STAGE       EQUITY (DEFICIT)
                                                     -------------   ------------   ----------------
<S>                                                  <C>             <C>            <C>
Issuance of common stock to founder for cash in
  November 1991....................................    $     --      $        --      $      2,000
Note receivable from stockholder...................          --               --           (69,009)
Issuance of common stock at $0.04 per share for
  cash and note receivable in July 1994............          --               --             5,000
Accretion to redemption value of redeemable
  convertible preferred stock......................          --          (68,621)          (68,621)
Net loss...........................................          --         (355,581)         (355,581)
                                                       --------      ------------     ------------
Balances, December 31, 1994........................          --         (424,202)         (486,211)
Issuance of common stock pursuant to exercise of
  stock options for cash in April..................          --               --               400
Repurchase of common stock in connection with
  cancellation of note receivable from stockholders
  in May...........................................          --               --                --
Repayment of note receivable from stockholder in
  November.........................................          --               --             3,332
Accrued interest on notes receivable from
  stockholders.....................................          --               --            (7,120)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (208,506)         (208,506)
Net loss...........................................          --         (754,076)         (754,076)
                                                       --------      ------------     ------------
Balances, December 31, 1995........................          --       (1,386,784)       (1,452,181)
Issuance of common stock at $0.08 per share for
  services rendered in May.........................          --               --             1,540
Notes and receivable from stockholders.............          --               --          (200,000)
Issuance of common stock pursuant to exercise of
  stock options for cash...........................          --               --             1,400
Accrued interest on notes receivable from
  stockholders.....................................          --               --            (4,709)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (515,687)         (515,687)
Net loss...........................................          --       (2,174,108)       (2,174,108)
                                                       --------      ------------     ------------
Balances, December 31, 1996........................          --       (4,076,579)       (4,343,745)
</TABLE>

                                      F-5
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
   FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO JUNE 30, 2000
<TABLE>
<CAPTION>

                                                                                             NOTES
                                                         COMMON STOCK        ADDITIONAL    RECEIVABLE      DEFERRED
                                                     ---------------------    PAID-IN         FROM       STOCK-BASED
                                                      SHARES      AMOUNT      CAPITAL     STOCKHOLDERS   COMPENSATION
                                                     ---------   ---------   ----------   ------------   ------------
<S>                                                  <C>         <C>         <C>          <C>            <C>
Issuance of common stock, for a note receivable in
  January..........................................    850,000      68,000          --       (68,000)             --
Issuance of common stock at $0.08 per share for
  services rendered in May.........................     10,000         800          --            --              --
Issuance of common stock pursuant to exercise of
  stock options for cash...........................    245,297      16,457          --            --              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --        (7,976)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1997........................  5,362,847      98,929          --      (356,814)             --
Accretion to redemption value of redeemable
  convertible preferred stock......................         --          --          --            --              --
Reincorporation into a Delaware corporation........         --    (182,672)    182,672            --              --
Removal of redemption provision for Series A, B and
  C in conjunction with issuance of Series D.......         --          --          --            --              --
Issuance of common stock at $0.10 per share for a
  note receivable in January.......................  1,400,000     140,000          --      (140,000)             --
Repurchase of common stock at $0.08 per share and
  resulting in cancellation of note receivable in
  January..........................................   (626,500)    (50,120)         --        71,590              --
Issuance of common stock at $0.20 per share for a
  note receivable in December......................    270,000         270      53,730       (53,730)             --
Issuance of common stock pursuant to exercise of
  stock options for cash...........................    141,440         141      11,165            --              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --       (13,841)             --
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1998........................  6,547,787       6,548     247,567      (492,795)             --

<CAPTION>
                                                                       DEFICIT
                                                      ACCUMULATED    ACCUMULATED
                                                         OTHER        DURING THE         TOTAL
                                                     COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                     INCOME (LOSS)      STAGE       EQUITY (DEFICIT)
                                                     -------------   ------------   ----------------
<S>                                                  <C>             <C>            <C>
Issuance of common stock, for a note receivable in
  January..........................................          --               --                --
Issuance of common stock at $0.08 per share for
  services rendered in May.........................          --               --               800
Issuance of common stock pursuant to exercise of
  stock options for cash...........................          --               --            16,457
Accrued interest on notes receivable from
  stockholders.....................................          --               --            (7,976)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (895,541)         (895,541)
Net loss...........................................          --       (5,055,249)       (5,055,249)
                                                       --------      ------------     ------------
Balances, December 31, 1997........................          --      (10,027,369)      (10,285,254)
Accretion to redemption value of redeemable
  convertible preferred stock......................          --         (953,587)         (953,587)
Reincorporation into a Delaware corporation........          --               --                --
Removal of redemption provision for Series A, B and
  C in conjunction with issuance of Series D.......          --        2,641,950         2,641,950
Issuance of common stock at $0.10 per share for a
  note receivable in January.......................          --               --                --
Repurchase of common stock at $0.08 per share and
  resulting in cancellation of note receivable in
  January..........................................          --               --            21,470
Issuance of common stock at $0.20 per share for a
  note receivable in December......................          --               --               270
Issuance of common stock pursuant to exercise of
  stock options for cash...........................          --               --            11,306
Accrued interest on notes receivable from
  stockholders.....................................          --               --           (13,841)
Net loss...........................................          --       (5,562,383)       (5,562,383)
                                                       --------      ------------     ------------
Balances, December 31, 1998........................          --      (13,901,389)      (14,140,069)
</TABLE>

                                      F-6
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
   FOR THE PERIOD FROM NOVEMBER 18, 1991 (DATE OF INCEPTION) TO JUNE 30, 2000
<TABLE>
<CAPTION>

                                                                                             NOTES
                                                         COMMON STOCK        ADDITIONAL    RECEIVABLE      DEFERRED
                                                     ---------------------    PAID-IN         FROM       STOCK-BASED
                                                      SHARES      AMOUNT      CAPITAL     STOCKHOLDERS   COMPENSATION
                                                     ---------   ---------   ----------   ------------   ------------
<S>                                                  <C>         <C>         <C>          <C>            <C>
Issuance of common stock pursuant to exercise of
  stock options for cash...........................    381,034         381      34,123            --              --
Accrued interest on notes receivable from
  stockholders.....................................         --          --          --       (17,523)             --
Unrealized loss on available-for-sale securities...         --          --          --            --              --
Deferred stock compensation........................         --          --     668,215            --        (668,215)
Amortization of deferred stock compensation........         --          --          --            --         109,855
Net loss...........................................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, December 31, 1999........................  6,928,821       6,929     949,905      (510,318)       (558,360)
Issuance of common stock pursuant to exercise of
  stock options for cash (unaudited)...............    684,337         684     113,768            --              --
Issuance of common stock at $0.10 and $0.20 per
  share for cash and notes receivable in April
  (unaudited)......................................    540,000         540     105,460      (105,460)             --
Accrued interest on notes receivable from
  stockholders (unaudited).........................         --          --          --       (10,359)             --
Changes in unrealized loss on available-for-sale
  securities (unaudited)...........................         --          --          --            --              --
Foreign currency translation (unaudited)...........         --          --          --            --              --
Deferred stock compensation (unaudited)............         --          --   4,078,662            --      (4,078,662)
Amortization of deferred stock compensation
  (unaudited)......................................         --          --          --            --         205,589
Beneficial conversion feature related to issuance
  of series preferred stock (unaudited)............         --          --     352,596            --              --
Deemed dividend related to beneficial conversion
  feature of preferred stock (unaudited)...........         --          --    (352,596)           --              --
Net loss (unaudited)...............................         --          --          --            --              --
                                                     ---------   ---------   ----------    ---------     -----------
Balances, June 30, 2000 (unaudited)................  8,153,158   $   8,153   $5,247,795    $(626,137)    $(4,431,433)
                                                     =========   =========   ==========    =========     ===========

<CAPTION>
                                                                       DEFICIT
                                                      ACCUMULATED    ACCUMULATED
                                                         OTHER        DURING THE         TOTAL
                                                     COMPREHENSIVE   DEVELOPMENT     STOCKHOLDERS'
                                                     INCOME (LOSS)      STAGE       EQUITY (DEFICIT)
                                                     -------------   ------------   ----------------
<S>                                                  <C>             <C>            <C>
Issuance of common stock pursuant to exercise of
  stock options for cash...........................          --               --            34,504
Accrued interest on notes receivable from
  stockholders.....................................          --               --           (17,523)
Unrealized loss on available-for-sale securities...     (32,576)              --           (32,576)
Deferred stock compensation........................          --               --                --
Amortization of deferred stock compensation........          --               --           109,855
Net loss...........................................          --       (8,967,915)       (8,967,915)
                                                       --------      ------------     ------------
Balances, December 31, 1999........................     (32,576)     (22,869,304)      (23,013,724)
Issuance of common stock pursuant to exercise of
  stock options for cash (unaudited)...............          --               --           114,452
Issuance of common stock at $0.10 and $0.20 per
  share for cash and notes receivable in April
  (unaudited)......................................          --               --               540
Accrued interest on notes receivable from
  stockholders (unaudited).........................          --               --           (10,359)
Changes in unrealized loss on available-for-sale
  securities (unaudited)...........................      32,576               --            32,576
Foreign currency translation (unaudited)...........      23,167               --            23,167
Deferred stock compensation (unaudited)............          --               --                --
Amortization of deferred stock compensation
  (unaudited)......................................          --               --           205,589
Beneficial conversion feature related to issuance
  of series preferred stock (unaudited)............          --               --           352,596
Deemed dividend related to beneficial conversion
  feature of preferred stock (unaudited)...........          --               --          (352,596)
Net loss (unaudited)...............................          --       (9,425,309)       (9,425,309)
                                                       --------      ------------     ------------
Balances, June 30, 2000 (unaudited)................    $ 23,167      $(32,294,613)    $(32,073,068)
                                                       ========      ============     ============
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-7
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                    CUMULATIVE
                                                                                    PERIOD FROM
                                                                                   NOVEMBER 18,
                                                                                   1991 (DATE OF          SIX MONTHS ENDED
                                             YEARS ENDED DECEMBER 31,              INCEPTION) TO              JUNE 30,
                                     ----------------------------------------      DECEMBER 31,       -------------------------
                                        1997          1998           1999              1999              1999          2000
                                     -----------   -----------   ------------   -------------------   -----------   -----------
                                                                                                             (UNAUDITED)
<S>                                  <C>           <C>           <C>            <C>                   <C>           <C>
Cash flows from operating
  activities:
  Net loss.........................  $(5,055,249)  $(5,562,383)  $ (8,967,915)     $(22,869,304)      $(4,068,051)  $(9,072,713)
  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
    Depreciation and
     amortization..................      217,696       344,082        494,311         1,211,352           234,897       371,002
    Loss on disposal of property
     and equipment.................        4,858            --             --             4,858                --            --
    Common stock issued for
     services received.............          800            --             --             2,340                --            --
    Purchased in-process research
     and development...............           --            --             --                --                --     3,500,000
    Accrued interest on notes
     receivable from
     stockholders..................       (7,976)      (13,841)       (17,523)         (320,178)           (8,286)      (10,359)
    Amortization of deferred
     stock-based compensation......           --            --        109,855           109,855            43,248       205,589
    Changes in operating assets and
     liabilities:
      Accounts receivable..........     (127,488)      127,488       (319,051)         (319,051)               --    (1,006,857)
      Prepaid expenses and other
       current assets..............     (123,658)       30,457       (272,676)         (390,748)         (185,985)     (133,236)
      Accounts payable.............      100,311       132,290        111,328           455,700            27,273       502,917
      Accrued liabilities..........      208,346      (148,178)       129,255           301,056           177,657       566,938
      Other........................      (18,348)        4,500        (20,093)          (45,093)               --        32,691
                                     -----------   -----------   ------------      ------------       -----------   -----------
        Net cash used in operating
        activities.................   (4,800,708)   (5,085,585)    (8,752,509)      (21,859,213)       (3,779,247)   (5,044,028)
                                     -----------   -----------   ------------      ------------       -----------   -----------
Cash flows from investing
  activities:
  Acquisition of property and
    equipment......................     (764,371)     (410,855)      (638,486)       (2,183,768)         (385,890)     (914,078)
  Purchases of available-for-sale
    securities.....................           --            --    (28,565,057)      (28,565,057)       (6,998,474)           --
  Proceeds from maturities of
    available-for-sale
    securities.....................           --            --     22,545,563        22,545,563                --     6,019,494
  Cash acquired, net...............           --            --             --                --                --       442,749
                                     -----------   -----------   ------------      ------------       -----------   -----------
        Net cash provided by (used
        in) investing activities...     (764,371)     (410,855)    (6,657,980)       (8,203,262)       (7,384,364)   (5,548,165)
                                     -----------   -----------   ------------      ------------       -----------   -----------
Cash flows from financing
  activities:
  Proceeds from issuance of common
    stock..........................       16,457        11,576         34,504            71,337             6,629       114,992
  Proceeds from issuance of
    convertible preferred stock,
    net............................    9,180,558    17,345,599             --        31,476,107                --     4,937,130
  Proceeds from issuance of note
    payable........................      976,587            --             --         1,113,324                --            --
  Principal payments under capital
    lease obligations..............           --            --             --           (42,296)               --            --
  Repayment of note payable........     (138,235)     (286,341)      (301,557)         (758,854)         (155,702)     (156,670)
  Repayment of note receivable from
    stockholder....................           --        21,470             --            24,802                --            --
                                     -----------   -----------   ------------      ------------       -----------   -----------
        Net cash provided by (used
        in) financing activities...   10,035,367    17,092,304       (267,053)       31,884,420          (149,073)    4,895,452
                                     -----------   -----------   ------------      ------------       -----------   -----------
Effect of exchange rate changes on
  cash.............................           --            --             --                --                --        23,167
Net increase (decrease) in cash and
  cash equivalents.................    4,470,288    11,595,864    (15,677,542)        1,821,945       (11,312,684)    5,422,756
Cash and cash equivalents,
  beginning of period..............    1,433,335     5,903,623     17,499,487                --        17,499,487     1,821,945
                                     -----------   -----------   ------------      ------------       -----------   -----------
Cash and cash equivalents, end of
  period...........................  $ 5,903,623   $17,499,487   $  1,821,945      $  1,821,945       $ 6,186,803   $ 7,244,701
                                     ===========   ===========   ============      ============       ===========   ===========
Supplemental disclosure of noncash
  investing and financing
  activities:
  Acquisition of property and
    equipment under capital
    lease..........................  $        --   $        --   $         --      $     39,958       $        --   $        --
  Exchange of stockholder note
    receivable for common stock....  $    68,000   $   193,730   $         --      $    261,730       $        --   $   105,460
  Repurchase of common stock in
    connection with cancellation of
    note receivable from
    stockholder....................  $        --   $    50,120   $         --      $     81,788       $        --   $        --
  Common stock issued for
    acquisition....................  $        --   $        --   $         --      $         --       $        --   $ 5,217,500
  Accretion to redemption value of
    redeemable convertible
    preferred stock................  $   895,541   $   953,587   $         --      $  2,641,950       $        --   $        --
  Removal of redemption provision
    for convertible preferred
    stock..........................  $        --   $ 2,641,950   $         --      $  2,641,950       $        --   $        --
  Deferred stock-based
    compensation...................  $        --   $        --   $    668,215      $    668,215       $    52,679   $ 4,078,662
Supplemental disclosure of cash
  flow information:
  Cash paid during period for
    interest.......................  $    28,417   $   121,946   $     76,128      $    257,899       $    42,351   $    23,023

<CAPTION>
                                         CUMULATIVE
                                         PERIOD FROM
                                        NOVEMBER 18,
                                        1991 (DATE OF
                                        INCEPTION) TO
                                          JUNE 30,
                                            2000
                                     -------------------
                                         (UNAUDITED)
<S>                                  <C>
Cash flows from operating
  activities:
  Net loss.........................     $(31,942,017)
  Adjustments to reconcile net loss
    to net cash used in operating
    activities:
    Depreciation and
     amortization..................        1,582,354
    Loss on disposal of property
     and equipment.................            4,858
    Common stock issued for
     services received.............            2,340
    Purchased in-process research
     and development...............        3,500,000
    Accrued interest on notes
     receivable from
     stockholders..................         (330,537)
    Amortization of deferred
     stock-based compensation......          315,444
    Changes in operating assets and
     liabilities:
      Accounts receivable..........       (1,325,908)
      Prepaid expenses and other
       current assets..............         (523,984)
      Accounts payable.............          958,617
      Accrued liabilities..........          867,994
      Other........................          (12,402)
                                        ------------
        Net cash used in operating
        activities.................      (26,903,241)
                                        ------------
Cash flows from investing
  activities:
  Acquisition of property and
    equipment......................       (3,097,846)
  Purchases of available-for-sale
    securities.....................      (28,565,057)
  Proceeds from maturities of
    available-for-sale
    securities.....................       28,565,057
  Cash acquired, net...............          442,749
                                        ------------
        Net cash provided by (used
        in) investing activities...       (2,655,097)
                                        ------------
Cash flows from financing
  activities:
  Proceeds from issuance of common
    stock..........................          186,329
  Proceeds from issuance of
    convertible preferred stock,
    net............................       36,413,237
  Proceeds from issuance of note
    payable........................        1,113,324
  Principal payments under capital
    lease obligations..............          (42,296)
  Repayment of note payable........         (915,524)
  Repayment of note receivable from
    stockholder....................           24,802
                                        ------------
        Net cash provided by (used
        in) financing activities...       36,779,872
                                        ------------
Effect of exchange rate changes on
  cash.............................           23,167
Net increase (decrease) in cash and
  cash equivalents.................        7,244,701
Cash and cash equivalents,
  beginning of period..............               --
                                        ------------
Cash and cash equivalents, end of
  period...........................     $  7,244,701
                                        ============
Supplemental disclosure of noncash
  investing and financing
  activities:
  Acquisition of property and
    equipment under capital
    lease..........................     $     39,958
  Exchange of stockholder note
    receivable for common stock....     $    367,190
  Repurchase of common stock in
    connection with cancellation of
    note receivable from
    stockholder....................     $     81,788
  Common stock issued for
    acquisition....................     $  5,217,500
  Accretion to redemption value of
    redeemable convertible
    preferred stock................     $  2,641,950
  Removal of redemption provision
    for convertible preferred
    stock..........................     $  2,641,950
  Deferred stock-based
    compensation...................     $  4,746,877
Supplemental disclosure of cash
  flow information:
  Cash paid during period for
    interest.......................     $    280,922
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                      F-8
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--FORMATION AND BUSINESS OF THE COMPANY:

    AeroGen, Inc., formerly Fluid Propulsion Technologies, Inc. (the "Company")
was incorporated on November 18, 1991 to develop industrial, consumer, and
medical products using a liquid aerosol generator. The Company is in the
development stage and since inception has devoted substantially all of its
efforts to developing its products, including engaging in research and
development activities with partners, raising capital, and recruiting personnel.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

    BASIS OF CONSOLIDATION

    In May 2000, the Company acquired a subsidiary in Ireland, AeroGen
(Ireland) Limited (see note 11). The consolidated financial statements include
the accounts of the Company and its subsidiary. All intercompany balances and
transactions have been eliminated.

    UNAUDITED INTERIM RESULTS

    The accompanying consolidated balance sheet as of June 30, 2000, the
consolidated statements of operations and of cash flows for the six months ended
June 30, 1999 and 2000 and for the cumulative period from November 8, 1991 (date
of inception) to June 30, 2000, and the statement of stockholders' deficit for
the six months ended June 30, 2000 are unaudited. The unaudited interim
consolidated financial statements have been prepared on the same basis as the
annual financial statements and, in the opinion of management, reflect all
adjustments, which include only normal recurring adjustments, necessary to
present fairly the Company's consolidated financial position and results of
operations and cash flows for the six months ended June 30, 1999, and 2000. The
financial data and other information disclosed in these notes to financial
statements related to the six month periods are unaudited. The results for the
six months ended June 30, 2000 are not necessarily indicative of the results to
be expected for the year ending December 31, 2000.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    CASH AND CASH EQUIVALENTS

    The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents include money market and deposit accounts.

    AVAILABLE-FOR-SALE SECURITIES

    All investments are classified as available-for-sale and therefore are
carried at fair market value. Unrealized gains and losses on such securities are
reported as a separate component of stockholders' deficit. Realized gains and
losses on sales of all such securities are reported in earnings and computed
using the specific identification cost method.

                                      F-9
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    DEPRECIATION AND AMORTIZATION

    Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets, generally three to five years.
Amortization of leasehold improvements and leased assets is provided on a
straight-line basis over the life of the related asset or the lease term, if
shorter. Upon sale or retirement of assets, the cost and related accumulated
depreciation and amortization are removed from the balance sheet and the
resulting gain or loss is reflected in operations.

    GOODWILL AND OTHER INTANGIBLE ASSETS

    Goodwill and other intangible assets primarily consist of goodwill and
acquired workforce related to the acquisition of Cerus Limited and are amortized
on a straight-line basis to operations over six and two years, respectively.

    IMPAIRMENT OF LONG-LIVED ASSETS

    The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires
the Company to review for impairment of long-lived assets, whenever events or
changes in circumstances indicate that the carrying amount of an asset might not
be recoverable. When such an event occurs, management determines whether there
has been an impairment by comparing the anticipated undiscounted future net cash
flows to the related assets' carrying value. If an asset is considered impaired,
the asset is written down to fair value, which is determined based either on
discounted cash flows or appraised values, depending on the nature of the asset.

    REDEEMABLE PREFERRED STOCK

    The carrying value of redeemable convertible preferred stock was increased
by periodic accretions so that the carrying value would equal the redemption
amount of the preferred stock at their redemption dates. These increases were
effected through charges against the deficit accumulated during the development
stage. In August 1998, the Company amended its Certificate of Incorporation to
remove the redemption provisions of the then outstanding preferred stock and
accordingly, the Company reversed the cumulative accretion charges at that time.

    CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES

    The Company maintains its cash and cash equivalents in accounts with two
major financial institutions in the United States. Deposits in these
institutions may exceed the amount of insurance provided on such deposits. The
Company has not experienced any losses on its deposits of cash and cash
equivalents.

    Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, available-for-sale securities, accounts
receivable, accounts payable and accrued liabilities approximate fair value due
to their relatively short maturities. Based upon borrowing rates currently
available to the Company for loans with similar terms, the carrying value of
notes payable approximates fair value.

    Products developed by the Company may require the approval of the Food and
Drug Administration ("FDA") and/or other international regulatory agencies prior
to commercial sales. The Company cannot be

                                      F-10
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
assured that its products will receive the necessary approvals. If the Company
is denied approval or if approval is delayed, this may have a material adverse
impact on the Company.

    The Company is subject to risks common to companies in the pharmaceutical
industry including, but not limited to, new technological innovations,
dependence on key personnel, protection of proprietary technology, compliance
with government regulations, uncertainty of market acceptance of products,
product liability and the need to obtain additional financing.

    Three customers accounted for 36%, 27% and 15% of the research and
development revenues during the year ended December 31, 1997, respectively.

    One customer accounted for 100% of the research and development revenues
during the year ended December 31, 1998.

    One customer accounted for 100% of accounts receivable at December 31, 1999
and three customers accounted for 75%, 11% and 11% of research and development
revenues during the year ended December 31, 1999, respectively.

    RESEARCH AND DEVELOPMENT REVENUE RECOGNITION

    Research and development revenues which are earned under cost-reimbursement
agreements are recorded as the related expenses are incurred, up to contractual
limits. Payments received that are related to future performance are recorded as
deferred revenue and recognized as revenues as they are earned. All revenues
recognized to date are not refundable if the relevant research effort is not
successful.

    RESEARCH AND DEVELOPMENT

    Research and development costs are charged to operations as incurred.
Certain research and development projects are funded under cost-reimbursement
agreements, and the costs related to these activities are included in research
and development expense.

    FOREIGN CURRENCY TRANSLATION

    The Company's international subsidiary uses its local currency as its
functional currency. Assets and liabilities are translated at exchange rates in
effect at the balance sheet date and income and expense accounts at average
exchange rates during the period. Resulting translation adjustments are recorded
directly to a separate component of stockholders' deficit.

    INCOME TAXES

    The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

                                      F-11
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    SEGMENTS

    The Company follows Statement of Financial Accounting Standards No. 131, or
SFAS 131, "Disclosure About Segments of an Enterprise and Related Information."
The Company operates in one segment, using one measurement of profitability to
manage its business. As of December 31, 1998 and 1999, all long-lived assets are
maintained in the United States. All revenue was generated in the United States
during the years ended December 31, 1997, 1998 and 1999 and for the cumulative
period from November 18, 1991 (date of inception) to December 31, 1999.

    ACCOUNTING FOR STOCK-BASED COMPENSATION

    The Company uses the intrinsic value method of Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," in
accounting for its employee stock options, and presents disclosure of pro forma
information required under Statement of Financial Accounting Standard No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation."

    The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services."

    COMPREHENSIVE INCOME (LOSS)

    Comprehensive income (loss) generally represents all changes in
stockholders' deficit except those resulting from investments or contributions
by stockholders. The Company's unrealized losses on available-for-sale
securities represent the only component of comprehensive income (loss) that is
excluded from the Company's net loss for the years ended December 31, 1997, 1998
and 1999 and for the cumulative period from November 18, 1991 (date of
inception) to December 31, 1999. As it is not significant individually or in the
aggregate, no separate statements of comprehensive loss have been presented.

    NET LOSS PER COMMON SHARE

    Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per share is computed giving effect
to all potential dilutive common shares, including options, warrants and
convertible preferred stock. Options, warrants and convertible preferred stock
were not included in the diluted net loss per share calculations because the
effect would be antidilutive.

                                      F-12
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
    A reconciliation of the numerator and denominator used in the calculation of
basic and diluted net loss per common share follows:

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,                   JUNE 30,
                                  ---------------------------------------   -------------------------
                                     1997          1998          1999          1999          2000
                                  -----------   -----------   -----------   -----------   -----------
                                                                                   (UNAUDITED)
<S>                               <C>           <C>           <C>           <C>           <C>
Net loss per common share, basic
  and diluted:
  Net loss......................  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(4,068,051)  $(9,072,713)
  Dividend related to beneficial
    conversion feature of
    preferred stock.............           --            --            --            --      (352,596)
                                  -----------   -----------   -----------   -----------   -----------
Net loss available to common
  stockholders..................  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(4,068,051)  $(9,425,309)
                                  ===========   ===========   ===========   ===========   ===========
Weighted average common shares
  outstanding...................    5,224,984     6,226,468     6,728,550     6,619,541     7,463,882
Less weighted average shares
  subject to repurchase.........     (795,833)   (1,416,875)   (1,295,209)   (1,422,084)   (1,001,716)
                                  -----------   -----------   -----------   -----------   -----------
Weighted average shares used in
  computing basic and diluted
  net loss per common share.....    4,429,151     4,809,593     5,433,341     5,197,457     6,462,166
                                  ===========   ===========   ===========   ===========   ===========
</TABLE>

    The following outstanding options, common stock subject to repurchase,
convertible preferred stock and warrants were excluded from the computation of
diluted net loss per share as they had an antidilutive effect:

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,                   JUNE 30,
                                  ---------------------------------------   -------------------------
                                     1997          1998          1999          1999          2000
                                  -----------   -----------   -----------   -----------   -----------
                                                                                   (UNAUDITED)
<S>                               <C>           <C>           <C>           <C>           <C>
  Options to purchase common
    stock.......................      832,400     1,835,960     2,129,650     1,863,722     3,504,150
  Common stock subject to
    repurchase..................      875,000     1,670,000       920,417     1,174,167     1,454,361
  Convertible preferred stock...   17,578,638    27,864,352    27,864,352    27,864,352    31,512,430
  Warrants......................      162,051       162,051        97,051        97,051        97,051
</TABLE>

    RECENT ACCOUNTING PRONOUNCEMENTS

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). This interpretation clarifies the
definition of employee for purposes of applying APB No. 25, "Accounting for
Stock Issued to Employees," the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of

                                      F-13
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
various modifications to the terms of a previously fixed stock option or award,
and the accounting for an exchange of stock compensation awards in a business
combination. FIN No. 44 is effective July 1, 2000, but certain conclusions cover
specific events that occur after either December 15, 1998, or January 12, 2000.
The adoption of FIN No. 44 did not and will not have a material impact on the
Company's financial statements.

    In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in
Financial Statements," which provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC. SAB
No. 101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. The
Company has complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of relationship that exists. As
amended SFAS No. 133 will be effective for fiscal years beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities and does not believe that the implementation of
SFAS No. 133 will have any significant impact on its financial position or
results of operations.

NOTE 3--BALANCE SHEET COMPONENTS:

    Available-for-sale securities at December 31, 1999 are summarized as
follows:

<TABLE>
<CAPTION>
                                          AMORTIZED    UNREALIZED   FAIR MARKET
                                          COST BASIS      LOSS         VALUE
                                          ----------   ----------   -----------
<S>                                       <C>          <C>          <C>
Government notes........................  $3,011,243    $(22,803)   $2,988,440
Corporate paper.........................  3,008,251       (9,773)    2,998,478
                                          ----------    --------    ----------
                                          $6,019,494    $(32,576)   $5,986,918
                                          ==========    ========    ==========
</TABLE>

    All available-for-sale securities mature within one year. At December 31,
1998, the Company held no available-for-sale securities.

                                      F-14
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--BALANCE SHEET COMPONENTS: (CONTINUED)
    Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                       ------------------------
                                                          1998         1999
                                                       ----------   -----------
<S>                                                    <C>          <C>
Laboratory, computer and office equipment............  $  867,459   $ 1,360,065
Furniture............................................     295,341       363,074
Leasehold improvements...............................     418,149       496,296
                                                       ----------   -----------
                                                        1,580,949     2,219,435
Less: accumulated depreciation and amortization......    (715,278)   (1,209,589)
                                                       ----------   -----------
                                                       $  865,671   $ 1,009,846
                                                       ==========   ===========
</TABLE>

    Included in property and equipment at December 31, 1998 and 1999 is
equipment acquired under capital leases totaling $39,958, and related
accumulated amortization of $39,958.

    Accrued liabilities consists of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1998       1999
                                                          --------   --------
<S>                                                       <C>        <C>
Payroll and related expense.............................  $150,662   $183,548
Other accrued liabilities...............................    21,139    117,508
                                                          --------   --------
                                                          $171,801   $301,056
                                                          ========   ========
</TABLE>

NOTE 4--NOTES PAYABLE:

    The Company maintained term loan facilities to finance property and
equipment acquisitions. The initial facility, which expired on October 31, 1996,
provided for borrowings up to $250,000, and was collateralized by the specific
property and equipment totaling $137,000. A payment on this term loan of $1,367
was due January 1, 1996. Thereafter, payments comprised 35 monthly installments
of $4,485 with a final lump sum payment of $20,511 on February 1, 1999. A
subsequent term loan facility, which expired in June 30, 1999, was obtained to
provide for borrowings up to $2,000,000 and is secured by the assets financed
under the facility. As of the expiration date, the Company had borrowed $976,587
under this facility. The loan bears interest at 14.4% per annum and is repayable
in thirty-six equal monthly payments of $29,591, which represent both principal
and interest, and a final lump sum payment of $146,488 due on November 1, 2000.
In conjunction with these term loan facilities, warrants to purchase 32,051
shares of common stock at $0.78 per share and warrants to purchase 65,000 shares
of Series C convertible preferred stock at $1.00 per share were issued (see
Note 7).

                                      F-15
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5--COMMITMENTS:

    The Company rents its office facilities under operating leases which expires
on December 31, 2001. At December 31, 1999, future minimum facility lease
payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S>                                                           <C>
2000........................................................  $  715,219
2001........................................................     740,678
                                                              ----------
                                                              $1,455,897
                                                              ==========
</TABLE>

    Under the terms of the lease agreement, the Company is obligated to return
the facility to shell condition at the end of the lease and to provide the
lessor with a letter of credit in the amount of $90,000. The estimated cost of
this demolition work ($100,000) is included in other long-term liabilities, and
the letter of credit is secured by a term deposit of $90,000 which is included
in other assets.

    Rent expense for 1997, 1998, 1999 and for the period from November 18, 1991
(date of inception) to December 31, 1999 was approximately $269,000, $488,800,
$564,800 and $1,451,500, respectively.

NOTE 6--CONVERTIBLE PREFERRED STOCK:

    Under the Company's Certificate of Incorporation, as amended, the redemption
provisions associated with the Series A, Series B and Series C convertible
preferred stock were removed in August 1998. At that time the cumulative
accretion charges to the deficit accumulated during the development stage were
reversed. As of December 31, 1998 and 1999, the convertible preferred stock
comprises:

<TABLE>
<CAPTION>
                         NUMBER      NUMBER OF
                           OF         SHARES      PROCEEDS NET   LIQUIDATION
                         SHARES     ISSUED AND    OF ISSUANCE    PREFERENCE    DIVIDENDS
                       AUTHORIZED   OUTSTANDING      COSTS        PER SHARE    PER SHARE
                       ----------   -----------   ------------   -----------   ---------
<S>                    <C>          <C>           <C>            <C>           <C>
Series A.............  3,846,156     3,846,156    $ 1,461,181       $0.39      $0.0312
Series B.............  4,487,182     4,487,182      3,488,769       $0.78      $0.0624
Series C.............  9,375,300     9,245,300      9,180,558       $1.00      $0.08
Series D.............  10,285,714   10,285,714     17,345,599       $1.75      $0.14
                       ----------   ----------    -----------
                       27,994,352   27,864,352    $31,476,107
                       ==========   ==========    ===========
</TABLE>

    As of June 30, 2000, the convertible preferred stock comprises (unaudited):

<TABLE>
<CAPTION>
                         NUMBER      NUMBER OF
                           OF         SHARES      PROCEEDS NET   LIQUIDATION
                         SHARES     ISSUED AND    OF ISSUANCE    PREFERENCE    DIVIDENDS
                       AUTHORIZED   OUTSTANDING      COSTS        PER SHARE    PER SHARE
                       ----------   -----------   ------------   -----------   ---------
<S>                    <C>          <C>           <C>            <C>           <C>
Series A.............  3,846,156     3,846,156    $ 1,461,181       $0.39      $0.0312
Series B.............  4,487,182     4,487,182      3,488,769       $0.78      $0.0624
Series C.............  9,375,300     9,245,300      9,180,558       $1.00      $0.08
Series D.............  10,285,714   10,285,714     17,345,599       $1.75      $0.14
Series E.............  3,648,078     3,648,078     10,055,789       $2.60      $0.208
                       ----------   ----------    -----------
                       31,642,430   31,512,430    $41,531,896
                       ==========   ==========    ===========
</TABLE>

                                      F-16
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6--CONVERTIBLE PREFERRED STOCK: (CONTINUED)
    The rights, preferences and privileges of the convertible preferred stock
are as follows:

    DIVIDENDS

    The holders of convertible preferred stock are entitled to receive dividends
at the annual rate stated above per share if and when declared by the board of
directors. Such dividends, which are noncumulative and in preference to any
common stock dividends, are payable whenever funds are legally available. As of
June 30, 2000, no dividends have been declared.

    In May 2000, the Company issued 961,539 of Series E convertible preferred
stock at $2.60 per share for gross cash proceeds of $2,500,001. The issuance
resulted in a beneficial conversion feature of $352,596, calculated in
accordance with Emerging Issues Task Force No. 98-5 ("EITF No. 98-5"),
"Accounting for Convertible Securities with Beneficial Conversion Features." The
beneficial conversion feature is reflected as a preferred dividend in the
Statement of Operations for the six months ended June 30, 2000.

    LIQUIDATION

    In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or not, the holders of convertible preferred stock are
entitled to receive, prior and in preference to any distribution of any of the
assets of the Company to the holders of common stock, an amount per share, as
stated above, for each outstanding share of convertible preferred stock, plus
any declared and unpaid dividends. If the funds available for distribution are
insufficient to cover the liquidation preference, then the entire assets and
funds of the Company legally available for distribution are to be distributed
ratably among the holders of convertible preferred stock. A liquidation includes
any recapitalization or any consolidation or corporate reorganization in which
the stockholders of the Company immediately prior to such event own less than
50% of the Company's voting power immediately after such event.

    After payment of the full liquidation preference of the preferred
stockholders, any remaining assets of the Company legally available are to be
distributed ratably to the holders of common stock and convertible preferred
stock on an as-if converted basis.

    CONVERSION

    Each share of convertible preferred stock, at the option of the holder, is
convertible into a number of fully paid shares of common stock as determined by
dividing the respective convertible preferred stock issue price by the
conversion price in effect at the time. The initial conversion price of
Series A, Series B, Series C, Series D and Series E convertible preferred stock
is $0.39, $0.78, $1.00, $1.75 and $2.60, respectively, and is subject to
adjustment in accordance with antidilution provisions contained in the Company's
Certificate of Incorporation. Conversion is automatic immediately upon the
closing of the Company's initial public offering in which the public offering
price equals or exceeds $3.50 per share (adjusted to reflect subsequent stock
dividends, stock splits or recapitalization) and the aggregate proceeds raised
exceed $15,000,000. At June 30, 2000, 31,642,430 shares of the Company's common
stock have been reserved for conversion.

                                      F-17
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--CONVERTIBLE PREFERRED STOCK: (CONTINUED)

    VOTING RIGHTS

    The holder of each share of convertible preferred stock is entitled to one
vote for each share of common stock into which each share of convertible
preferred stock could be converted.

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT):

    REINCORPORATION

    In August 1998, the Company was reincorporated in Delaware, at which time
the Company's outstanding California corporation preferred and common stock was
exchanged on a one-for-one share basis for Delaware corporation preferred and
common stock. The related change in par value was recorded as an adjustment to
additional paid-in capital and preferred and common stock.

    COMMON STOCK

    Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of holders of all classes of stock outstanding having priority rights as
to dividends. No dividends have been declared or paid as of June 30, 2000.

    The Company issued shares of its common stock to certain employees under
stock purchase agreements, some of which contain repurchase provisions in the
event of termination of service with the Company. The shares are generally
released from repurchase provisions ratably over four years. Included in common
stock as of December 31, 1999 and June 30, 2000, are 920,417 and 711,667
(unaudited) shares subject to repurchase, respectively.

    STOCK OPTION PLANS

    The Company has reserved shares of common stock for issuance under the 1994
and 1996 Stock Incentive Plans (the "Plans"). Under the Plans the Board of
Directors may issue incentive stock options to employees and nonstatutory stock
options to employees, consultants or nonemployee directors of the Company, and
stock purchase rights to employees, nonemployee directors, or consultants. The
Board of Directors has the authority to determine to whom options will be
granted, the number of shares, the term and exercise price (which cannot be less
than fair market value at date of grant for incentive stock options or 85% of
fair market value for nonstatutory stock options). Historically, fair market
value has been determined by the Board of Directors. If an employee owns stock
representing more than 10% of the outstanding shares, the price of each share
shall be at least 110% of fair market value, as determined by the Board of
Directors. All options are immediately exercisable and generally vest over four
years, and expire ten years from date of grant. Unvested option exercises are
subject to repurchase upon termination of the holder's status as an employee or
consultant. At December 31, 1999 and June 30, 2000, none and 742,694 (unaudited)
shares of common stock were subject to the Company's repurchase rights,
respectively.

                                      F-18
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    Activity under the Plans is as follows:

<TABLE>
<CAPTION>
                                      SHARES                                              WEIGHTED
                                    AVAILABLE     NUMBER OF                                AVERAGE
                                       FOR         SHARES       EXERCISE     AGGREGATE    EXERCISE
                                      GRANT      OUTSTANDING      PRICE        PRICE        PRICE
                                    ----------   -----------   -----------   ----------   ---------
<S>                                 <C>          <C>           <C>           <C>          <C>
Shares reserved at Plan
  inception.......................     500,000
  Options granted.................    (305,000)     305,000       $0.04      $   12,200     $0.04
  Options exercised...............          --      (10,000)      $0.04            (400)    $0.04
  Options canceled................     160,000     (160,000)      $0.04          (6,400)    $0.04
                                    ----------   ----------                  ----------
Balances, December 31, 1995.......     355,000      135,000       $0.04           5,400     $0.04
  Reservation of shares...........   1,000,000           --        --                --     --
  Options granted.................    (848,396)     848,396       $0.08          67,840     $0.08
  Options exercised...............          --      (20,000)   $0.04-$0.08       (1,400)    $0.07
  Options canceled................      65,000      (65,000)      $0.08          (5,200)    $0.08
                                    ----------   ----------                  ----------
Balances, December 31, 1996.......     571,604      898,396    $0.04-$0.08       66,640     $0.07
  Options granted.................    (407,000)     407,000    $0.08-$1.25       43,480     $0.11
  Options exercised...............          --     (245,297)   $0.04-$0.08      (16,457)    $0.07
  Options canceled................     227,699     (227,699)   $0.04-$0.08      (17,382)    $0.08
                                    ----------   ----------                  ----------
Balances, December 31, 1997.......     392,303      832,400    $0.04-$1.25       76,281     $0.10
  Reservation of shares...........   1,700,000           --        --                --     --
  Options granted.................  (1,189,500)   1,189,500    $0.10-$0.20      176,740     $0.15
  Options exercised...............          --     (141,440)   $0.10-$0.20      (11,306)    $0.08
  Options canceled................      44,500      (44,500)   $0.08-$0.10       (3,800)    $0.09
                                    ----------   ----------                  ----------
Balances, December 31, 1998.......     947,303    1,835,960    $0.04-$1.25      237,915     $0.13
  Reservation of shares...........     400,000           --        --                --     --
  Options granted.................  (1,317,700)   1,317,700       $0.20         263,540     $0.20
  Options exercised...............          --     (381,034)   $0.04-$0.20      (34,504)    $0.09
  Options canceled................     642,976     (642,976)   $0.04-$0.20      (78,043)    $0.12
                                    ----------   ----------                  ----------
Balances, December 31, 1999.......     672,579    2,129,650    $0.08-$1.25      388,908     $0.18
  Reservation of shares
    (unaudited)...................   2,200,000           --        --                --     --
  Options granted (unaudited).....  (2,690,000)   2,690,000    $0.20-$1.00    2,623,600     $0.98
  Options exercised (unaudited)...          --   (1,234,341)   $0.08-$0.20     (222,444)    $0.18
  Options canceled (unaudited)....      81,159      (81,159)   $0.08-$1.25      (14,870)    $0.18
                                    ----------   ----------                  ----------
Balances, June 30, 2000
  (unaudited).....................     263,738    3,504,150    $0.08-$1.00   $2,775,194     $0.79
                                    ==========   ==========                  ==========
</TABLE>

                                      F-19
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    The options outstanding and currently vested by exercise price at
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING
           ---------------------------------------
                           WEIGHTED
                           AVERAGE
                          REMAINING       NUMBER
             NUMBER      CONTRACTUAL        OF
EXERCISE   OF OPTIONS      LIFE IN       OPTIONS
 PRICE     OUTSTANDING      YEARS         VESTED
--------   -----------   ------------   ----------
<S>        <C>           <C>            <C>
 $0.08         93,000        6.71         80,249
 $0.10        296,321        8.13        173,819
 $0.18         72,000        8.55         26,914
 $0.20      1,662,929        8.74        240,285
 $1.25          5,400        7.65          5,400
            ---------                    -------
            2,129,650                    526,667
            =========                    =======
</TABLE>

    The options outstanding and currently vested by exercise price at June 30,
2000 (unaudited) are as follows:

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING
           ---------------------------------------
                           WEIGHTED
                           AVERAGE
                          REMAINING       NUMBER
             NUMBER      CONTRACTUAL        OF
EXERCISE   OF OPTIONS      LIFE IN       OPTIONS
 PRICE     OUTSTANDING      YEARS         VESTED
--------   -----------   ------------   ----------
<S>        <C>           <C>            <C>
 $0.08         61,043        6.02         52,813
 $0.10         38,000        7.69         23,103
 $0.18         15,000        8.06          7,187
 $0.20        783,107        9.11         88,900
 $1.00      2,607,000        9.84          5,999
            ---------                    -------
            3,504,150                    178,002
            =========                    =======
</TABLE>

                                      F-20
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    STOCK-BASED COMPENSATION

    The Company has adopted the disclosure only provisions of SFAS No. 123. The
Company calculated the fair value of each option on the date of grant using the
minimum value method as prescribed by SFAS No. 123 with the following
assumptions:

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS
                                                       YEARS ENDED                    ENDED
                                                       DECEMBER 31,                 JUNE 30,
                                              ------------------------------   -------------------
                                                1997       1998       1999       1999       2000
                                              --------   --------   --------   --------   --------
                                                                                   (UNAUDITED)
<S>                                           <C>        <C>        <C>        <C>        <C>
Risk-free interest rate.....................    5.82%      5.20%      5.71%      5.12%      6.70%
Expected life (in years)....................    5          5          5          5          5
Dividend yield..............................    --         --         --         --         --
</TABLE>

    The weighted average grant date fair value of options granted during the
years ended December 31, 1997, 1998 and 1999 was $0.11, $0.15 and $0.20,
respectively.

    As the determination of fair value of all options granted after such time as
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding table, the following
results may not be representative of future periods.

    Had compensation costs been determined based upon the fair value at the
grant date, consistent with the methodology prescribed under SFAS No. 123, the
Company's pro forma net loss and pro forma basic and diluted net loss per share
under SFAS No. 123 would have been as follows:

<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,                   JUNE 30,
                                  ---------------------------------------   -------------------------
                                     1997          1998          1999          1999          2000
                                  -----------   -----------   -----------   -----------   -----------
                                                                                   (UNAUDITED)
<S>                               <C>           <C>           <C>           <C>           <C>
Net loss available to common
  stockholders--as reported.....  $(5,055,249)  $(5,562,383)  $(8,967,915)  $(4,068,051)  $(9,425,309)
                                  ===========   ===========   ===========   ===========   ===========
Net loss available to common
  stockholders--pro forma.......  $(5,061,341)  $(5,571,770)  $(8,986,409)  $(4,080,522)  $(9,709,738)
                                  ===========   ===========   ===========   ===========   ===========
Net loss per share, basic and
  diluted--as reported..........  $     (1.14)  $     (1.16)  $     (1.65)  $     (0.78)  $     (1.46)
                                  ===========   ===========   ===========   ===========   ===========
Net loss per share, basic and
  diluted--pro forma............  $     (1.14)  $     (1.16)  $     (1.65)  $     (0.79)  $     (1.50)
                                  ===========   ===========   ===========   ===========   ===========
</TABLE>

    DEFERRED STOCK-BASED COMPENSATION

    During 1997, 1998, 1999 and 2000, the Company issued options to certain
employees under the Plans with exercise prices below what is now considered to
be the deemed fair market value of the Company's common stock at the date of
grant. In accordance with the requirements of APB 25, the Company has

                                      F-21
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
recorded deferred stock-based compensation for the difference between the
exercise price of the stock options and the deemed fair market value of the
Company's stock at the date of grant. This deferred stock-based compensation is
amortized to expense over the period during which the Company's right to
repurchase the stock lapses or the options become vested, generally four years.
At December 31, 1999, the Company had recorded deferred compensation related to
these options in an amount of $3,999,519 (net of cancellations), of which none,
none and $8,827 had been amortized to expense during 1997, 1998 and 1999. Future
compensation expense from options granted through June 30, 2000 is estimated to
be $454,444, $748,187, $1,272,573 and $1,440,217 for 2000, 2001, 2002 and 2003,
respectively.

    Stock-based compensation expense related to stock options granted to
consultants is recognized as the stock options are earned. The Company believes
that the fair value of the stock options is more reliably measurable than the
fair value of the services received. The fair value of the stock options granted
is calculated at each reporting date using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 using the following assumptions:

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS
                                                       YEARS ENDED                    ENDED
                                                       DECEMBER 31,                 JUNE 30,
                                              ------------------------------   -------------------
                                                1997       1998       1999       1999       2000
                                              --------   --------   --------   --------   --------
                                                                                   (UNAUDITED)
<S>                                           <C>        <C>        <C>        <C>        <C>
Risk-free interest rate.....................    5.79%      4.93%      6.05%      5.81%      6.03%
Expected life (in years)....................    10         10         10         10         10
Dividend yield..............................    --         --         --         --         --
Expected volatility.........................      70%        70%        70%        70%        70%
</TABLE>

    The stock-based compensation expense will fluctuate as the deemed fair
market value of the common stock fluctuates. In connection with the grant of
stock options to consultants, the Company recorded deferred stock-based
compensation of none, none and $336,577 for the years ended December 31, 1997,
1998 and 1999 and $410,781 (unaudited) for the six months ended June 30, 2000,
of which none, none and $101,028 has been amortized to expense in 1997, 1998 and
1999 and $94,215 has been amortized to expense in the six months ended June 30,
2000.

    As of June 30, 2000, the Company expects to amortize stock-based
compensation expense from existing options granted to consultants of $109,424 in
the remainder of fiscal 2000, $169,284 in 2001, $152,623 in 2002, $105,179 in
2003 and $15,604 in 2004.

    WARRANTS

    In connection with the financing arrangements entered into by the Company in
July 1995 and October 1997, the Company issued warrants to purchase 32,051
shares of common stock and warrants to purchase 65,000 shares of Series C
convertible preferred stock at exercise prices of $0.78 and $1.00, respectively.
The warrants expire on June 30, 2002 and October 14, 2004, respectively.

    The fair value of these warrants, determined using the Black-Scholes option
pricing model, was not material.

                                      F-22
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)
    NOTES RECEIVABLE

    In May 1994, the Company loaned $69,009 to a stockholder/employee. The note
bears interest at 6.43% per annum and is due May 2003. At December 31, 1999 and
June 30, 2000, $96,373 and $99,581 of principal and interest was outstanding on
this note, respectively. In August 1996, the Company loaned an additional
$200,000 to this individual. The note is non-interest bearing, is due 2001, and
is secured by 500,000 shares of common stock. At June 30, 2000, no payments have
been made on the notes.

    In January 1998 and December 1998 the Company received notes receivable from
officers of the Company in exchange for common stock. The notes bear interest at
5.93% and 4.51%, and are due in January 2002 and December 2002, respectively. At
December 31, 1999, $156,454 and $55,993 of principal and interest are
outstanding on these notes, respectively. At June 30, 2000, $161,245 and $57,287
of principal and interest are outstanding on these notes, respectively. The
loans are secured by 1,400,000 and 270,000 shares of common stock, respectively.

    In April 2000, the Company received notes receivable from two officers of
the Company in exchange for common stock. Each note bears interest at 6.71% and
is due in April 2004. Each loan is secured by 270,000 shares of common stock. At
June 30, 2000, $106,526 of principal and interest are outstanding on these
notes.

NOTE 8--INCOME TAXES:

    At December 31, 1999, the Company has approximately $21.8 million and
$13.9 million in Federal and California net operating loss carryforwards,
respectively, which expire through the year 2014. United States Federal income
tax regulations may restrict the utilization of the operating loss and tax
credit carryforwards in the case of an "ownership change" of the Company.

    The tax effects of temporary differences and carryforwards that give rise to
significant portions of the net deferred tax assets are as follows:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1998         1999
                                                       ----------   ----------
<S>                                                    <C>          <C>
Deferred tax assets:
  Net operating loss carryforwards...................  $5,264,000   $8,700,000
  Research and development tax credit
    carryforwards....................................     212,000      407,000
  Depreciation and amortization......................     166,000      296,000
  Other..............................................      46,000       48,000
  Less: valuation allowance..........................  (5,688,000)  (9,451,000)
                                                       ----------   ----------
                                                       $       --   $       --
                                                       ==========   ==========
</TABLE>

    The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets.

                                      F-23
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9-- UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
        STOCKHOLDERS' EQUITY:

    Pro forma basic and diluted net loss per share have been computed to give
effect to common equivalent shares from convertible preferred stock that will
convert to common stock upon the closing of the Company's initial public
offering (using the as-if-converted method) for the year ended December 31, 1999
and the six months ended June 30, 2000. A reconciliation of the numerator and
denominator used in the calculation of pro forma basic and diluted net loss per
common share follows:

<TABLE>
<CAPTION>
                                                                   SIX MONTHS
                                                   YEAR ENDED        ENDED
                                                  DECEMBER 31,      JUNE 30,
                                                      1999            2000
                                                  -------------   ------------
                                                          (UNAUDITED)
<S>                                               <C>             <C>
Pro forma net loss per common share, basic and
  diluted:
  Net loss......................................  $ (8,967,915)   $ (9,072,713)
                                                  ============    ============
Weighted average shares used in computing net
  loss per common share, basic and diluted......     5,433,341       6,462,166
Adjustments to reflect the effect of the assumed
  conversion of the preferred stock from the
  date of issuance..............................    27,994,352      29,238,985
                                                  ------------    ------------
Weighted average shares used in computing pro
  forma net loss per common share, basic and
  diluted.......................................    33,427,693      35,701,151
                                                  ============    ============
Pro forma net loss per common share, basic and
  diluted.......................................  $      (0.27)   $      (0.25)
                                                  ============    ============
</TABLE>

    If an initial public offering is consummated, all of the convertible
preferred stock outstanding, as of the closing date, will be converted into an
aggregate of approximately 31,512,430 shares of common stock based on the shares
of convertible preferred stock outstanding at June 30, 2000. This does not
include the issuance of 7,498,223 shares of convertible Series F preferred stock
in July 2000 (see note 12). Unaudited pro forma stockholders' equity at
June 30, 2000, as adjusted for the conversion of convertible preferred stock, is
disclosed on the consolidated balance sheet.

NOTE 10--EMPLOYEE BENEFIT PLAN:

    In August 1996, the Company adopted a plan (the "Plan") which is qualified
under section 401(k) of the Internal Revenue Code of 1986. Eligible employees
may make voluntary contributions to the Plan of up to 20% of their annual
compensation, not to exceed the statutory amount, and the Company may make
matching contributions. To date, the Company has not made any matching
contributions to the Plan.

NOTE 11--ACQUISITION:

    In May 2000, the Company acquired all the voting stock of Cerus Limited
("Cerus"), now AeroGen (Ireland) Limited in exchange for 1,725,000 shares of
Series E convertible preferred stock valued at $2.97 per share and transaction
costs of approximately $100,000. Cerus was a development stage company

                                      F-24
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11--ACQUISITION: (CONTINUED)
engaged in the development of pulmonary inhalation products utilizing the
Company's core aerosol generator technology, under a license agreement with the
Company.

    The acquisition of Cerus has been accounted for using the purchase method of
accounting and, accordingly the results of operations of Cerus have been
included in the Company's financial statements subsequent to May 25, 2000. The
purchase price was allocated to the assets acquired and the liabilities assumed
based on their estimated fair values at the date of acquisition as determined by
management. The excess of the purchase price over the fair value of the net
identifiable assets was allocated to goodwill. The purchase price was allocated
as follows:

<TABLE>
<S>                                                           <C>
Cash and cash equivalents...................................  $  542,174
Grants receivable...........................................     105,038
Property and equipment, net.................................      34,772
Other assets................................................      50,895
Assumed liabilities.........................................    (287,908)
Acquired workforce..........................................     100,000
Acquired in-process research and development................   3,500,000
Goodwill....................................................   1,172,529
                                                              ----------
Total purchase consideration................................  $5,217,500
                                                              ==========
</TABLE>

    The amortization of acquired workforce and goodwill is being computed over
two and six years, respectively, on the straight-line basis. The acquired
in-process research and development represents the value of new medical and
other technologies that were in various stages of development where no
alternative future use was identified. An independent appraisal which utilized
various methods, including the income approach, which includes an analysis of
the markets, cash flows and risks associated with achieving such cash flows, was
performed to determine the fair value of the identifiable assets, including the
portion of the purchase price attributed to the acquired in-process technology.

    The unaudited pro forma financial information, had the acquisition of Cerus
occurred at the beginning of 1999, is as follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED            SIX MONTHS
                                                       DECEMBER 31,         ENDED JUNE 30,
                                                       -------------   -------------------------
                                                           1999           1999          2000
                                                       -------------   -----------   -----------
<S>                                                    <C>             <C>           <C>
Revenue..............................................   $   756,575    $    74,158   $ 3,679,041
Net loss.............................................    (9,198,192)    (4,074,985)   (9,625,190)
Net loss per common share, basic and diluted.........   $     (1.69)   $     (0.78)  $     (1.49)
</TABLE>

    The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results that
would have occurred had the transaction been completed at the beginning of the
earliest period presented, nor is it necessarily indicative of future operating
results.

    Accumulated amortization of goodwill and other intangibles was approximately
$21,000 at June 30, 2000.

                                      F-25
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS:

    RESEARCH AND DEVELOPMENT AGREEMENTS

    In March 2000, the Company entered into an agreement with PathoGenesis
Corporation ("PathoGenesis"). Under the terms of the agreement the Company and
PathoGenesis agreed to collaborate on the development and registration of a
product which will combine PathoGenesis' drug TOBI (tobramycin solution for
inhalation) with the Company's AeroDose inhaler. The Company will be reimbursed
for costs incurred in developing the product in accordance with an agreed upon
workplan, will manufacture inhalers on a cost plus a fixed profit margin, and
will receive royalties on future product sales. In connection with the
agreement, the Company issued 961,539 shares of Series E convertible preferred
stock at $2.60 per share for total gross proceeds of $2.5 million.

    In May 2000, the Company entered into an agreement with Becton Dickinson and
Company ("BD") under which BD will develop and supply a patent-adjustable
container for use in the Company's AeroDose insulin product. Under the terms of
the agreement, the Company issued 961,539 shares of Series E convertible
preferred stock at $2.60 per share for total gross proceeds of $2.5 million and
will be obligated to pay BD royalties on future product sales and a portion of
any payments the Company receives from any future marketing partner. As a result
of this issuance a beneficial conversion feature charge of $352,596 was recorded
in the six months ended June 30, 2000.

    ISSUANCE OF SERIES F CONVERTIBLE PREFERRED STOCK

    In July 2000, the Company issued 7,498,223 shares of Series F convertible
preferred stock at $2.25 per share for total proceeds of $16,871,002. The
holders of Series F convertible preferred stock are entitled to receive
dividends of $0.18 per share per annum when and if declared by the board of
directors and $2.25 per share upon liquidation. Substantially all other rights
and preferences of the Series F convertible preferred stock are consistent with
all other series of preferred outstanding except for Series E, which has
somewhat fewer rights and privileges. As a result of this issuance a beneficial
conversion feature charge will be recorded in the quarter ended September 30,
2000.

    STOCK OPTION PLAN

    In July 2000, the Board of Directors authorized an additional 2.5 million
shares of common stock to be available under the 1996 Stock Incentive Plan.

    OPTION GRANTS

    On July 21, 2000, options to purchase 119,000 shares of common stock under
the 1996 Stock Option Plan were granted at an exercise price of $1.25. The total
deferred stock-based compensation related to these grants amounts to $243,950,
of which $15,247 will be amortized to expense in the third quarter of 2000.

    On August 24, 2000, options to purchase 164,000 shares of common stock under
the 1996 Stock Option Plan were granted at an exercise price of $1.50. The total
deferred stock-based compensation related to these grants amounts to $295,200,
of which $12,300 will be amortized to expense in the third quarter of 2000.

                                      F-26
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS: (CONTINUED)
    INITIAL PUBLIC OFFERING

    In August 2000, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell its common stock to the public. Upon completion of
the Company's initial public offering, all of the outstanding convertible
preferred stock will be converted into shares of common stock.

    2000 EQUITY INCENTIVE PLAN

    In August 2000, the Board of Directors adopted the 2000 Equity Incentive
Plan (the "2000 Plan"). The 2000 Plan, which will terminate no later than 2010,
provides for the granting of incentive stock options, nonstatutory stock options
and restricted stock purchase rights and stock bonuses to employees, and
consultants.

    A total of 3,000,000 shares of common stock have been authorized for
issuance under the 2000 Plan. At the date of the stockholders' meeting in 2001,
and annually thereafter, the authorized shares will automatically be increased
by a number of shares equal to the least of:

    -  4.5% of the then outstanding shares of common stock on a fully-diluted
       basis;

    -  6,000,000 shares; or

    -  a lesser number of shares determined by the Board of Directors.

    2000 EMPLOYEE STOCK PURCHASE PLAN

    In August 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan (the "Purchase Plan"), authorizing the issuance of 750,000 shares
of common stock pursuant to purchase rights granted to in the United States
employees.

    At the date of the stockholders' meeting in 2001, and annually thereafter,
for a period of 20 years, the share reserve will automatically be increased by a
number of shares equal to the least of:

    -  1.0% of the then outstanding shares of common stock on a fully diluted
       basis;

    -  750,000 shares; or

    -  a lesser number of shares determined by the Board of Directors.

    The Purchase Plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code of 1986, as
amended. As of the date hereof, no shares of common stock have been purchased
under the Purchase Plan.

    The Purchase Plan permits eligible employees to purchase common stock at a
discount through payroll deductions during defined offering periods. The price
at which stock is purchased under the purchase plan is equal to 85% of the fair
market value of the common stock on the first day of the offering period or 85%
of the fair market value on the subsequent designated purchase dates, whichever
is lower. The initial offering period will commence on the effective date of the
offering.

                                      F-27
<PAGE>
                                 AEROGEN, INC.
                      (A COMPANY IN THE DEVELOPMENT STAGE)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12--SUBSEQUENT EVENTS: (CONTINUED)
    2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

    In August 2000, the Board of Directors adopted the 2000 Non-Employee
Directors' Stock Option Plan ("2000 Non-Employee Plan") under which 750,000
shares of common stock were reserved for issuance. Under the terms of the 2000
Non-Employee Plan, each new non-employee director elected on, or after, the
effectiveness of an initial public offering of the Company's common stock, will
be granted an option to purchase 45,000 shares of common stock which vest over a
4 year period. Thereafter, on an annual basis, on the date of the annual
stockholder meeting, each director will be granted an option to purchase 15,000
shares of common stock which vest over a three year period. The exercise price
of an option will not be less than the fair market value of the common stock on
the date of grant and the term will not exceed 10 years.

                                      F-28
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Cerus Limited.

    In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity and cash flows present fairly, in all
material respects, the financial position of Cerus Limited (a company in the
development stage) at December 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999 and for the cumulative period from December 16, 1997 (date of
inception) through December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
Limerick
Ireland

August 23, 2000

                                      F-29
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1998       1999
                                                              --------   --------
<S>                                                           <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 89,035   $756,032
  Accounts receivable.......................................    33,506     60,955
  Other current assets......................................        --    139,788
                                                              --------   --------
    Total current assets....................................   122,541    956,775
  Office equipment, and furniture & fittings, net...........     4,258     40,818
                                                              --------   --------
    Total assets............................................  $126,799   $997,593
                                                              ========   ========
LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 11,792   $ 52,113
  Taxes payable.............................................    22,141     36,610
  Related party payable.....................................    29,541      8,241
                                                              --------   --------
    Total current liabilities...............................    63,474     96,964
                                                              --------   --------
Commitments (Note 4)
Redeemable shares:
  "B" ordinary shares par value: $1.41
  Authorised: 500,000 shares
  Issued and outstanding: No shares in 1998 and 154,000
    shares in 1999..........................................        --    216,308
                                                              --------   --------
Shareholders' equity:
  "A" ordinary shares par value: $0.014
  Authorised: 10,000,000 shares
  Issued and outstanding: 200 shares in 1998 and 95,000
    shares in 1999..........................................         3      1,352
  Additional paid-in capital................................        --    849,924
  Earnings (deficit) accumulated during the development
    stage...................................................    63,322   (166,955)
                                                              --------   --------
    Total shareholders' equity..............................    63,325    684,321
                                                              --------   --------
      Total liabilities, redeemable shares and shareholders'
        equity..............................................  $126,799   $997,593
                                                              ========   ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-30
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                              CUMULATIVE PERIOD
                                                                                    FROM
                                                          YEARS ENDED         DECEMBER 16, 1997
                                                          DECEMBER 31,       (DATE OF INCEPTION)
                                                      --------------------     TO DECEMBER 31,
                                                        1998       1999             1999
                                                      --------   ---------   -------------------
<S>                                                   <C>        <C>         <C>
Research and development revenues...................  $167,169   $ 180,815        $ 347,984
Grant income........................................        --     107,540          107,540
                                                      --------   ---------        ---------
                                                       167,169     288,355          455,524
                                                      --------   ---------        ---------

Operating expenses:
  Research and development..........................    80,962     206,307          287,269
  Administrative....................................     4,343      68,015           72,358
                                                      --------   ---------        ---------
    Total operating expenses........................    85,305     274,322          359,627
                                                      --------   ---------        ---------

Income from operations..............................    81,864      14,033           95,897

Interest and other income...........................     3,709       1,372            5,081
Interest and other expense..........................      (110)   (217,931)        (218,014)
                                                      --------   ---------        ---------

Net income (loss) before taxation...................    85,463    (202,526)        (117,063)
Taxation............................................   (22,141)    (27,751)         (49,892)
                                                      --------   ---------        ---------
Net income (loss)...................................  $ 63,322   $(230,277)       $(166,955)
                                                      ========   =========        =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-31
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                       STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR THE PERIOD FROM DECEMBER 16, 1997 (DATE OF INCEPTION) TO DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                           EARNINGS
                                                                          (DEFICIT)
                                                                         ACCUMULATED
                                      ORDINARY SHARES     ADDITIONAL      DURING THE
                                    -------------------    PAID-IN       DEVELOPMENT
                                     SHARES    AMOUNTS     CAPITAL          STAGE           TOTAL
                                    --------   --------   ----------   ----------------   ---------
<S>                                 <C>        <C>        <C>          <C>                <C>
Issuance of Class "A" ordinary
  shares for cash at $1.4245 per
  share in January................      200     $    3     $     --       $      --       $       3
Net income........................       --         --           --          63,322          63,322
                                     ------     ------     --------       ---------       ---------
Balances, December 31, 1998.......      200          3           --          63,322          63,325

Issuance of Class "A" ordinary
  shares for cash at $1.4234 per
  share in August, net of issuance
  costs of $39,345................   94,800      1,349      849,924              --         851,273
Net loss..........................       --         --           --        (230,277)       (230,277)
                                     ------     ------     --------       ---------       ---------
Balances, December 31, 1999.......   95,000     $1,352     $849,924       $(166,955)      $ 684,321
                                     ======     ======     ========       =========       =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-32
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             CUMULATIVE PERIOD
                                                        YEARS ENDED                 FROM
                                                        DECEMBER 31,         DECEMBER 16, 1997
                                                    --------------------   (DATE OF INCEPTION) TO
                                                      1998       1999        DECEMBER 31, 1999
                                                    --------   ---------   ----------------------
<S>                                                 <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................  $ 63,322   ($230,277)         ($166,955)
Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
  Depreciation....................................       752      16,532             17,284
  Changes in operating assets and liabilities:
    Accounts receivable...........................   (33,506)    (27,449)           (60,955)
    Prepaid expenses and other current assets.....        --    (139,788)          (139,788)
    Accounts payable..............................    11,792      40,321             52,113
    Taxes and related party payables..............    51,682      (6,831)            44,851
                                                    --------   ---------          ---------
Net cash provided by (used in) operating
  activities......................................    94,042    (347,492)          (253,450)
                                                    --------   ---------          ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of office equipment and furniture and
  fittings........................................    (5,010)    (53,092)           (58,102)
                                                    --------   ---------          ---------
Net cash used in investing activities.............    (5,010)    (53,092)           (58,102)
                                                    --------   ---------          ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Class `A' ordinary
  shares, net.....................................         3     851,273            851,276
Proceeds from issuance of Class `B' ordinary
  shares, net.....................................        --     216,308            216,308
                                                    --------   ---------          ---------
Net cash provided by financing activities.........         3   1,067,581          1,067,584
                                                    --------   ---------          ---------
Net increase in cash and cash equivalents.........    89,035     666,997            756,032
Cash and cash equivalents, beginning of period....        --      89,035                 --
                                                    --------   ---------          ---------
Cash and cash equivalents, end of period..........  $ 89,035   $ 756,032          $ 756,032
                                                    ========   =========          =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during period for interest..............  $    110   $     183          $     293
                                                    ========   =========          =========
Cash paid during period for taxes.................  $     --   $  10,837          $  10,837
                                                    ========   =========          =========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-33
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                         NOTES TO FINANCIAL STATEMENTS

1.  FORMATION AND BUSINESS OF THE COMPANY

    Cerus Limited (the "company") was incorporated in the Republic of Ireland on
December 16, 1997 to develop pulmonary medical products. The company, which
operates in the Republic of Ireland, is in the development stage and since
inception has devoted substantially all of its efforts to developing its
products, raising capital and recruiting personnel.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    FOREIGN CURRENCY TRANSLATION

    The financial accounts of the company were originally denominated in Irish
punts (IRL) and have now been translated in United States Dollars ($). Operating
results have been translated at the average exchange rate for the relevant
period. Monetary assets and liabilities have been translated at the exchange
rates in effect at the balance sheet dates. Non-monetary assets and liabilities
have been translated at the exchange rates in effect at the date of the
transaction. Differences arising on translation are included in the statements
of operations for the relevant period.

    USE OF ESTIMATES

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

    CASH AND CASH EQUIVALENTS

    The company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents include money market and deposit accounts.

    DEPRECIATION

    Office equipment, and furniture and fittings are stated at cost less
accumulated depreciation. Depreciation is provided using the straight line
method over the estimated useful lives of the assets, generally three to five
years. Upon sale or retirement of assets, the cost and related accumulated
depreciation are removed from the balance sheet and the resulting gain or loss
is reflected in operations.

    FAIR VALUE OF FINANCIAL INSTRUMENTS

    Carrying amounts of certain of the company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable, and
other liabilities approximate fair value due to their short maturities.

                                      F-34
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES

    The company maintains its cash and cash equivalents in accounts with a major
financial institution in the Republic of Ireland. The company has not
experienced any losses on its deposits of cash and cash equivalents.

    Products developed by the company may require the approval of the Food and
Drug Administration (FDA) and/or other international regulatory agencies prior
to commercialised sales. The company cannot be assured that its products will
receive the necessary approvals. If the company was denied approval or if
approval was delayed, it may have a material adverse impact on the company. To
date the company has not made any product sales.

    In 1998, two customers individually accounted for 44% and 51%, respectively
of the company's total revenue. In 1999, one customer accounted for 90% of the
company's total revenue.

    At December 31, 1998, two customers accounted for 45% and 50% of accounts
receivable, respectively. At December 31, 1999, one customer accounted for 100%
of accounts receivable.

    REVENUE RECOGNITION

    The company recognises grant revenue based on meeting certain requirements,
completing milestones as specified in the grant agreements as work is performed
and evidenced by time sheets and expense reports for certain grants. Research
and development revenues which are earned under cost-reimbursement agreements
are recorded as the related expenses are incurred, up to contractual limits.
Payments received that are related to future performance are recorded as
deferred revenue and recognized as revenues as they are earned. All revenues
recognized to date are not refundable if the relevant research effort is not
successful.

    RESEARCH AND DEVELOPMENT

    Research and development costs are charged to operations as incurred.
Certain research and development projects are funded under cost-reimbursement
agreements, and the costs related to these activities are included in research
and development expense.

    INCOME TAXES

    The company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under
this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realised.

    RECENT ACCOUNTING PRONOUNCEMENTS

    In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44") "Accounting for Certain Transactions
Involving Stock Compensation," an interpretation of the Accounting Principles
Board Opinion No. 25 ("APB No. 25"). The Interpretation clarifies the definition
of

                                      F-35
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
employee for purposes of applying APB No. 25, "Accounting for Stock Issued to
Employees," the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed share option or award, and the accounting for an
exchange of share compensation awards in a business combination. FIN No. 44 is
effective July 1, 2000, but certain conclusions cover specific events that occur
after either December 15, 1998, or January 12, 2000. The adoption of FIN No. 44
did not and will not have a material impact on the company's financial
statements.

    In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 ("SAB No. 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognise revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
has complied with the guidance in SAB No. 101 for all periods presented.

    In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognised at fair
value in the statement of financial position, and that corresponding gains or
losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
As amended SFAS No. 133 will be effective for fiscal quarters beginning after
June 15, 2000. The Company does not currently hold derivative instruments or
engage in hedging activities and does not believe that the implementation of
SFAS No. 133 will have any significant impact on its financial position or
results of operations.

3.  OFFICE EQUIPMENT, AND FURNITURE AND FITTINGS

<TABLE>
<CAPTION>
                                                 DECEMBER 31,    DECEMBER 31,
                                                     1998            1999
                                                 -------------   -------------
<S>                                              <C>             <C>
Office equipment...............................     $   --          $42,643
Furniture and fittings.........................      5,010           15,459
                                                    ------          -------
                                                     5,010           58,102
Less accumulated depreciation..................       (752)         (17,284)
                                                    ------          -------
                                                    $4,258          $40,818
                                                    ======          =======
</TABLE>

4.  COMMITMENTS

    The company rents its office facilities under a lease which expires on
December 31, 2000. At December 31, 1999 future minimum rent payments are $15,800
in 2000.

    Rental expense for 1998, 1999 and cumulatively from December 16, 1997 (date
of inception) to December 31, 1999 was $1,428, $7,011 and $8,439, respectively.

                                      F-36
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4.  COMMITMENTS (CONTINUED)
    The company acquired an option to acquire land for a three year period from
April 1999 for a reservation fee of approximately $9,400 per annum. The option
expense in 1999 amounted to $6,507. At December 31, 1999 future payments are
approximately as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  $ 9,400
2001........................................................    9,400
2002........................................................    2,890
                                                              -------
                                                              $21,690
                                                              =======
</TABLE>

5.  REDEEMABLE SHARES

    In April 1999 the company established an Irish Revenue approved Business
Expansion Scheme under which it raised $216,308. The Business Expansion Scheme
is a tax based scheme which grants investors tax breaks on the amounts invested.
The investment is generally for a five year period. Under the Business Expansion
Scheme the company issued 154,000 B ordinary shares of IRL1 each at par (or
$1.14 when translated at the historic exchange rate). The maximum amount which
the B ordinary shareholders will receive from the company in respect of their
shares either by way of redemption, dividend or a liquidation is IRL1.20 per
share (or $1.53 when translated as of December 31, 1999).

    REDEMPTION

    A Put/Call Option agreement has been entered into between the company and
the Business Expansion Scheme investors. This agreement provides an option to
the company to require the investors to sell their shares to the company (the
"Call Option') and an option to the investors to require the company to purchase
their shares (the "Put Option) within a three to four month period after a five
year period has elapsed from the date of issue of these shares. The share price
is to be determined by independent appraisal but is capped at a maximum value of
IRL1.20 per share. These B ordinary shares shall rank PARI PASSU (based on a
ratio of 100:1) with the A ordinary shares except that they shall not carry
voting rights.

    DIVIDENDS

    The B ordinary shares are entitled (based on a ratio 100:1 with A ordinary
shares) to receive such a portion (if any) of the profits of the company which
are proposed to be distributed by way of dividend in respect of any financial
year of the company whether by way of interim dividend declared by the directors
or by way of dividend declared by the company in a general meeting, up to a
maximum of IRL1.20 per share. The maximum aggregate amount paid by way of
dividend on B ordinary shares shall never exceed the aggregate sum of IRL1.20
per share.

    LIQUIDATION

    On a winding up, the B ordinary shares shall each rank PARI PASSU (based on
a ratio of 100:1) with A ordinary shares, as to entitlement to the return of
amounts paid up or credited as paid up on each share including any premium and
shall further rank PARI PASSU (with the A ordinary shares) as their entitlement
to participate further in the profits and assets of the company, up to a maximum
aggregate amount of

                                      F-37
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.  REDEEMABLE SHARES (CONTINUED)
IRL1.20 for each share less the aggregate amount (if any) of all dividends
previously paid or declared in respect of B ordinary shares. The maximum
aggregate amount paid on winding up of the company to B ordinary shares, when
aggregated with the aggregate amount of all dividends paid on the B ordinary
shares, shall never exceed the aggregate of IRL1.20 per share inclusive of
amounts paid up or credited as paid up thereon including any premium.

6.  SHAREHOLDERS' EQUITY

    The A ordinary shares of IRL0.01 each (or $0.014 when translated at the
historic exchange rate) have full voting rights. The A ordinary shares shall be
entitled equally to B ordinary shares (based on a ratio of 1:100) to receive
such proportion (if any) of the profit of the company which is proposed to be
distributed by way of dividend in respect of any financial year of the company
whether by way of interim dividend declared by the directors or by way of
dividend declared by the company at a general meeting until such time as the
holders of the A and B ordinary shares shall have received an amount of IRL1.20
per share. Thereafter, the A ordinary shares shall entitle the holders thereof
to receive payment of any further dividend which may be declared to the
exclusion of any entitlement thereto on the part of the holders of B ordinary
shares.

7.  INCOME TAXES

    The company is subject to Irish Corporation Tax on certain research and
development revenues. The provision for income taxes consists of:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                            -------------------
                                                              1998       1999
                                                            --------   --------
<S>                                                         <C>        <C>
Current income taxes......................................  $22,000    $20,000
Deferred taxes............................................       --         --
                                                            -------    -------
Provision for income taxes................................  $22,000    $20,000
                                                            =======    =======
</TABLE>

    The tax effects of temporary differences and carryforwards that give rise to
significant portions of the deferred tax assets at December 31, 1999 and 1998
are as follows:

<TABLE>
<CAPTION>
                                                              DECEMBER 31,
                                                           -------------------
                                                             1998       1999
                                                           --------   --------
<S>                                                        <C>        <C>
Deferred tax asset:
  Deferred research and development expenditures.........  $     --   $ 25,000
  Pension and other deferred expenses....................               13,000
                                                           --------   --------
  Total deferred tax asset...............................        --     38,000
  Valuation allowance....................................        --    (38,000)
                                                           --------   --------
                                                           $     --   $     --
                                                           ========   ========
</TABLE>

                                      F-38
<PAGE>
                                 CERUS LIMITED
                      (A COMPANY IN THE DEVELOPMENT STAGE)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7.  INCOME TAXES (CONTINUED)
    A full valuation allowance is provided for the deferred tax assets as the
company determines that it is more likely than not that the deferred tax assets
will not be utilized. The deferred research and development expenditures can be
carried forward for three years.

8.  RELATED PARTY TRANSACTIONS

    Related party payables relate specifically to transactions with directors in
their capacity as directors of the company. At December 31, 1998 and 1999, the
company had payables of $29,541 and $8,241 respectively for these transactions.
Costs incurred by the company in respect of services rendered to the company by
directors in their capacity as directors for 1998, 1999 and cumulatively from
December 16, 1997 (date of inception) were approximately $30,000, $80,000 and
$110,000 respectively.

    Other costs incurred by the company in respect of services rendered to the
company by directors and companies connected to directors for 1998, 1999 and
cumulatively from December 16, 1997 (date of inception) were approximately nil,
$29,376 and $29,376 respectively.

    At December 31, 1998 and 1999, the company had payables of nil and $3,093
respectively relating to these services which are included in accounts payable.

9.  SUBSEQUENT EVENTS

    Effective May 25, 2000 all of the company's outstanding A ordinary shares
were acquired by AeroGen, Inc. ("AeroGen") in exchange for 1,725,000 shares of
AeroGen's Series E convertible preferred shares. This acquisition was recorded
by AeroGen as a purchase.

                                      F-39
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                        SHARES

                                 [AEROGEN LOGO]

                                  COMMON STOCK

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

                                   PROSPECTUS

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

                                   CHASE H&Q

                               CIBC WORLD MARKETS

                                    SG COWEN

                                   ---------

                                       , 2000

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

    YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF
THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY
SALE OF OUR COMMON STOCK.

    NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF
THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION.

    UNTIL            , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

    The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions, payable by the company in connection
with the sale of common stock being registered hereby. All of the amounts shown
are estimates except the SEC registration fee and the NASDAQ National Market
listing fee.

<TABLE>
<CAPTION>
                                                               AMOUNT
                                                                TO BE
                                                                PAID
                                                              ---------
<S>                                                           <C>
SEC registration fee........................................   $15,180
NASD filing fee.............................................     6,250
NASDAQ additional listing of shares fee.....................     *
Accounting fees and expenses................................     *
Legal fees and expenses.....................................     *
Printing and engraving expenses.............................     *
Transfer Agent and registrar fees...........................     *
Miscellaneous...............................................     *
                                                               -------
  Total.....................................................   $ *
                                                               =======
</TABLE>

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

*   To be completed by amendment

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.

    As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability for any breach of duty of loyalty to us or to our
stockholders;

    -  for acts or omissions not in good faith or that involve intentional
       misconduct or a knowing violation of law;

    -  for unlawful payment of dividends or unlawful stock repurchases or
       redemptions under Section 174 of the Delaware General Corporation Law; or

    -  for any transaction from which the director derived an improper personal
       benefit.

    Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify our
other officers and employees and agents to the fullest extent permitted by
Delaware law. We believe that indemnification under our amended and restated
certificate of incorporation covers negligence and gross negligence on the part
of indemnified parties.

    We intend to enter into indemnification agreements with each of our
directors and officers. These agreements, among other things, will require us to
indemnify each director and officer for certain expenses including attorneys'
fees, judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including any action by or in the right of AeroGen,
arising out of the person's services as our director or officer, any subsidiary
of ours or any other company or enterprise to which the person provides services
at our request.

                                      II-1
<PAGE>
    The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of AeroGen, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

    Since July 1997, we have sold and issued the following unregistered
securities:

 (1) From July 1997 through August 24, 2000, AeroGen has granted stock options
     to purchase 5,887,600 shares of common stock to employees, consultants and
     directors pursuant to its 1994 Stock Option Plan and 1996 Stock Option
     Plan. Of these options, 1,004,626 have been canceled without being
     exercised, 2,043,778 have been exercised, and 3,737,192 shares remain
     outstanding.

 (2) From April 1997 through November 1997, AeroGen issued 9,245,300 shares of
     Series C preferred stock to 17 purchasers at a purchase price of $1.00 per
     share for an aggregate purchase price of $9,245,300. Shares of Series C
     preferred stock are convertible into shares of common stock at the rate of
     one share of common stock for each share of Series C preferred stock owned.

 (3) In October 1997, AeroGen issued warrants to purchase up to 130,000 shares
     of Series C preferred stock at an exercise price of $1.00 per share. Shares
     of Series C preferred stock are convertible into shares of common stock at
     the rate of one share of common stock for each share of Series C preferred
     stock owned.

 (4) In January 1998, AeroGen issued 1,400,000 shares of common stock to one
     purchaser at $0.10 per share, for a purchase price of $140,000.

 (5) In August 1998, AeroGen issued 10,285,714 shares of Series D preferred
     stock to 21 purchasers at a purchase price $1.75 per share for an aggregate
     purchase price of $17,999,999. Shares of Series D preferred stock are
     convertible into shares of common stock at the rate of one share of common
     stock for each share of Series D preferred stock owned.

 (6) In November 1998, AeroGen issued 270,000 shares of common stock to one
     purchaser at $0.20 per share, for a purchase price of $54,000.

 (7) From March 2000 through May 2000, AeroGen issued 1,923,078 shares of
     Series E preferred stock to two purchasers at a purchase price of $2.60 per
     share for an aggregate purchase price of $5,000,002. Shares of Series E
     preferred stock are convertible into shares of common stock at the rate of
     one share of common stock for each share of Series E preferred stock owned.

 (8) In April 2000, AeroGen issued 540,000 shares of common stock to two
     purchasers at $0.20 per share, for a purchase price of $108,000.

 (9) In May 2000, AeroGen issued 1,725,000 shares of Series E preferred stock in
     exchange for all voting shares of stock of Cerus Limited in connection with
     the acquisition of Cerus by AeroGen, whereby Cerus became a subsidiary of
     AeroGen. Shares of Series E preferred stock are convertible into shares of
     common stock at the rate of one share of common stock for each share of
     Series E preferred stock owned.

 (10) In July 2000, AeroGen issued 7,498,223 shares of Series F preferred stock
      to 30 purchasers at a purchase price of $2.25 per share for an aggregate
      purchase price of $16,871,001. Shares of Series F Preferred Stock are
      convertible into shares of common stock at the rate of one share of common
      stock for each share of Series F Preferred Stock owned.

    The sales and issuances of securities described in paragraph (1) above were
deemed to be exempt from registration under the Securities Act by virtue of
Rule 701 of the Securities Act in that they were offered and sold either
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation, as provided by Rule 701. The sales and
issuances of securities described in

                                      II-2
<PAGE>
paragraphs (2) through (10) above were deemed to be exempt from registration
under the Securities Act by virtue of Rule 4(2), Regulation D or Regulation S
promulgated thereunder. With respect to the grant of options described in
paragraph (1), an exemption from registration was unnecessary in that none of
the transactions involved a "sale" of securities as such term is used in
Section 2(3) of the Act.

    Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about AeroGen or had access, through employment or other
relationships, to such information.

ITEM 16.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

    (a)  Exhibits

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                              DESCRIPTION OF DOCUMENT
        ------            ------------------------------------------------------------
<C>                       <S>
 1.1*                     Form of Underwriting Agreement
 3.1                      Amended and Restated Certificate of Incorporation of AeroGen
 3.2                      Amended and Restated Certificate of Incorporation of AeroGen
                          to be effective upon the closing of the offering
 3.3                      Bylaws of AeroGen
 3.4                      Amended and Restated Bylaws of the AeroGen to be effective
                          upon the closing of the offering
 4.1*                     Specimen Common Stock Certificate
 4.2                      Fourth Amended & Restated Information and Registration
                          Rights Agreement dated July 7, 2000 between AeroGen and
                          holders of AeroGen Series A, Series B, Series C, Series D,
                          Series E, and Series F preferred stock and holders of
                          warrants to purchase AeroGen common stock or Series C
                          preferred stock
 4.3                      Warrant, dated June 20, 1995, to purchase common stock of
                          AeroGen issued to Venture Lending & Leasing, Inc.
 4.4                      Warrant, dated October 14, 1997, to purchase Series C
                          preferred stock of AeroGen issued to Venture Lending &
                          Leasing II, Inc.
 4.5                      Warrant, dated October 14, 1997, to purchase Series C
                          preferred stock of AeroGen issued to Venture Lending &
                          Leasing, Inc.
 4.6                      Stock Purchase Agreement between AeroGen and PathoGenesis
                          Corporation, dated March 13, 2000
 4.7++                    Stock Purchase Agreement between AeroGen and Becton,
                          Dickinson and Company, dated May 10, 2000
 5.1*                     Opinion of Cooley Godward LLP
10.1                      Form of Indemnity Agreement
10.2                      1994 Stock Option Plan
10.3                      1996 Stock Option Plan
10.4                      2000 Equity Incentive Plan
10.5                      2000 Non-Employee Directors' Stock Option Plan
10.6                      2000 Employee Stock Purchase Plan
10.7                      Sublease between AeroGen and MicroBar dated April 3, 1997
10.8                      Sublease between AeroGen and MicroBar dated August 9, 1999
10.9++                    Development & Supply Agreement between AeroGen and
                          PathoGenesis Corporation dated March 13, 2000
</TABLE>

                                      II-3
<PAGE>

<TABLE>
<CAPTION>
        EXHIBIT
        NUMBER                              DESCRIPTION OF DOCUMENT
        ------            ------------------------------------------------------------
<C>                       <S>
10.10++                   Development Agreement between Becton, Dickinson and Company
                          and AeroGen, dated May 10, 2000
10.11                     Settlement Agreement between Bespak plc and AeroGen and
                          Tenax Corporation, dated March 4, 1999
10.12                     Agreement for the Acquisition By Way of Exchange of the
                          Entire Issued "A" Share Capital of Cerus Limited, dated May
                          25, 2000
10.13*                    Amended and Restated 1996 Stock Option Plan
21.1                      Subsidiaries of AeroGen
23.1                      Consent of PricewaterhouseCoopers LLP, independent
                          accountants
23.2                      Consent of PricewaterhouseCoopers LLP, independent
                          accountants
23.3*                     Consent of Cooley Godward LLP. Reference is made to Exhibit
                          5.1
24.1                      Power of Attorney. Reference is made to Page II-6
27.1                      Financial Data Schedule
</TABLE>

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

++   Confidential treatment requested as to specific portions, which portions
    are omitted and filed separately with the Securities and Exchange
    Commission.

*   To be filed by amendment.

    (b) Financial Statement Schedules

    All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

ITEM 17.  UNDERTAKINGS.

    The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

    Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

    The registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
    information omitted from the form of Prospectus filed as part of this
    Registration Statement in reliance upon Rule 430A and contained in a form of
    Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
    497(h) under the Securities Act shall be deemed to be part of this
    Registration Statement as of the time it was declared effective.

                                      II-4
<PAGE>
(2) For the purpose of determining any liability under the Securities Act, each
    post-effective amendment that contains a form of Prospectus shall be deemed
    to be a new registration statement relating to the securities offered
    therein, and the offering of such securities at that time shall be deemed to
    be the initial bona fide offering thereof.

                                      II-5
<PAGE>
                                   SIGNATURES

    Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on the 25th day of August, 2000.

<TABLE>
<S>                                                    <C>  <C>
                                                       AEROGEN, INC.

                                                       By:  /s/ JANE E. SHAW, PH.D.
                                                            ----------------------------------------------
                                                            Jane E. Shaw, Ph.D.
                                                            Chairman and Chief Executive Officer
                                                            (Principal Executive Officer)
</TABLE>

                               POWER OF ATTORNEY

    KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures appear
below each severally constitutes and appoints Jane E. Shaw, Ph.D., Carol A.
Gamble and Deborah K. Karlson, and each of them, as true and lawful
attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for them in their name, place and stead, in any and all
capacities, to sign any and all amendments (including pre-effective and
post-effective amendments) to this Registration Statement and to sign any
registration statement (and any post-effective amendments thereto) relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462 (b) under the Securities Act of 1933, as amended and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as they might or
could do in person, hereby ratifying and confirming all which said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do, or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>
              SIGNATURE                                          TITLE                              DATE
              ---------                                          -----                              ----
<S>                                              <C>                                           <C>
/s/ JANE E. SHAW, PH.D.                          Chairman and Chief Executive Officer          August 25, 2000
----------------------------                     and Director (Principal Executive
Jane E. Shaw, Ph.D.                              Officer)

/s/ DEBORAH K. KARLSON                           Chief Financial Officer (Principal            August 25, 2000
----------------------------                     Financial Officer)
Deborah K. Karlson

/s/ YEHUDA IVRI                                  Chief Technical Officer and Director          August 25, 2000
----------------------------
Yehuda Ivri

/s/ THOMAS R. BARUCH                             Director                                      August 25, 2000
----------------------------
Thomas R. Baruch

/s/ JEAN-JACQUES BIENAIME                        Director                                      August 25, 2000
----------------------------
Jean-Jacques Bienaime

/s/ PHYLLIS I. GARDNER                           Director                                      August 25, 2000
----------------------------
Phyllis I. Gardner, M.D.

/s/ PHILIP M. YOUNG                              Director                                      August 25, 2000
----------------------------
Philip M. Young
</TABLE>

                                      II-6
<PAGE>
                                 AEROGEN, INC.
                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER           DESCRIPTION
---------------------   -----------
<C>                     <S>
    1.1*                Form of Underwriting Agreement

    3.1                 Amended and Restated Certificate of Incorporation of AeroGen

    3.2                 Amended and Restated Certificate of Incorporation of AeroGen
                        to be effective upon the closing of the offering

    3.3                 Bylaws of AeroGen

    3.4                 Amended and Restated Bylaws of AeroGen to be effective upon
                        the closing of the offering

    4.1*                Specimen Common Stock Certificate

    4.2                 Fourth Amended & Restated Information and Registration
                        Rights Agreement dated July 7, 2000 between AeroGen and
                        holders of AeroGen Series A, Series B, Series C, Series D,
                        Series E, and Series F preferred stock and holders of
                        warrants to purchase AeroGen common stock or Series C
                        preferred stock

    4.3                 Warrant, dated June 20, 1995, to purchase common stock of
                        AeroGen issued to Venture Lending & Leasing, Inc.

    4.4                 Warrant, dated October 14, 1997, to purchase Series C
                        preferred stock of AeroGen issued to Venture Lending &
                        Leasing II, Inc.

    4.5                 Warrant, dated October 14, 1997, to purchase Series C
                        preferred stock of AeroGen issued to Venture Lending &
                        Leasing, Inc.

    4.6                 Stock Purchase Agreement between AeroGen and PathoGenesis
                        Corporation, dated March 13, 2000

    4.7++               Stock Purchase Agreement between AeroGen and Becton,
                        Dickinson and Company, dated May 10, 2000

    5.1*                Opinion of Cooley Godward LLP

   10.1                 Form of Indemnity Agreement

   10.2                 1994 Stock Option Plan

   10.3                 1996 Stock Option Plan

   10.4                 2000 Equity Incentive Plan

   10.5                 2000 Non-Employee Directors' Stock Option Plan

   10.6                 2000 Employee Stock Purchase Plan

   10.7                 Sublease between AeroGen and MicroBar dated April 3, 1997

   10.8                 Sublease between AeroGen and MicroBar dated August 9, 1999

   10.9++               Development & Supply Agreement between AeroGen and
                        PathoGenesis Corporation dated March 13, 2000

   10.10++              Development Agreement between Becton, Dickinson and Company
                        and AeroGen, dated May 10, 2000

   10.11                Settlement Agreement between Bespak plc and AeroGen and
                        Tenax Corporation, dated March 4, 1999

   10.12                Agreement for the Acquisition By Way of Exchange of the
                        Entire Issues "A" Share Capital of Cerus Limited, dated May
                        25, 2000.

   10.13*               Amended and Restated 1996 Stock Option Plan

   21.1                 Subsidiaries

   23.1                 Consent of PricewaterhouseCoopers LLP, independent
                        accountants
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
       EXHIBIT
       NUMBER           DESCRIPTION
---------------------   -----------
<C>                     <S>
   23.2                 Consent of PricewaterhouseCoopers LLP, independent
                        accountants

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

   24.1                 Power of Attorney. Reference is made to Page II-6

   27.1                 Financial Data Schedule
</TABLE>

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

++   Confidential treatment requested as to specific portions, which portions
    are omitted and filed separately with the Securities and Exchange
    Commission.

*   To be filed by amendment
