<SUBMISSION>
<ACCESSION-NUMBER>0001104659-01-501695
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>2
<PERIOD>20010630
<FILING-DATE>20010814
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>AEROGEN INC
<CIK>0001039160
<ASSIGNED-SIC>3841
<IRS-NUMBER>330488580
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-31913
<FILM-NUMBER>1708064
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1310 CORONADO DR
<CITY>SANTA CLARA
<STATE>CA
<ZIP>95054
<PHONE>4085432400
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1310 ORLEANS DRIVE
<CITY>SUNNYVALE
<STATE>CA
<ZIP>94089
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>j0954_10q.htm
<DESCRIPTION>10-Q
<TEXT>
<html>

<head>
<title>Prepared by MerrillDirect</title>
</head>

<body link=blue vlink=purple>

<div>




<hr size=2 width="100%" noshade color=black align=right>






<hr size=1 width="100%" noshade color=black align=right>



<p align=center><b><font size=5>UNITED STATES<br>
SECURITIES AND EXCHANGE COMMISSION<br>
</font></b><b><font size=2>Washington,
DC&nbsp; 20549</font></b></p>

<p><font size=2>&nbsp;</font></p>

<p align=center><b><font size=5>FORM 10-Q</font></b></p>

<p><b><font size=2>(Mark One)</font></b></p>

<div align=center>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=center width="6%" valign=top><font size=2 face=Wingdings>&#253;</font></td>
  <td width="93%" valign=top><b><font size=3>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934</font></b></td>
 </tr>
 <tr>
  <td  align=center width="6%" valign=top>&nbsp;</td>
  <td width="93%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><b><font size=2>For
  the quarterly period ended June 30, 2001</font></b></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><b><font size=2>OR</font></b></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="6%" valign=top><font size=2 face=Wingdings>o</font></td>
  <td width="93%" valign=top><b><font size=3>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934</font></b></td>
 </tr>
</table>

</div>

<p align=center><b><font size=2>For the transition period from ___ to ___</font></b></p>

<p align=center><b><font size=2>Commission File Number:&nbsp;
<u>0-31913</u></font></b></p>

<p align=center><b><font size=5>AeroGen, Inc.</font></b></p>

<p align=center><b><font size=2><br>
</font></b><u><font size=2>(Exact name of
Registrant as specified in its charter)</font></u></p>

<p><font size=2>&nbsp;</font></p>

<div align=center>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=center width="50%" valign=top><b><font size=2>Delaware</font></b></td>
  <td  align=center width="50%" valign=top><b><font size=2>33-0488580</font></b></td>
 </tr>
 <tr>
  <td  align=center width="50%" valign=top><font size=2>(State or other
  jurisdiction of incorporation or organization)</font></td>
  <td  align=center width="50%" valign=top><font size=2>(I.R.S. Employer
  Identification No.)</font></td>
 </tr>
 <tr>
  <td  align=center width="50%" valign=top>&nbsp;</td>
  <td  align=center width="50%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="50%" valign=top><b><font size=2>1310
  Orleans Drive, Sunnyvale, CA</font></b></td>
  <td  align=center width="50%" valign=top><b><font size=2>94089</font></b></td>
 </tr>
 <tr>
  <td  align=center width="50%" valign=top><font size=2>(Address of principal
  executive offices)</font></td>
  <td  align=center width="50%" valign=top><font size=2>(zip code)</font></td>
 </tr>
 <tr>
  <td  align=center width="50%" valign=top>&nbsp;</td>
  <td  align=center width="50%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><b><font size=2>(<u>408)
  543-2400</u></font></b></td>
 </tr>
 <tr>
  <td  align=center width="100%" colspan=2 valign=top><font size=2>Registrant&#146;s telephone
  number, including area code</font></td>
 </tr>
</table>

</div>

<p><font size=2>Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.</font></p>

<p><font size=2>Yes&nbsp; </font><font size=2 face=Wingdings>&#253;</font><font size=2>&nbsp;&nbsp; No&nbsp; </font><font size=2 face=Wingdings>o</font></p>

<p><font size=2>As of July 31, 2001 there were 20,005,425
shares of the Registrant&#146;s Common Stock, par value $0.001 per share,
outstanding.</font></p>





<hr size=1 width="100%" noshade color=black align=right>






<hr size=2 width="100%" noshade color=black align=right>


<page>


<p>&nbsp;</p>

<p align=center><b><font size=2>AeroGen, Inc.<br>
</font></b><font size=2>(a company in
the development stage)<br>
</font><b><font size=2>Form 10-Q<br>
Table of Contents</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width=49 valign=top><b><font size=2><a href="#PartI_FinancialInformation"   title="Click to goto Part&#9;I.&#9;Financial Information&#13;">Part&nbsp; I.</a></font></b></td>
  <td width=631 colspan=2 valign=top><b><font size=2><a
  href="#PartI_FinancialInformation"   title="Click to goto Part&#9;I.&#9;Financial Information&#13;">Financial
  Information</a></font></b><font size=2>&nbsp; </font></td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=631 colspan=2 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a
  href="#Item1_ConsolidatedFinancialStatements"   title="Click to goto Item&#9;1.&#9; Consolidated Financial Statements&#13;">Item
  1.</a></font></td>
  <td width=583 valign=top><font size=2><a
  href="#Item1_ConsolidatedFinancialStatements"   title="Click to goto Item&#9;1.&#9; Consolidated Financial Statements&#13;">Consolidated
  Financial Statements (unaudited)</a></font></td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top><font size=2><a
  href="#CondensedConsolidatedBalanceSheets"   title="Click to goto Condensed Consolidated Balance Sheets&#11;">Condensed
  Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>3</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top><font size=2><a
  href="#CondensedConsolidatedStatementsOfOperati"   title="Click to goto Condensed Consolidated Statements of Operations&#11;">Condensed
  Consolidated Statements of Operations for the three and six months ended June
  30, 2001 and 2000</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>4</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top><font size=2><a
  href="#CondensedConsolidatedStatementsOfCashFlo"   title="Click to goto Condensed Consolidated Statements of Cash Flows&#11;">Condensed
  Consolidated Statements of Cash Flows for the six months ended June 30, 2001
  and 2000 and 1997</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>5</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top><font size=2><a
  href="#NotesToCondensedConsolidatedFinancialSta"   title="Click to goto NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS&#13;">Notes
  to Condensed Consolidated Financial Statements</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>6</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a
  href="#Item2_ManagementsDiscussionAndAnalysisOf"   title="Click to goto Item&#9;2.&#9;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations&#13;">Item
  2.</a></font></td>
  <td width=583 valign=top><font size=2><a
  href="#Item2_ManagementsDiscussionAndAnalysisOf"   title="Click to goto Item&#9;2.&#9;Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations&#13;">Management&#146;s
  Discussion and Analysis of Financial Condition and Results of Operations</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>8</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a href="#Item3_" title="Click to goto Item 3.">Item
  3.</a></font></td>
  <td width=583 valign=top><font size=2><a
  href="#Item3_QuantitativeAndQualitativeDisclosu"   title="Click to goto Item 3.  Quantitative and Qualitative Disclosure About Market Risk&#13;">Quantitative
  and Qualitative Disclosures About Market Risk and Factors that May Affect
  Future Operating Results</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>12</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom><dir>&nbsp;</dir></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom><dir><font size=2>&nbsp; </font></dir></td>
 </tr>
 <tr>
  <td width=49 valign=top><b><font size=2><a href="#PartIi_OtherInformation"   title="Click to goto Part&#9;II.&#9;Other Information&#13;">Part&nbsp; II.</a></font></b></td>
  <td width=631 colspan=2 valign=top><b><font size=2><a
  href="#PartIi_OtherInformation"   title="Click to goto Part&#9;II.&#9;Other Information&#13;">Other Information</a></font></b></td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a href="#Item1_" title="Click to goto Item 1.">Item
  1.</a></font></td>
  <td width=583 valign=top><font size=2><a href="#Item1_"   title="Click to goto Item 1.">Legal Proceedings</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>12</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a href="#Item2" title="Click to goto Item 2">Item
  2.</a></font></td>
  <td width=583 valign=top><font size=2><a href="#Item2"   title="Click to goto Item 2">Changes in Securities and Use of Proceeds</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>12</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a href="#Item3_" title="Click to goto Item 3.">Item
  3.</a></font></td>
  <td width=583 valign=top><font size=2><a href="#Item3_"   title="Click to goto Item 3.">Defaults Upon Senior Securities</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>13</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a href="#Item4_" title="Click to goto Item 4.">Item
  4.</a></font></td>
  <td width=583 valign=top><font size=2><a href="#Item4_"   title="Click to goto Item 4.">Submission of Matters to a Vote of Security
  Holders</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>13</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a href="#Item5_" title="Click to goto Item 5.">Item
  5.</a></font></td>
  <td width=583 valign=top><font size=2><a href="#Item5_"   title="Click to goto Item 5.">Other information</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>13</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top><font size=2><a href="#Item6_" title="Click to goto Item 6.">Item
  6.</a></font></td>
  <td width=583 valign=top><font size=2><a href="#Signatures"   title="Click to goto Signatures">Exhibits and Reports on Form 8-K</a></font></td>
  <td  align=right width=41 valign=bottom><font size=2>13</font></td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=48 valign=top>&nbsp;</td>
  <td width=583 valign=top>&nbsp;</td>
  <td  align=right width=41 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=49 valign=top>&nbsp;</td>
  <td width=631 colspan=2 valign=top><b><font   size=2><a href="#Signatures" title="Click to goto Signatures">Signatures</a></font></b></td>
  <td  align=right width=41 valign=bottom><font size=2>14</font></td>
 </tr>
</table>





<hr size=3 width="100%" noshade color=black align=right>


<page>


<p align=center><font size=2>&nbsp;</font></p>

<p><a name="PartI_FinancialInformation"><b><font size=2>Part</font></b></a><font size=2>&nbsp;&nbsp;&nbsp; <b>I.</b>&nbsp; <b><u>Financial
Information</u></b></font></p>



<p><a name="Item1_ConsolidatedFinancialStatements"><b><font size=2>Item</font></b></a><font size=2>&nbsp;&nbsp; <b>1.</b>&nbsp; <b>
Consolidated Financial Statements</b></font></p>



<p align=center><a name=CondensedConsolidatedBalanceSheets><b><font size=2>AeroGen,
Inc.<br>
</font></b></a><font size=2>(a development stage company)<br>
<b>Condensed Consolidated Balance Sheets<br>
</b></font><font size=2>(unaudited;
in thousands)</font></p>

<p><font size=2>&nbsp;</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td  align=center width="2%" valign=top>&nbsp;</td>
  <td  align=center width="2%" valign=top>&nbsp;</td>
  <td  align=center width="60%" valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 rowspan=2 valign=bottom><font size=2>June 30,<br>
  2001</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
  <td  align=center width="14%" colspan=2 rowspan=2 valign=bottom><font size=2>December 31,<br>
  2000</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="60%" valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="60%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="60%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=top bgcolor="#cceeff"><b><font size=2>ASSETS</font></b></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="66%" colspan=3 valign=top><font size=2>Current
  assets:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>Cash and cash
  equivalents</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>39,945</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>48,810</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top><font size=2>Available-for-sale
  securities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>11,996</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>12,166</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>Accounts
  receivable</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>721</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>762</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top><font size=2>Inventory</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>233</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>&#150;&#150;</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>Prepaid
  expenses and other current assets</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>884</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>1,201</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" valign=bottom bgcolor="#cceeff"><font size=2>Total current assets</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>53,779</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>62,939</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="66%" colspan=3 valign=top><font size=2>Property and
  equipment, net</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>1,918</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>1,905</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=top bgcolor="#cceeff"><font size=2>Goodwill
  and other intangible assets, net</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>1,475</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>1,823</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="66%" colspan=3 valign=top><font size=2>Other
  assets</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>23</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>45</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="66%" colspan=3 valign=top>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  assets</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font size=2>57,195</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font size=2>66,712</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="60%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="68%" colspan=4 valign=top><b><font size=2>LIABILITIES AND STOCKHOLDERS&#146;
  EQUITY</font></b></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><b><font size=2>&nbsp;</font></b></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><b><font size=2>&nbsp;</font></b></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=top bgcolor="#cceeff"><font size=2>Current
  liabilities:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top><font size=2>Accounts
  payable</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font size=2>760</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom><font size=2>915</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>Accrued
  liabilities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>2,375</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>1,135</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top><font size=2>Deferred
  revenues</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>211</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>250</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  current liabilities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>3,346</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>2,300</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="60%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="66%" colspan=3 valign=top bgcolor="#cceeff"><font size=2>Other
  long-term liabilities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>209</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>184</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="66%" colspan=3 valign=top>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  liabilities</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>3,555</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>2,484</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="60%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="66%" colspan=3 valign=top><font size=2>Stockholders&#146;
  equity:</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>Common
  stock</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>20</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>20</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top><font size=2>Additional
  paid-in capital</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>110,675</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>110,692</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>Notes
  receivable from stockholders</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(679</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(665</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top><font size=2>Deferred
  stock-based compensation, net</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>(5,195</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font size=2>(6,095</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="63%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>Accumulated
  other comprehensive income (loss)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(78</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>15</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top><font size=2>Deficit accumulated
  during the development stage</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(51,103</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom><font   size=2>(39,739</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="63%" colspan=2 valign=top>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" valign=bottom bgcolor="#cceeff"><font size=2>Total
  stockholders&#146; equity</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>53,640</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="14%" colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>64,228</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="60%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="2%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;&nbsp; Total liabilities and stockholders&#146;
  equity</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>57,195</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>$</font></td>
  <td  align=right width="13%" valign=bottom bgcolor="#cceeff"><font   size=2>66,712</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="2%" valign=top>&nbsp;</td>
  <td width="60%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
  <td  align=right width="14%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
</table>

<p align=center><font size=2>&nbsp;</font></p>

<p align=center><font size=2>The
accompanying notes are an integral part of these condensed consolidated
financial statements.</font></p>

<p align=center><font size=2>3</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p align=center><b><font size=2>AeroGen, Inc.<br>
</font></b><font size=2>(a development
stage company)<a name=CondensedConsolidatedStatementsOfOperati><br>
<b>Condensed Consolidated Statements of Operations<br>
</b></a></font><font size=2>(unaudited;
in thousands, except per share data)</font></p>

<p><font size=2>&nbsp;</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=28 valign=top>&nbsp;</td>
  <td width=337 valign=bottom>&nbsp;</td>
  <td  align=center width=154 colspan=5 valign=bottom><font size=2>Three Months Ended<br>
  June 30,</font></td>
  <td  align=center width=6 valign=bottom>&nbsp;</td>
  <td  align=center width=158 colspan=5 valign=bottom><font size=2>Six Months Ended<br>
  June 30,</font></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top>&nbsp;</td>
  <td  align=center width=154 colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td  align=center width=6 valign=bottom>&nbsp;</td>
  <td  align=center width=158 colspan=5 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=28 valign=top>&nbsp;</td>
  <td width=337 valign=bottom>&nbsp;</td>
  <td  align=center width=74 colspan=2 valign=bottom><font size=2>2001</font></td>
  <td  align=center width=6 valign=bottom>&nbsp;</td>
  <td  align=center width=73 colspan=2 valign=bottom><font size=2>2000</font></td>
  <td  align=center width=6 valign=bottom>&nbsp;</td>
  <td  align=center width=74 colspan=2 valign=bottom><font size=2>2001</font></td>
  <td  align=center width=7 valign=bottom>&nbsp;</td>
  <td  align=center width=77 colspan=2 valign=bottom><font size=2>2000</font></td>
  <td width=12 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=28 valign=top>&nbsp;</td>
  <td width=337 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=28 valign=top>&nbsp;</td>
  <td width=337 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>&nbsp;</td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>&nbsp;</td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>&nbsp;</td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>&nbsp;</td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top bgcolor="#cceeff"><font size=2>Revenues:</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=365 colspan=2 valign=top><font size=2>Research
  and development</font></td>
  <td width=6 valign=bottom><font size=2>$</font></td>
  <td  align=right width=68 valign=bottom><font size=2>889</font></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td width=6 valign=bottom><font size=2>$</font></td>
  <td  align=right width=67 valign=bottom><font size=2>2,429</font></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td width=6 valign=bottom><font size=2>$</font></td>
  <td  align=right width=68 valign=bottom><font size=2>1,501</font></td>
  <td width=7 valign=bottom><font size=2>&nbsp;</font></td>
  <td width=6 valign=bottom><font size=2>$</font></td>
  <td  align=right width=71 valign=bottom><font size=2>3,568</font></td>
  <td width=12 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=365 colspan=2 valign=top bgcolor="#cceeff"><font size=2>Royalty,
  fee and other</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>62</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>&#150;&#150;</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>125</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>&#150;&#150;</font></td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=365 colspan=2 valign=top>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=28 valign=top>&nbsp;</td>
  <td width=337 valign=bottom><font size=2>Total
  revenues</font></td>
  <td  align=right width=74 colspan=2 valign=bottom><font size=2>951</font></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom><font size=2>2,429</font></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom><font size=2>1,626</font></td>
  <td width=7 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom><font size=2>3,568</font></td>
  <td width=12 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=28 valign=top>&nbsp;</td>
  <td width=337 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=7 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=12 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=28 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=337 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=6 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=6 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=7 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width=12 valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top><font size=2>Operating
  expenses:</font></td>
  <td  align=right width=74 colspan=2 valign=bottom>&nbsp;</td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom>&nbsp;</td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom>&nbsp;</td>
  <td width=7 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom>&nbsp;</td>
  <td width=12 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=365 colspan=2 valign=top bgcolor="#cceeff"><font size=2>Research
  and development</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>5,701</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>4,568</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>10,712</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>7,514</font></td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=365 colspan=2 valign=top><font size=2>Selling,
  general and administrative</font></td>
  <td  align=right width=74 colspan=2 valign=bottom><font size=2>2,209</font></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom><font size=2>870</font></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom><font size=2>3,729</font></td>
  <td width=7 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom><font size=2>1,793</font></td>
  <td width=12 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=365 colspan=2 valign=top bgcolor="#cceeff"><font size=2>Purchased
  in-process research and development</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>&#150;&#150;</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>3,500</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>&#150;&#150;</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>3,500</font></td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=365 colspan=2 valign=top>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=28 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=28 valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width=337 valign=bottom bgcolor="#cceeff"><font size=2>Total
  operating expenses</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>7,910</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>8,938</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>14,441</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>12,807</font></td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=28 valign=top>&nbsp;</td>
  <td width=337 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top><font size=2>Loss
  from operations</font></td>
  <td  align=right width=74 colspan=2 valign=bottom><font size=2>(6,959</font></td>
  <td width=6 valign=bottom><font size=2>)</font></td>
  <td  align=right width=73 colspan=2 valign=bottom><font size=2>(6,509</font></td>
  <td width=6 valign=bottom><font size=2>)</font></td>
  <td  align=right width=74 colspan=2 valign=bottom><font size=2>(12,815</font></td>
  <td width=7 valign=bottom><font size=2>)</font></td>
  <td  align=right width=77 colspan=2 valign=bottom><font size=2>(9,239</font></td>
  <td width=12 valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top bgcolor="#cceeff"><font size=2>Interest
  income, net</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>643</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>83</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>1,451</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>184</font></td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>&nbsp;</td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>&nbsp;</td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>&nbsp;</td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>&nbsp;</td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top bgcolor="#cceeff"><font size=2>Net
  loss</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(6,316</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(6,426</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(11,364</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(9,055</font></td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top><font size=2>Dividend
  related to beneficial conversion feature of preferred stock</font></td>
  <td  align=right width=74 colspan=2 valign=bottom><font size=2>&#150;&#150;</font></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom><font size=2>(202</font></td>
  <td width=6 valign=bottom><font size=2>)</font></td>
  <td  align=right width=74 colspan=2 valign=bottom><font size=2>&#150;&#150;</font></td>
  <td width=7 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom><font size=2>(202</font></td>
  <td width=12 valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top bgcolor="#cceeff"><font size=2>Net
  loss available to common stockholders</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(6,316</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(6,628</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(11,364</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>(9,257</font></td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width=28 valign=top>&nbsp;</td>
  <td width=28 valign=top>&nbsp;</td>
  <td width=337 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=6 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=7 valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=12 valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top><font size=2>Net
  loss per common share, basic and diluted</font></td>
  <td width=6 valign=bottom><font size=2>$</font></td>
  <td  align=right width=68 valign=bottom><font size=2>(0.32</font></td>
  <td width=6 valign=bottom><font size=2>)</font></td>
  <td width=6 valign=bottom><font size=2>$</font></td>
  <td  align=right width=67 valign=bottom><font size=2>(2.93</font></td>
  <td width=6 valign=bottom><font size=2>)</font></td>
  <td width=6 valign=bottom><font size=2>$</font></td>
  <td  align=right width=68 valign=bottom><font size=2>(0.58</font></td>
  <td width=7 valign=bottom><font size=2>)</font></td>
  <td width=6 valign=bottom><font size=2>$</font></td>
  <td  align=right width=71 valign=bottom><font size=2>(4.28</font></td>
  <td width=12 valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top bgcolor="#cceeff"><font   size=2>Shares
  used in computing net loss per common share, basic and diluted</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>19,628</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width=73 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>2,263</font></td>
  <td width=6 valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width=74 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>19,543</font></td>
  <td width=7 valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
  <td  align=right width=77 colspan=2 valign=bottom bgcolor="#cceeff"><font size=2>2,163</font></td>
  <td width=12 valign=bottom bgcolor="#cceeff"><font   size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width=392 colspan=3 valign=top>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=73 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=6 valign=bottom>&nbsp;</td>
  <td  align=right width=74 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=7 valign=bottom>&nbsp;</td>
  <td  align=right width=77 colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width=12 valign=bottom>&nbsp;</td>
 </tr>
</table>

<p align=center><font size=2>&nbsp;</font></p>

<p align=center><font size=2>The
accompanying notes are an integral part of these condensed consolidated
financial statements.</font></p>

<p align=center><font size=2>4</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p align=center>&nbsp;</p>

<p align=center><a name=CondensedConsolidatedStatementsOfCashFlo><b><font size=2>AeroGen, Inc.<br>
</font></b></a><font size=2>(a development stage company)<br>
<b>Condensed Consolidated Statements of Cash
Flows<br>
</b></font><font size=2>(unaudited;
in thousands)</font></p>

<p><font size=2>&nbsp;</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=center width="3%" valign=top>&nbsp;</td>
  <td  align=center width="3%" valign=top>&nbsp;</td>
  <td  align=center width="3%" valign=top>&nbsp;</td>
  <td  align=center width="3%" valign=top>&nbsp;</td>
  <td  align=center width="56%" valign=bottom>&nbsp;</td>
  <td  align=center width="26%" colspan=5 valign=bottom><font   size=2>Six
  Months Ended<br>
  June 30,</font></td>
  <td  align=center width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="56%" valign=bottom>&nbsp;</td>
  <td  align=right width="26%" colspan=5 valign=bottom><font   size=2>&nbsp;</font>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="56%" valign=bottom>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=bottom><font   size=2>2001</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=center width="11%" colspan=2 valign=bottom><font   size=2>2000</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="56%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="56%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom bgcolor="#cceeff"><b><font size=2>Cash flows from operating activities:</font></b></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="71%" colspan=5 valign=top><font size=2>Net loss</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>(11,364)</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>(9,055</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="71%" colspan=5 valign=top bgcolor="#cceeff"><font size=2>Adjustments to
  reconcile net loss to net cash used in operating activities:</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="67%" colspan=4 valign=top><font size=2>Depreciation and
  amortization</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>742</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>381</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="67%" colspan=4 valign=top bgcolor="#cceeff"><font size=2>Purchased in-process
  research and development</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>&#150;&#150;</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>3,500</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="67%" colspan=4 valign=top><font size=2>Amortization of
  deferred stock-based compensation</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>667</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>178</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="67%" colspan=4 valign=top bgcolor="#cceeff"><font size=2>Accrued interest on
  notes receivable from stockholders</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(14)</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(10</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="67%" colspan=4 valign=top><font size=2>Amortization of
  investment discount (premium)</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(85)</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>&#150;&#150;</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="67%" colspan=4 valign=top bgcolor="#cceeff"><font size=2>Changes in operating
  assets and liabilities:</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="64%" colspan=3 valign=top><font size=2>Accounts receivable</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>41</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(1,007</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="64%" colspan=3 valign=top bgcolor="#cceeff"><font size=2>Inventory</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(233)</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>&#150;&#150;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="64%" colspan=3 valign=top><font size=2>Prepaid expenses and
  other current assets</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>317</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(133</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="64%" colspan=3 valign=top bgcolor="#cceeff"><font size=2>Other assets</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>22</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>28</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="64%" colspan=3 valign=top><font size=2>Accounts payable</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(155)</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>503</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="64%" colspan=3 valign=top bgcolor="#cceeff"><font size=2>Accrued liabilities</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,240</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>567</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="64%" colspan=3 valign=top><font size=2>Deferred revenue</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(39)</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>&#150;&#150;</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="64%" colspan=3 valign=top bgcolor="#cceeff"><font size=2>Other liabilities</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>43</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>&#150;&#150;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="64%" colspan=3 valign=top>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="60%" colspan=2 valign=top><font size=2>Net cash used in
  operating activities</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(8,818)</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(5,048</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="56%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="56%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom><b><font size=2>Cash flows from investing activities:</font></b></td>
  <td  align=right width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="71%" colspan=5 valign=top bgcolor="#cceeff"><font size=2>Acquisition of
  property and equipment</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(408)</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(914</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="71%" colspan=5 valign=top><font size=2>Purchases of
  available-for-sale securities</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(12,011)</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>&#150;&#150;</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="71%" colspan=5 valign=top bgcolor="#cceeff"><font size=2>Proceeds from
  maturities of available-for- sale investments</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>12,358</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>6,020</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="71%" colspan=5 valign=top><font size=2>Cash acquired, net</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>&#150;&#150;</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>392</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="71%" colspan=5 valign=top>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="3%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="60%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>Net cash provided by
  (used in) investing activities</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(61)</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>5,498</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="60%" colspan=2 valign=top>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="56%" valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom>&nbsp;</td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom bgcolor="#cceeff"><b><font size=2>Cash flows from financing activities:</font></b></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="71%" colspan=5 valign=top><font size=2>Proceeds from issuance
  of common stock</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>224</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>115</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="71%" colspan=5 valign=top bgcolor="#cceeff"><font size=2>Proceeds from issuance
  of convertible preferred stock, net</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>&#150;&#150;</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>4,988</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="71%" colspan=5 valign=top><font size=2>Repayment of note
  payable</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>&#150;&#150;</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>(157</font></td>
  <td width="0%" valign=bottom><font size=2>)</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td width="71%" colspan=5 valign=top bgcolor="#cceeff"><font size=2>Repurchase of common
  stock</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(8)</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>&#150;&#150;</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="71%" colspan=5 valign=top>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="60%" colspan=2 valign=top><font size=2>Net cash provided by
  financing activities</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>216</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>4,946</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="60%" colspan=2 valign=top>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom bgcolor="#cceeff"><font size=2>Effect of exchange
  rate changes on cash</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>(202)</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff">&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>27</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom><font size=2>Net increase
  (decrease) in cash and cash equivalents</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom><font   size=2>(8,865)</font></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom><font   size=2>5,423</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom bgcolor="#cceeff"><font size=2>Cash and cash
  equivalents, beginning of period</font></td>
  <td  align=right width="12%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>48,810</font></td>
  <td width="1%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
  <td  align=right width="11%" colspan=2 valign=bottom bgcolor="#cceeff"><font   size=2>1,822</font></td>
  <td width="0%" valign=bottom bgcolor="#cceeff"><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=1 width="100%" noshade color=black align=left></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom><font size=2>Cash and cash
  equivalents, end of period</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>39,945</font></td>
  <td width="1%" valign=bottom><font size=2>&nbsp;</font></td>
  <td width="0%" valign=bottom><font size=2>$</font></td>
  <td  align=right width="11%" valign=bottom><font   size=2>7,245</font></td>
  <td width="0%" valign=bottom><font size=2>&nbsp;</font></td>
 </tr>
 <tr>
  <td width="73%" colspan=6 valign=bottom>&nbsp;</td>
  <td  align=right width="12%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="1%" valign=bottom>&nbsp;</td>
  <td  align=right width="11%" colspan=2 valign=bottom>
<hr size=2 width="100%" noshade color=black align=right></td>
  <td width="0%" valign=bottom>&nbsp;</td>
 </tr>
</table>

<p align=center><font size=2>&nbsp;</font></p>

<p align=center><font size=2>The
accompanying notes are an integral part of these condensed consolidated
financial statements.</font></p>

<p align=center><font size=2>5</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p align=center><b><font size=2>AeroGen, Inc.<br>
</font></b><font size=2>(a development
stage company)<br>
<a name=NotesToCondensedConsolidatedFinancialSta><b>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</b></a></font></p>



<p><b><font size=2>Note 1 &#150; SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES</font></b></p>

<p><b><font size=2>Organization and business of
the company</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; AeroGen,
Inc., formerly Fluid Propulsion Technologies, Inc. (the &#147;Company&#148; or
&#147;Aerogen&#148;), was incorporated in November 1991 to develop products using a
proprietary aerosol generator.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Company is in the development stage and since inception has devoted
substantially all of its efforts to developing products, including engaging in
research and development activities with and without partners, raising capital,
and recruiting personnel.&nbsp; The Company
has incurred net losses since inception and expects to incur substantial losses
for the next several years.&nbsp; To date,
the Company has funded its operations primarily through the sale of equity
securities, payments from partners, and interest income.</font></p>

<p><b><font size=2>Basis of&nbsp; presentation</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Article 10-01 of Securities and Exchange Commission Regulation
S-X.&nbsp; Accordingly, they do not contain
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements.&nbsp;
In the opinion of management, the accompanying unaudited, condensed
consolidated financial statements reflect all adjustments (consisting of
normal, recurring adjustments) considered necessary for a fair presentation of
the Company's interim financial information.&nbsp;
These financial statements and notes should be read in conjunction with
the audited financial statements and notes thereto of the Company included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
results of operations for the three and six months ended June 30, 2001 are not
necessarily indicative of the operating results that may be reported for the
fiscal year ending December 31, 2001 or for any other future period.</font></p>

<p><b><font size=2>Basis of consolidation</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
May&nbsp;2000, the Company acquired Cerus Limited, which is now Aerogen
(Ireland) Limited, a wholly owned subsidiary of the Company.&nbsp; The consolidated financial statements
include the accounts of the Company and its subsidiary.&nbsp; All intercompany balances and transactions
have been eliminated in consolidation.</font></p>

<p><b><font size=2>Cash and cash equivalents</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Cash
and cash equivalents include money market and deposit accounts and all highly
liquid investments purchased with original maturities of three months or less.</font></p>

<p><b><font size=2>Available&#150;for&#150;sale securities</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All
investments are classified as available&#150;for&#150;sale and therefore are
carried at fair market value.&nbsp;
Unrealized gains and losses on such investments are reported as a
component of stockholders&#146; equity.&nbsp;
Realized gains and losses on sales of all such investments are reported
in earnings and computed using the specific identification cost method.</font></p>

<p><b><font size=2>Inventory</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Inventories
are stated at the lower of cost (principally standard cost, which approximates
actual cost on a first-in, first-out basis) or market value.&nbsp; At June 30, 2001, inventory is comprised of
$98,000 of raw materials, $116,000 of work in process and $19,000 of finished
goods.&nbsp; There was no inventory as of
December 31, 2000.</font></p>

<p align=center><font size=2>6</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p>&nbsp;</p>

<p><b><font size=2>Revenue recognition</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research
and development revenues are earned under agreements with third parties for
contract research and development activities and are recorded as the related
expenses are incurred.&nbsp; Charges to these
third parties are based upon negotiated rates for full time equivalent
employees of the Company, and actual out-of-pocket costs.&nbsp; Rates for full time equivalent employees are
intended to approximate the Company&#146;s costs.&nbsp;
Payments received that are related to future performance are recorded as
deferred revenue and recognized as revenues as they are earned. None of the
revenues recognized to date are refundable if the relevant research effort is
not successful.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Revenue
from product sales and sales to distributors will be recognized at the time of
product shipment, provided any significant rights to return products have
expired, and collection of the receivable is probable.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Royalty
revenues are recorded as earned.&nbsp; Fee
and other revenues are recorded in accordance with Staff Accounting Bulletin
No. 101 (&#147;SAB&nbsp; No. 101&#148;), &#147;Revenue
Recognition in Financial Statements&#148;.</font></p>

<p><b><font size=2>Research and development expenses</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research
and development costs are charged to operations as incurred.&nbsp; Certain research and development projects
are funded under agreements with third parties, and the costs related to these
activities are included in research and development expenses.</font></p>

<p><b><font size=2>Foreign currency translation</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Company&#146;s Irish subsidiary uses its local currency as its functional
currency.&nbsp; Assets and liabilities are
translated at exchange rates in effect at the balance sheet date and income and
expense amounts at the average exchange rates during the period.&nbsp; Resulting translation adjustments are
recorded directly to a component of stockholders&#146; equity.</font></p>

<p><b><font size=2>Comprehensive income (loss)</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Comprehensive
income (loss) generally represents all changes in stockholders&#146; equity except
those resulting from investments or contributions by stockholders.&nbsp; The Company&#146;s unrealized gains and losses on
available-for-sale securities and foreign currency translation gains and losses
represent the only components of comprehensive income (loss) that are excluded
from the Company&#146;s net loss.</font></p>

<p><b><font size=2>Net loss per common share</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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.&nbsp; Diluted net loss per
share is computed giving effect to all potential dilutive common shares,
including options, warrants and convertible preferred stock.&nbsp; Options, warrants, common stock subject to
possible repurchase by the Company and convertible preferred stock were not
included in the diluted net loss per share calculations because the effect
would be antidilutive.&nbsp; Options,
warrants, and common stock subject to possible repurchase were 2,767,000 and
2,118,000 shares as of June 30, 2001 and 2000, respectively.&nbsp; Convertible preferred stock was none and
10,504,000 shares as of June 30, 2001 and 2000, respectively.</font></p>

<p align=center><font size=2>7</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p><b><font size=2>Note 2 &#150; RECENT ACCOUNTING PRONOUNCEMENTS</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effective
January 1, 2001 the Company adopted Statement of Financial Accounting Standards
No.&nbsp;133 (&#147;SFAS No.&nbsp;133&#148;), as amended, &#147;Accounting for Derivative
Instruments and Hedging Activities.&#148;&nbsp;
SFAS No.&nbsp;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. The
Company has not engaged in derivative or hedging activities and the adoption of
SFAS No.&nbsp;133 did not have a significant impact on its financial position
or results of operations.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
July 2001, the Financial Accounting Standards Board (&#147;FASB&#148;) issued SFAS No.
141&quot;Business Combinations&quot; which establishes financial accounting and
reporting for business combinations and supersedes APB Opinion No. 16, Business
Combinations, and FASB Statement No. 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises.&nbsp;
SFAS No. 141 requires that all business combinations be accounted for
using one method, the purchase method. The provisions apply to all business
combinations initiated after June 30, 2001.&nbsp;
The adoption of SFAS No. 141 is expected to have no material impact on
financial reporting and related disclosures of the Company.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
July 2001, the FASB issued SFAS No. 142 &quot;Goodwill and Other Intangible
Assets,&quot; (&#147;SFAS No. 142&#148;) which establishes financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes APB
Opinion No. 17, Intangible Assets.&nbsp; SFAS
No. 142 addresses how intangible assets that are acquired individually or with
a group of other assets (but not those acquired in a business combination)
should be accounted for in financial statements upon their acquisition, and
after they have been initially recognized in the financial statements. The
provisions of SFAS No. 142 are effective for fiscal years beginning after
December 15, 2001.&nbsp; The Company will
adopt SFAS No. 142 during the first quarter of fiscal 2002, and is in the
process of evaluating the impact of implementation on the financial position of
the Company.</font></p>

<p><a name="Item2_ManagementsDiscussionAndAnalysisOf"><b><font size=2>Item&nbsp;&nbsp;&nbsp;&nbsp; 2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Management&#146;s
Discussion and Analysis of Financial Condition and Results of Operations</font></b></a></p>



<p><i><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In addition to historical information, this report
contains estimates and other forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended.&nbsp;
Actual results could differ materially from any future performance
suggested in this report as a result of many factors, including those referred
to in &#147;Factors That May Affect Future Operating Results,&#148; elsewhere in this
report and in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000 (the &#147;Form 10-K&#148;).&nbsp;
The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and notes included elsewhere in
this report and the information included in the Form 10-K.</font></i></p>

<p><b><font size=2>Overview</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Aerogen
was incorporated in November&nbsp;1991.&nbsp;
We specialize in the controlled delivery of drugs to the lungs.&nbsp; We are using our technology to develop respiratory
products for marketing by us, and we are developing products in collaboration
with pharmaceutical and biotechnology companies for both respiratory therapy
and for the delivery of drugs via the lungs to the bloodstream.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
are in the development stage and since inception have devoted substantially all
of our efforts to the development of products.&nbsp;
We have an accumulated deficit of approximately $51.1 million as of June 30, 2001.&nbsp; 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 the marketing and
manufacturing of our initial products, and the general expansion of our
business activities.&nbsp; We anticipate that
our quarterly financial results will fluctuate for the foreseeable future.&nbsp; Therefore, period to period comparisons
should not be relied upon as predictive of the results in future periods.&nbsp; Our sources of working capital have been
equity financings, research and development revenues, interest earned on
investments and, to a lesser extent, equipment lease financings and royalties.</font></p>

<p align=center><font size=2>8</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p><b><font size=2>Results
of Operations</font></b></p>

<p><b><font size=2>Revenues</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research
and development revenues for the three and six months ended June 30, 2001 were
$0.9 million, and $1.5 million, respectively, compared with $2.4 million and
$3.6 million for the same periods of 2000.&nbsp;
The decreases in revenues resulted primarily from a lower level of
product development activities performed for partner companies other than
PathoGenesis Corporation (now a wholly-owned subsidiary of Chiron Corporation).</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research
and development revenues can be expected to vary from period to period based on
the activities requested by partner companies in any particular period, and
therefore are not predictable.&nbsp; Based on
agreements we currently have in place, we expect research and development
revenues for 2001 to be lower than those for 2000.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
shipped initial units of our Aeroneb &#153; Portable Nebulizer System to a
distributor during the quarter ended June 30, 2001; revenues and the related
product costs have been deferred until the rights to return these products,
applicable only to the initial units, have expired.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Royalty,
fee and other revenues for the three and six months ended June 30, 2001 were
$0.1 million and $0.1 million, respectively, compared with none for the same
periods of 2000.&nbsp; The increases resulted
primarily from minimum royalties earned from a consumer products company.</font></p>

<p><b><font size=2>Research and development expenses</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Research
and development expenses for the three and six months ended June 30, 2001 were
$5.7 million and $10.7 million, respectively, compared with $4.6 million and
$7.5 million for same periods of 2000.&nbsp;
The increase in research and development expenses resulted primarily
from the expansion of development and clinical activities for the respiratory
products we plan to market ourselves and our Aerodose &#153; insulin inhaler
product.&nbsp; The increases are primarily
attributable to increased salary and benefit costs ($0.8 million and $1.4
million), increased costs incurred by our Irish subsidiary ($0.5 million and
$0.9 million including Irish payroll related costs), increased clinical costs ($0.1
million and $0.5 million) and increased amortization of deferred stock-based
compensation ($0.2 million and $0.2 million), partially offset by decreased
professional services ($0.3 million and $0.4 million), as well as fluctuations
in other categories of research and development spending.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 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.&nbsp; Research
and development expenses for partner activities approximate our revenues from
those partners.&nbsp; 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.&nbsp;
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 which we develop
in our collaborations, and increase commercial manufacturing.&nbsp; Future research and development and clinical
expenditures cannot be predicted reliably, as they depend in part upon our success
in continuing existing development collaborations, entering into new partnering
agreements, and the level of internally funded research and development
efforts.</font></p>

<p><b><font size=2>Selling, general and administrative expenses</font></b><font size=2>.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Selling,
general and administrative expenses for the three and six months ended June 30,
2001 were $2.2 million and $3.7 million, respectively, compared with $0.9
million and $1.8 million for the same periods of 2000.&nbsp; The increases for both periods were primarily
due to increased personnel and other marketing costs associated with product
launch preparations ($0.6 million and $0.9 million), other costs associated
with operating as a public company ($0.6 million and $ 0.7 million) and
amortization of goodwill and stock-based compensation ($0.2 million and $0.3
million).&nbsp; We expect that selling,
general and administrative expenses will increase as our business expands and
as we increase our sales efforts in the second half of 2001 and launch new
products.</font></p>

<p align=center><font size=2>9</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p>&nbsp;</p>

<p><b><font size=2>Purchased in-process research and
development</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchased in-process research and development expenses of $3.5 million
were recorded for the three and six months ended June 30, 2000 in conjunction
with our acquisition of Aerogen (Ireland) Limited in May 2000.&nbsp; There were no corresponding expenses in
2001.</font></p>

<p><font size=2>&nbsp;</font></p>

<p><b><font size=2>Interest income, net</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Interest
income, net for the three and six months ended June 30, 2001 was $0.6 million
and $1.5 million, respectively, compared with $ 0.1 million and $0.2 million
for the same periods of 2000.&nbsp; The
increase in interest income, net was primarily due to higher average cash, cash
equivalents and investment balances resulting from the completion of equity
placements of our common stock in our IPO and convertible preferred stock.&nbsp; We sold convertible preferred stock in July,
May and March of 2000 for total net proceeds of approximately $21.3
million.&nbsp; Sales of common stock in our
IPO resulted in approximately $44.5 million of net proceeds, including $6.0
million from exercise of the underwriters&#146; over-allotment option.</font></p>

<p><font size=2>&nbsp;</font></p>

<p><b><font size=2>Liquidity and Capital Resources</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Since
inception, we have financed our operations primarily through equity financings,
research and development revenues and the interest earned on these funds.&nbsp; We have received approximately $97.8 million
aggregate net proceeds from sales of our common and preferred stock through
June 30, 2001, including approximately $44.5 million of net proceeds from our
IPO.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As
of June 30, 2001, we had cash, cash equivalents and available&#150;for&#150;sale
securities of approximately $51.9 million.&nbsp;
Net cash used in operating activities of $8.8 million during the six
months ended June 30, 2001 resulted primarily from the net loss for the period,
partially reduced by non-cash related charges of approximately $1.4 million and
an increase in accrued liabilities of $1.2 million.&nbsp; Net cash used in operating activities of $5.0 million during the
six months ended June 30, 2000 resulted primarily from the net loss for the
period, partially reduced by non-cash charges of approximately $4.1 million,
$3.5 million of which were recorded in conjunction with the acquisition of
Aerogen (Ireland) Limited.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net
cash used in investing activities of $0.1 million for the six months ended June
30, 2001 consisted primarily of acquisition of $0.4 million of property and
equipment.&nbsp; Net cash provided by
investing activities of $5.5 million for the six months ended June 30, 2000
consisted primarily of proceeds from maturities of securities of $6.0 million,
partially offset by acquisitions of property and equipment of $0.9 million.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Net
cash provided by financing activities of $4.9 million for the six months ended
June 30, 2000 primarily consisted of proceeds from the sale of convertible
preferred stock.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
development of our technology and products will require a commitment of substantial
funds to conduct the costly and time-consuming product development and clinical
trials required to develop and expand our technology and products and to bring
any such products to market.&nbsp; 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,
marketing and manufacturing costs associated with commercialization of
products, costs involved in obtaining and maintaining patents, and our ability
to enter into collaborative agreements.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Based
upon our current plans, we believe that our cash, cash equivalents and
available&#150;for&#150;sale securities will be sufficient to meet our
capital requirements through calendar year 2002.&nbsp; Our forecast of the period of time through which our financial
resources will be adequate to support our operations is a forward&#150;looking
statement that involves risks and uncertainties, and actual results could vary
materially.&nbsp; The factors described
above, as well as the risk factors discussed in the Form 10-K, will impact our
future capital requirements and the adequacy of our available funds.</font></p>

<p align=center><font size=2>10</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p>&nbsp;</p>

<p><b><font size=2>Recent Accounting Pronouncements</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Effective
January 1, 2001 the Company adopted Statement of Financial Accounting Standards
No.&nbsp;133 (&#147;SFAS No.&nbsp;133&#148;), as amended, &#147;Accounting for Derivative
Instruments and Hedging Activities.&#148;&nbsp;
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.&nbsp; We have not engaged in derivative or hedging
activities and the adoption of SFAS No.&nbsp;133 did not have any significant
impact on our financial position or results of operations.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In July 2001, the Financial
Accounting Standards Board (&#147;FASB&#148;) issued SFAS No. 141&quot;Business
Combinations&quot;&quot; which establishes financial accounting and reporting
for business combinations and supersedes APB Opinion No. 16, Business
Combinations, and FASB Statement No. 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises.&nbsp;
SFAS No. 141 requires that all business combinations be accounted for
using one method, the purchase method. The provisions apply to all business
combinations initiated after June 30, 2001.&nbsp;
We expect the adoption of SFAS No. 141 will have no material impact on
our financial reporting and related disclosures.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In July 2001, the FASB issued SFAS
No. 142&quot;Goodwill and Other Intangible Assets,&quot; (&#147;SFAS No. 142&#148;) which
establishes financial accounting and reporting for acquired goodwill and other
intangible assets and supersedes APB Opinion No. 17, Intangible Assets.&nbsp; SFAS No. 142 addresses how intangible assets
that are acquired individually or with a group of other assets (but not those
acquired in a business combination) should be accounted for in financial
statements upon their acquisition, and after they have been initially
recognized in the financial statements. The provisions of SFAS No. 142 are
effective starting with fiscal years beginning after December 15, 2001.&nbsp; We will adopt SFAS No. 142 during the first
quarter of fiscal 2002, and are in the process of evaluating the impact of
implementation on our financial position.</font></p>

<p align=center><font size=2>11</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p><a name="Item3_QuantitativeAndQualitativeDisclosu"><b><font size=2>Item 3.&nbsp; Quantitative and Qualitative Disclosure
About Market Risk</font></b></a></p>



<p><b><font size=2>Interest rate risk</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Interest
rate risk represents the risk of loss that may impact our financial position,
operating results, or cash flows due to changes in interest rates.&nbsp; This exposure is directly related to our
normal operating activities.&nbsp; Our cash,
cash equivalents, and short-term investments are invested with high quality
issuers and are generally of a short-term nature.&nbsp; As a result, we do not believe that near-term changes in interest
rates will have a material effect on our future results of operations.&nbsp; As of June 30, 2001 there had been no
material change in our interest rate exposure from that described in our Form
10-K.</font></p>

<p><b><font size=2>Exchange rate risk</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Due
to our Irish operations, we have market risk exposure to adverse changes in
foreign currency exchange rates.&nbsp; The
revenues and expenses of our subsidiary, Aerogen (Ireland) Limited, are
denominated in Irish currency.&nbsp; At the
end of each quarter, the revenues and expenses of our subsidiary are translated
into U.S. dollars using the average currency exchange rate in effect for that
quarter, and assets and liabilities are translated into U.S. dollars using the
exchange rate in effect at the end of that quarter.&nbsp; Fluctuations in exchange rates therefore impact our financial
condition and results of operations, as reported in U.S. dollars.&nbsp; To date, we have not experienced any
significant negative impact as a result of fluctuations in foreign currency
markets.&nbsp; As a policy, we do not engage
in speculative or leveraged transactions, nor do we hold financial instruments
for trading purposes.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We
plan to expand our overseas operations.&nbsp;
As a result, our operating results may become subject to more
significant fluctuations based on changes in exchange rates of foreign
currencies in relation to the U.S. dollar.&nbsp;
We will periodically analyze our exposure to currency fluctuations and
we may adjust our policies to allow for financial hedging techniques to
minimize exchange rate risk.</font></p>

<p><font size=2>&nbsp;</font></p>

<p><b><font size=2>Factors That May Affect Future Operating Results</font></b></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Risk
factors that may affect future operating results are described in Part I of our
Form 10-K and have not changed materially since such date.&nbsp; Please also see &#147;Liquidity and Capital
Resources&#148; above.</font></p>

<p><font size=2>&nbsp;</font></p>

<p><a name="PartIi_OtherInformation"><b><font size=2>Part</font></b></a><font size=2>&nbsp;&nbsp; <b>II.</b>&nbsp;&nbsp;&nbsp;&nbsp; <b>Other
Information</b></font></p>



<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="7%" valign=top><a name="Item1_"><font size=2>Item 1.</font></a></td>
  <td width="92%" valign=top><font size=2>Legal
  Proceedings<br>
  None</font></td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="92%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top><a name=Item2><font size=2>Item 2</font></a><font size=2>.</font></td>
  <td width="92%" valign=top><font size=2>Changes
  in Securities and Use of Proceeds</font></td>
 </tr>
</table>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
November 2000, the Securities Exchange Commission declared our Registration
Statement on Form S-1 effective. We completed our initial public offering,
including exercise of the underwriters&#146; over-allotment option, of 4,140,000
shares at an initial public offering price of $12.00 per share, for aggregate
cash proceeds of approximately $49.7 million.&nbsp;
The managing underwriters of the offering were Chase Securities Inc.,
CIBC World Markets Corp., and SG Cowen Securities Corporation.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
connection with the offering, we paid a total of approximately $3.5 million in
underwriting discounts and commissions and $1.7 million in other offering costs
and expenses. After deducting the underwriting discounts and commissions and
the offering costs and expenses, our net proceeds from the offering, including
the over-allotment option were approximately $44.5 million.</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; From
January 1, 2001 through June 30, 2001 the proceeds from the offering were used
for research and development and clinical activities, marketing and
manufacturing expenditures for existing and future products, capital
expenditures, and general corporate purposes.&nbsp;
In the future we intend to use the net proceeds in a similar manner.</font></p>

<p align=center><font size=2>12</font></p>




<hr size=3 width="100%" noshade color=black align=right>


<page>


<p>&nbsp;</p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As
of June 30, 2001, $35.3 million of the proceeds from our IPO remained available
and were primarily invested in cash equivalents and short-term
available-for-sale securities.</font></p>

<p><font size=2>&nbsp;</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="7%" valign=top><a name="Item3_"><font size=2>Item 3.</font></a></td>
  <td width="55%" colspan=9 valign=top><font size=2>Defaults
  Upon Senior Securities<br>
  None</font></td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="18%" colspan=3 valign=top>&nbsp;</td>
  <td width="18%" colspan=2 valign=top>&nbsp;</td>
  <td width="18%" colspan=3 valign=top>&nbsp;</td>
  <td width="0%" valign=top>&nbsp;</td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top><a name="Item4_"><font size=2>Item 4.</font></a></td>
  <td width="55%" colspan=9 valign=top><font size=2>Submission
  of Matters to a Vote of Security Holders</font></td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="55%" colspan=9 valign=top>&nbsp;</td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="92%" colspan=12 valign=top><font size=2>On
  May 8, 2001, at the Company&#146;s annual meeting of stockholders, the following
  votes were cast:</font></td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="18%" colspan=3 valign=top>&nbsp;</td>
  <td width="18%" colspan=2 valign=top>&nbsp;</td>
  <td width="18%" colspan=3 valign=top>&nbsp;</td>
  <td width="0%" valign=top>&nbsp;</td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="61%" colspan=10 valign=top><font size=2>To
  elect as Class I Directors for a three year term ending in 2004:</font></td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td width="12%" colspan=2 valign=top>&nbsp;</td>
  <td width="12%" colspan=3 valign=top>&nbsp;</td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=top><font size=2>For</font></td>
  <td  align=center width="12%" colspan=3 valign=top><font size=2>Withheld</font></td>
  <td  align=center width="13%" valign=top>&nbsp;</td>
  <td width="17%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td width="12%" colspan=2 valign=top>
<hr size=1 width="41%" noshade color=black align=center></td>
  <td width="12%" colspan=3 valign=top>
<hr size=1 width="30%" noshade color=black align=center></td>
  <td width="13%" valign=top>&nbsp;</td>
  <td width="17%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top><font size=2>Dr.
  Phyllis I. Gardner</font></td>
  <td  align=center width="12%" colspan=2 valign=top><font size=2>12,428,384</font></td>
  <td  align=center width="12%" colspan=3 valign=top><font size=2>400</font></td>
  <td  align=center width="13%" valign=top>&nbsp;</td>
  <td width="17%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="6%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="30%" colspan=4 valign=top bgcolor="#cceeff"><font size=2>Mr.
  Philips M. Young</font></td>
  <td  align=center width="12%" colspan=2 valign=top bgcolor="#cceeff"><font size=2>12,428,384</font></td>
  <td  align=center width="12%" colspan=3 valign=top bgcolor="#cceeff"><font size=2>400</font></td>
  <td  align=center width="13%" valign=top bgcolor="#cceeff">&nbsp;</td>
  <td width="17%" valign=top bgcolor="#cceeff">&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td width="12%" colspan=2 valign=top>&nbsp;</td>
  <td width="12%" colspan=3 valign=top>&nbsp;</td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="92%" colspan=12 valign=top><font size=2>To
  ratify the appointment of PricewaterhouseCoopers LLC as the Company&#146;s
  independent accountants:</font></td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td width="12%" colspan=2 valign=top>&nbsp;</td>
  <td width="12%" colspan=3 valign=top>&nbsp;</td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=top><font size=2>For</font></td>
  <td  align=center width="12%" colspan=3 valign=top><font size=2>Against</font></td>
  <td  align=center width="13%" valign=top><font size=2>Abstain</font></td>
  <td width="17%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td width="12%" colspan=2 valign=top>
<hr size=1 width="41%" noshade color=black align=center></td>
  <td width="12%" colspan=3 valign=top>
<hr size=1 width="73%" noshade color=black align=center></td>
  <td width="13%" valign=top>
<hr size=1 width="47%" noshade color=black align=center></td>
  <td width="17%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td  align=center width="12%" colspan=2 valign=top><font size=2>12,386,559</font></td>
  <td  align=center width="12%" colspan=3 valign=top><font size=2>40,350</font></td>
  <td  align=center width="13%" valign=top><font size=2>1,875</font></td>
  <td width="17%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td width="12%" colspan=2 valign=top>&nbsp;</td>
  <td width="12%" colspan=3 valign=top>&nbsp;</td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top><a name="Item5_"><font size=2>Item 5.</font></a></td>
  <td width="61%" colspan=10 valign=top><font size=2>Other
  Information<br>
  None</font></td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="30%" colspan=4 valign=top>&nbsp;</td>
  <td width="9%" valign=top>&nbsp;</td>
  <td width="14%" colspan=4 valign=top>&nbsp;</td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top><a name="Item6_"><font size=2>Item 6.</font></a></td>
  <td width="61%" colspan=10 valign=top><font size=2>Exhibits
  and Reports on Form 8-K</font></td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="54%" colspan=9 valign=top><font size=2>a.&nbsp;&nbsp; Exhibits:</font></td>
  <td width="31%" colspan=2 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="5%" colspan=2 valign=top><font size=2>3.2</font></td>
  <td width="72%" colspan=8 valign=top><font size=2>Certificate
  of Incorporation&nbsp; (including
  Certificate of Designation of Series A Junior Participating Preferred Stock)<sup>1</sup></font></td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="32%" colspan=4 valign=top>&nbsp;</td>
  <td width="8%" colspan=3 valign=top>&nbsp;</td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="5%" colspan=2 valign=top><font size=2>10.14</font></td>
  <td width="72%" colspan=8 valign=top><font size=2>Restated
  Executive Severance Agreement</font></td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="41%" colspan=7 valign=top>&nbsp;</td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="5%" colspan=2 valign=top><font size=2>10.15</font></td>
  <td width="72%" colspan=8 valign=top><font size=2>Rights
  Agreement dated as of June 5, 2001 between AeroGen, Inc. and Mellon Investor
  Services LLC, as Rights Agent.<sup>1</sup></font></td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="32%" colspan=4 valign=top>&nbsp;</td>
  <td width="8%" colspan=3 valign=top>&nbsp;</td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="48%" colspan=8 valign=top><font size=2>b.&nbsp;&nbsp; Reports on Form 8-K:</font></td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="48%" colspan=8 valign=top>&nbsp;</td>
  <td width="36%" colspan=3 valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="7%" valign=top>&nbsp;</td>
  <td width="6%" valign=top>&nbsp;</td>
  <td width="85%" colspan=11 valign=top><font size=2>The
  Company filed a Report on Form 8-K on June 30, 2001 (File Number 0-31913)
  concerning the adoption by the Company's Board of Directors of a stockholder
  rights plan.</font></td>
 </tr>

<!-- DO NOT remove the following table row. It is needed for  .               the proper rendering of tables containing misaligned cells.-->
 <tr height=0>
  <td width=56></td>
  <td width=48></td>
  <td width=56></td>
  <td width=28></td>
  <td width=12></td>
  <td width=121></td>
  <td width=70></td>
  <td width=17></td>
  <td width=46></td>
  <td width=2></td>
  <td width=40></td>
  <td width=100></td>
  <td width=124></td>
 </tr>
</table>

<p><font size=2>&nbsp;</font></p>





<hr size=1 width="25%" noshade color=black align=left>



<p><sup><font size=2 face=Times>1</font></sup><sup><font size=2>&nbsp; </font></sup><font size=2>Incorporated
by reference to the Company&#146;s Report on Form 8-K filed with the Securities and
Exchange Commission on June 13, 2001 ( File Number 0-31913</font>)</p>




<hr size=3 width="100%" noshade color=black align=right>


<font size=2><b><u><page>
</u></b></font>

<p align=center><font size=2>&nbsp;</font></p>

<p align=center><a name=Signatures><b><u><font size=2>Signatures</font></u></b></a></p>

<p><font size=2>&nbsp;</font></p>

<p><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, (the &#147;Exchange Act&#148;) the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.</font></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="45%" colspan=2 valign=top><b><font size=2>AeroGen, Inc.</font></b></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="45%" colspan=2 valign=top><font size=2>(Registrant)</font></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="42%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="42%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="54%" valign=top><font size=2>Dated: August 14, 2001</font></td>
  <td width="3%" valign=top><font size=2>By:</font></td>
  <td  align=center width="42%" valign=top><font size=2>/s/&nbsp; JANE E. SHAW</font></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td  align=center width="42%" valign=top>
<hr size=1 width="100%" noshade color=black align=center></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td  align=center width="42%" valign=top><font size=2>Jane E. Shaw, Phd.</font></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td  align=center width="42%" valign=top><i><font   size=2>Chairman and Chief Executive Officer</font></i></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td width="42%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td width="54%" valign=top><font size=2>Dated:&nbsp;
  August 14, 2001</font></td>
  <td width="3%" valign=top><font size=2>By:</font></td>
  <td  align=center width="42%" valign=top><font size=2>/s/&nbsp; DEBORAH K. KARLSON</font></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td  align=center width="42%" valign=top>
<hr size=1 width="100%" noshade color=black align=center></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td  align=center width="42%" valign=top><font size=2>Deborah K. Karlson</font></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td  align=center width="42%" valign=top><i><font   size=2>Vice President, Finance and</font></i></td>
 </tr>
 <tr>
  <td width="54%" valign=top>&nbsp;</td>
  <td width="3%" valign=top>&nbsp;</td>
  <td  align=center width="42%" valign=top><i><font   size=2>Chief Financial Officer</font></i></td>
 </tr>
</table>

<p><font size=2>&nbsp;</font></p>

</div>

</body>

</html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>3
<FILENAME>j0954_ex10d14.htm
<DESCRIPTION>EX-10.14
<TEXT>
<html>

<head>
<title>Prepared by MerrillDirect</title>
</head>

<body>

<div>

<p align=center><b><font size=2>Exhibit
10.14<br>
AEROGEN, INC.<br>
RESTATED EXECUTIVE SEVERANCE BENEFIT PLAN</font></b></p>

<p align=left><b><font size=2>SECTION 1.&nbsp;&nbsp;&nbsp; INTRODUCTION</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The AeroGen, Inc. Executive
Severance Benefit Plan (the &#147;Plan&#148;) is designed to provide separation pay and
benefits to certain eligible executive employees of the Company whose
employment is terminated under the conditions specified herein.&nbsp; This document constitutes the written
instrument under which the Plan is maintained and supersedes any prior plan or
practice of the Company that provides severance benefits to eligible
employees.&nbsp; The Plan was initially
approved by the Board of Directors of the Company effective September&nbsp;29,
2000.</font></p>

<p align=left><b><font size=2>SECTION 2.&nbsp;&nbsp;&nbsp; DEFINITIONS</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; For purposes of this Plan, the
following terms shall have the meanings set forth below:</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#147;Base Salary&#148;</font></b><font size=2> means base salary paid to you (including all
amounts elected to be deferred that would otherwise have been paid, under any
cash or deferred arrangement established by the Company), bonuses, and
commissions but excluding the cost of employee benefits paid for by the
Company, education or tuition reimbursements, imputed income arising under any
Company group insurance or benefit program, traveling expenses, business and
moving expense reimbursements, income received in connection with stock
options, contributions made by the Company under any employee benefit plan, and
similar items of compensation.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#147;Board&#148;</font></b><font size=2> means the Board of Directors of the Company.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#147;Cause&#148;</font></b><font size=2> means any of the following: (i) your theft,
dishonesty, or falsification of any Company documents or records; (ii) your
improper use or disclosure of the Company&#146;s confidential or proprietary
information, which use or disclosure is not cured within ten (10) days
following notification to you by the Company or the Board; (iii) your refusal
to perform any reasonable assigned duties after written notice from the Company
of, and a reasonable opportunity to cure, such refusal; (iv) any material
breach by you of any agreement between you and the Company, which breach is not
cured pursuant to the terms of such agreement; or (v) your conviction
(including any plea of guilty or <i>nolo
contendere</i>) of any felony or any crime involving moral turpitude or
dishonesty which impairs your ability to perform your duties with the
Company.&nbsp; The Board shall have the right
to reasonably determine whether you have engaged in conduct constituting
&#147;Cause&#148; for purposes of this Plan.</font></p>

<page>


<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#147;Change in Control&#148;</font></b><font size=2> means a (i) a dissolution or liquidation of the
Company; (ii) a sale, lease or other disposition of all or substantially all of
the assets of the Company so long as the Company&#146;s stockholders immediately
prior to such transaction will, immediately after such transaction, fail to
possess direct or indirect beneficial ownership of more than fifty percent
(50%) of the voting power of the acquiring entity (for purposes of this clause
2(d)(ii), any person who acquired securities of the Company prior to the
occurrence of such asset transaction in contemplation of such transaction and
who after such transaction possesses direct or indirect ownership of at least
ten percent (10%) of the securities of the acquiring entity immediately
following such transaction shall not be included in the group of stockholders
of the Company immediately prior to such transaction); (iii) either a merger or
consolidation in which the Company is not the surviving corporation and the
stockholders of the Company immediately prior to the merger or consolidation
fail to possess direct or indirect beneficial ownership of more than fifty
percent (50%) of the voting power of the securities of the surviving
corporation (or if the surviving corporation is a controlled affiliate of
another entity, then the required beneficial ownership shall be determined with
respect to the securities of that entity which controls the surviving
corporation and is not itself a controlled affiliate of any other entity)
immediately following such transaction, or a reverse merger in which the
Company is the surviving corporation and the stockholders of the Company
immediately prior to the reverse merger fail to possess direct or indirect
beneficial ownership of more than fifty percent (50%) of the securities of the
Company (or if the Company is a controlled affiliate of another entity, then
the required beneficial ownership shall be determined with respect to the
securities of that entity which controls the Company and is not itself a
controlled affiliate of any other entity) immediately following the reverse
merger (for purposes of this clause 2(d)(iii), any person who acquired securities
of the Company prior to the occurrence of a merger, reverse merger, or
consolidation in contemplation of such transaction and who after such
transaction possesses direct or indirect beneficial ownership of at least ten
percent (10%) of the securities of the Company or the surviving corporation (or
if the Company or the surviving corporation is a controlled affiliate, then of
the appropriate entity as determined above) immediately following such
transaction shall not be included in the group of stockholders of the Company
immediately prior to such transaction); (iv) an acquisition by any person,
entity or group within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;), or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or a subsidiary or other controlled
affiliate of the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors; or (v) the
individuals who, as of the date of this Agreement, are members of the Board
(the &#147;Incumbent Board&#148;), cease for any reason to constitute at least fifty
percent (50%) of the Board.&nbsp; If the
election, or nomination for election by the Company&#146;s stockholders, of any new
director was approved by a vote of at least fifty percent (50%) of the
Incumbent Board, such new director shall be considered as a member of the
Incumbent Board.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#147;Company&#148;</font></b><font size=2> means AeroGen, Inc., or following a Change in
Control, the surviving entity resulting from such transaction.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#147;Involuntary Termination Without Cause&#148;</font></b><font size=2> means your dismissal or discharge by the Company
(or, if applicable, by any successor entity) for any reason or no reason other
than for Cause.&nbsp; The termination of your
employment will not be deemed to be an &#147;Involuntary Termination Without Cause&#148;
if your termination occurs as a result of your death or disability.</font></p>

<page>


<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &#147;Voluntary Termination for Good Reason&#148;</font></b><font size=2> means that you voluntarily terminate your
employment with the Company after any of the following are undertaken by the
Company:</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(i)</font></b><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; the
assignment to you of any duties or responsibilities which result in a material
diminution or adverse change of your position, responsibilities, authority or
circumstances of employment;</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(ii)</font></b><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; a
reduction by the Company in your Base Salary;</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(iii)</font></b><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; any
failure by the Company to continue in effect any benefit plan or arrangement,
including incentive plans or plans to receive securities of the Company, in
which you are participating (hereinafter referred to as &#147;Benefit Plans&#148;), or
the taking of any action by the Company which would adversely affect your
participation in or reduce your benefits under any Benefit Plans or deprive you
of any fringe benefit then enjoyed by you; provided, however, a Voluntary
Termination for Good Reason shall not exist under this subsection 2(g)(iii) if
the Company offers a range of benefit plans and programs which, taken as a
whole, are comparable to the Benefit Plans provided to you as of the date of
this Plan, as determined in good faith by the Company;</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(iv)</font></b><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; a relocation
of your or the Company&#146;s principal business offices to a location more than
thirty-five (35) miles from the location at which you have performed duties,
except for required travel by you on the Company&#146;s business to an extent
substantially consistent with your business travel obligations as of the date
of this Plan;</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(v)</font></b><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; any
material breach by the Company of any provision of this Plan which is not cured
by the Company within twenty (20) days of delivery of written notice from
Executive of such breach; or</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(vi)</font></b><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; any
failure by the Company to obtain the assumption of this Plan by any successor
or assign of the Company.</font></p>

<p align=left><b><font size=2>SECTION 3.&nbsp;&nbsp;&nbsp; ELIGIBILITY AND PARTICIPATION</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Employees of the Company listed on
a separate schedule (&#147;Eligible Employees&#148;) shall receive benefits under the
Plan.&nbsp; The Board may determine that you
are eligible for any portion of or all of the benefits set forth in Section 4
or Section 5 of the Plan for reasons other than those specified herein and such
decision by the Board shall in no way obligate the Company to provide such
benefits to any other Eligible Employee, even if similarly situated.&nbsp; The Board may add employees to the schedule
of Eligible Employees from time to time in its sole discretion or on the
recommendation of the Chief Executive Officer.</font></p>

<p align=left><b><font size=2>SECTION 4.&nbsp;&nbsp;&nbsp; BENEFITS FOLLOWING A CHANGE IN CONTROL</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In the event of your Involuntary
Termination without Cause or your Voluntary Termination for Good Reason during
the period commencing one (1) month prior to and ending thirteen (13) months
following a Change in Control, you are entitled to the following benefits,
subject to Section 5 hereof:</font></p>

<page>


<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Salary Continuation.</font></b><font size=2>&nbsp; The Company
shall, subject to Section 5 hereof, continue your Base Salary for twelve (12)
months.&nbsp; Any salary continuation payments
shall be paid to you in monthly installments beginning on the termination of
your employment.&nbsp; Any such amount that
you receive shall be subject to all required tax withholding.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Continuation of Health Benefits.</font></b><font size=2>&nbsp; Provided
that you elect continued coverage under federal COBRA law as applicable, the
Company shall pay, on your behalf, the portion of premiums of your group health
insurance, including coverage for your eligible dependents, that the Company
paid prior to your termination of employment; <i>provided,
however</i>, that the Company will pay such premiums for your eligible
dependents only for coverage for which those dependents were enrolled
immediately prior to your termination of employment.&nbsp; You will continue to be required to pay that portion of the
premium of your health coverage, including coverage for your eligible
dependents, that you were required to pay as an active employee immediately
prior to your termination of employment.&nbsp;
The number of months of such premium payments shall equal the number of
months of your salary continuation payments, but in no event shall such premium
payments be made for a period exceeding twelve (12) months or be made following
the effective date of your coverage by a health plan of a subsequent employer.&nbsp; For the balance of the period that you are
entitled to coverage under federal COBRA law, you shall be entitled to maintain
coverage for yourself and your eligible dependents at your own expense.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Vesting of Stock Options.</font></b><font size=2>&nbsp; The
Company, immediately prior to your termination of employment, shall accelerate
one hundred percent (100%) of the vesting of all of your unvested stock options
to purchase stock of the Company or any successor thereto, such options to vest
in 12 equal monthly installments beginning on the date of the termination of
your employment.&nbsp; Notwithstanding the
provisions in your stock option agreements, you shall have fifteen (15) months
from your date of termination to exercise your stock options.&nbsp; In addition, if applicable, the Company&#146;s
(or any successor corporation&#146;s ) right to repurchase any stock purchased by
you pursuant to any stock purchase agreement under which the Company has the
right to repurchase any or all of the shares, shall lapse in 12 equal monthly
installments beginning on the date of the termination of your employment. In
addition, as to any shares received in exchange for shares of Cerus Limited
that were subject to repurchase by the Company and that remain subject to
repurchase at the time of termination of your employment, the Company&#146;s right
to repurchase such shares shall lapse in twelve equal monthly installments
beginning on the date of the termination of your employment. <i>(as amended May 8, 2001)</i></font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Indemnification.</font></b><font size=2>&nbsp; For a
period no less than six (6) years following the date or your termination of
employment, you shall be indemnified by the Company (or any successor entity)
for any act, or omission, taken while you were employed by the Company (or any
successor entity), and the Company shall maintain insurance coverage which is
either at least equivalent to such indemnification coverage provided for you
prior to such termination, or if such equivalent coverage is not available at a
commercially reasonable price, then at least equivalent to the indemnification
coverage provided to the then current executive officers of the Company (or in
the event of the occurrence of a Change in Control of the Company, the
executive officers of the controlling entity of which the Company is then a
part).</font></p>

<page>


<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Additional Benefits.</font></b><font size=2>&nbsp; In addition
to the benefits provided in the foregoing Sections 5(a), 5(b), 5(c) and 5(d),
the Board may, in its sole discretion, provide additional benefits to Eligible
Employees chosen by the Company, in its sole discretion, and the provision of
any such additional benefits to an Eligible Employee shall in no way obligate
the Company to provide such additional benefits to any other Eligible Employee,
even if similarly situated.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Parachute Payments.</font></b><font size=2>&nbsp; If any
payment or benefit (or any portion thereof) you would receive pursuant to a
Change in Control from the Company or otherwise (&#147;Payment&#148;) would (i)
constitute &#147;parachute payments&#148; within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended, (the &#147;Code&#148;), or any comparable
successor provision, and (ii) but for this section would be subject to the
excise tax imposed by Section 4999 of the Code, or any comparable successor
provision (the &#147;Excise Tax&#148;), then Executive&#146;s benefits hereunder shall be
either</font></p>

<dir><dir><dir>
<table border=0 cellspacing=0 cellpadding=0 width="70%">
 <tr>
  <td  align=left width="5%" valign=top><b><font size=2>(i)</font></b></td>
  <td  align=left width="94%" valign=top><font size=2>provided to
  you in full, or</font></td>
 </tr>
 <tr>
  <td  align=left width="5%" valign=top>&nbsp;</td>
  <td  align=left width="94%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=left width="5%" valign=top><b><font size=2>(ii)</font></b></td>
  <td  align=left width="94%" valign=top><font size=2>provided to
  you as to such lesser extent which would result in no portion of such
  benefits being subject to the Excise Tax,</font></td>
 </tr>
</table>
</dir></dir></dir>

<p align=left><font size=2>whichever
of the foregoing amounts, when taking into account applicable federal, state,
local and foreign income and employment taxes, the Excise Tax, and any other
applicable taxes, results in the receipt by you, on an after-tax basis, of the
greatest amount of benefits, notwithstanding that all or some portion of such
benefits may be taxable under the Excise Tax.&nbsp;
Unless you and the Company otherwise agree in writing, any determination
required under this section shall be made in writing in good faith by a
qualified third party (the &#147;Professional Service Firm&#148;) selected by the Company
prior to the Change in Control (and if none is selected by the Company prior to
the Change in Control, then that Professional Service Firm selected by the
Company at a later time).&nbsp; In the event
of a reduction of benefits hereunder, benefits payable in cash shall be reduced
first.&nbsp; For purposes of making the
calculations required by this section, the Professional Service Firm may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
the Code, and other applicable legal authority.&nbsp; You and the Company shall furnish to the Professional Service
Firm such information and documents as the Professional Service Firm may
reasonably request in order to make a determination under this section.&nbsp; The Company shall bear all costs the
Professional Service Firm may reasonably incur in connection with any
calculations contemplated by this section.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If, notwithstanding
any reduction described in this section, the IRS determines that you are liable
for the Excise Tax as a result of the receipt of the payment of benefits as
described above, then you shall be obligated to pay back to the Company, within
thirty (30) days after a final IRS determination or in the event that you
challenge the final IRS determination, a final judicial determination, a
portion of the payment equal to the &#147;Repayment Amount.&#148;&nbsp; The Repayment Amount with respect to the
payment of benefits shall be the smallest such amount, if any, as shall be
required to be paid to the Company so that your net after-tax proceeds with
respect to any payment of benefits (after taking into account the payment of
the Excise Tax and all other applicable taxes imposed on such payment) shall be
maximized.&nbsp; The Repayment Amount with
respect to the payment of benefits shall be zero if a Repayment Amount of more
than zero would not result in your net after-tax proceeds with respect to the
payment of such benefits being maximized.&nbsp;
If the Excise Tax is not eliminated pursuant to this paragraph, you
shall pay the Excise Tax.</font></p>

<page>


<p align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <font size=2>Notwithstanding
any other provision of this Section 5(f), if (i) there is a reduction in the
payment of benefits as described in this section, (ii) the IRS later determines
that you are liable for the Excise Tax, the payment of which would result in
the maximization of your net after-tax proceeds (calculated as if your benefits
had not previously been reduced), and (iii) you pay the Excise Tax, then the
Company shall pay to you those benefits which were reduced pursuant to this
section contemporaneously or as soon as administratively possible after you pay
the Excise Tax so that your net after-tax proceeds with respect to the payment
of benefits is maximized.</font></p>

<p align=left><b><font size=2>SECTION 5.&nbsp;&nbsp;&nbsp; LIMITATIONS AND CONDITIONS ON BENEFITS</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Release.</font></b><font size=2>&nbsp; To receive
benefits under this Plan, you must execute a release of claims in favor of the
Company, in substantially the form attached to this Plan as Exhibit&nbsp;A,
Exhibit B or Exhibit C, as appropriate, and such release must become effective
in accordance with its terms.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Termination of Benefits.</font></b><font size=2>&nbsp; Benefits
under this Plan shall terminate immediately if you, at any time, violate any
proprietary information or confidentiality obligation to the Company, which
violation is not cured pursuant to the terms of such agreement or within ten
(10) days following notification to you of such a violation by the Company or
the Board.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Certain Reductions.</font></b><font size=2>&nbsp;
Notwithstanding any other provision of this Plan to the contrary, any
benefits payable to you under this Plan shall be reduced by any severance benefits
payable by the Company or an affiliate of the Company to you under any other
policy, plan, program or arrangement, including, without limitation, a contract
between you and any entity (other than any letter addressed from the Company to
you which sets forth your eligibility under this Plan), under which you are
covered.&nbsp; Furthermore, to the extent
that any federal, state or local laws, including, without limitation, so-called
&#147;plant closing&#148; laws, require the Company to give advance notice or make a payment
of any kind to you because of your involuntary termination due to a layoff,
reduction in force, plant or facility closing, sale of business, change of
control, or any other similar event or reason, the benefits payable under this
Plan shall either be reduced or eliminated.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No Mitigation.</font></b><font size=2>&nbsp; You shall
not be required to mitigate the amount of any payment provided for in this Plan
by seeking other employment or otherwise nor, except for your eligibility for
COBRA continuation coverage, shall the amount of any payment or benefit
provided for in this Plan be reduced or otherwise affected by any compensation
or benefits received by you as a result of employment by another employer or
self-employment, by any retirement benefits regardless of source, by offset
against any amount claimed to be owed by you to the Company, or otherwise.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-Duplication of Benefits.</font></b><font size=2>&nbsp; You are
eligible to receive benefits under this Plan one (1) time.</font></p>

<page>


<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-Competition.</font></b><font size=2>&nbsp; If
requested by the Company at the time of termination of your employment under
circumstances giving rise to benefits under this Plan, you will enter into an
agreement with the Company providing that you will not become employed as an
executive, within twelve (12) months following the termination of your
employment with the Company, by any of Inhale Therapeutics, Dura
Pharmaceuticals, Aradigm Corporation, Battelle Pulmonary Therapeutics or
Sheffield Pharmaceuticals, without the prior written consent of the
Company.&nbsp; In the event that you commence
any such employment during such 12 month period without the prior written
consent of the Company, the benefits otherwise due to you under Section 4 will
terminate, effective on the date you commence such employment.</font></p>

<p align=left><b><font size=2>SECTION 6.&nbsp;&nbsp;&nbsp; ADMINISTRATION AND OPERATION OF THE PLAN</font></b></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Company is the &#147;Plan Sponsor&#148; and the &#147;Plan Administrator&#148; of the Plan, as such
terms are defined in the Employee Retirement Income Security Act of 1974
(&#147;ERISA&#148;).&nbsp; The Company, in its capacity
as Plan Administrator of the Plan, is the named fiduciary that has the
authority to control and manage the operation and administration of the
Plan.&nbsp; The Company has the sole
discretion to make such rules, regulations, and interpretations of the Plan and
to make such computations and shall take such other action to administer the
Plan as it may deem appropriate in its sole discretion.&nbsp; Such rules, regulations, interpretations,
computations, and other actions shall be conclusive and binding upon all
persons.&nbsp; The Company may engage the
services of such persons or organizations to render advice or perform services
with respect to its responsibilities under the Plan as it shall determine to be
necessary or appropriate.&nbsp; Such persons
or organizations may include (without limitation) actuaries, attorneys,
accountants and consultants.</font></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Any
person or group of persons may serve in more than one fiduciary capacity with
respect to the Plan.&nbsp; The
responsibilities of the Company under the Plan shall be carried out on its
behalf by its directors, officers, employees and agents, acting on behalf or in
the name of the Company in their capacity as directors, officers, employees and
agents and not as individual fiduciaries.&nbsp;
The Company may delegate any of its fiduciary responsibilities under the
Plan to another person or persons pursuant to a written instrument that
specifies the fiduciary responsibilities so delegated to each such person.</font></p>

<p align=left><b><font size=2>SECTION 7.&nbsp;&nbsp;&nbsp; CLAIMS, INQUIRIES AND APPEALS</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Applications for Benefits and
Inquiries.</font></b><font size=2>&nbsp; Applications for benefits should
be in writing, signed and submitted to: Plan Administrator, Executive Severance
Benefit Plan, AeroGen, Inc., 1310 Orleans Drive, Sunnyvale, California 94089.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Denial of Claims.</font></b><font size=2>&nbsp; If any
application for benefits is denied in whole or in part, the Plan Administrator
must notify you, in writing, of the denial of the application, and of your
right to review the denial.&nbsp; The written
notice of denial will be set forth in a manner designed to be understood, and
will include specific reasons for the denial, specific references to the Plan
provision upon which the denial is based, a description of any information or
material that the Plan Administrator needs to complete the review and an
explanation of the Plan&#146;s review procedure.</font></p>

<page>


<p align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <font size=2 color=black>This written notice will be given to you within ninety (90) days
after the Plan Administrator receives the application, unless special
circumstances require an extension of time, in which case, the Plan
Administrator has up to an additional ninety (90) days for processing the
application.&nbsp; If an extension of time
for processing is required, written notice of the extension will be furnished
to you before the end of the initial 90-day period.</font></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This
notice of extension will describe the special circumstances necessitating the
additional time and the date by which the Plan Administrator is to render its
decision on the application.&nbsp; If written
notice of denial of the application for benefits is not furnished within the
specified time, the application shall be deemed to be denied.&nbsp; You will then be permitted to appeal the
denial in accordance with the review procedure described below.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Request for Review.</font></b><font size=2>&nbsp; You (or
your authorized representative) may appeal a denied benefit claim by submitting
a written request for a review to: Review Panel, Executive Severance Benefit
Plan, AeroGen, Inc., 1310 Orleans Drive, Sunnyvale, California 94089.&nbsp; The Review Panel shall be comprised of two
(2) or more persons to be appointed by the Company.&nbsp; Your appeal must be submitted within sixty (60) days after the
application is denied (or deemed denied).&nbsp;
The Review Panel will give you (or your representative) an opportunity
to review pertinent documents in preparing a request for a review.</font></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; A
request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that you or your
representative feel are pertinent.&nbsp; The
Review Panel may require you or your representative to submit additional facts,
documents or other material as it may find necessary or appropriate in making
its review.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Decision on Review.</font></b><font size=2>&nbsp; The Review
Panel will act on each request for review within sixty (60) days after receipt
of the request, unless special circumstances require an extension of time (not
to exceed an additional sixty (60) days) for processing the request for a
review.&nbsp; If an extension for review is
required, written notice of the extension will be furnished within the initial
60-day period.&nbsp; The Review Panel will
give written notice of its decision to the applicant.&nbsp; In the event that the Review Panel confirms the denial of the
application for benefits in whole or in part, the notice will outline the
specific Plan provisions upon which the decision is based.&nbsp; If written notice of the Review Panel&#146;s
decision is not given within the time prescribed above, the application will be
deemed denied on review.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Rules and Procedures.</font></b><font size=2>&nbsp; The Plan
Administrator and/or the Review Panel may establish rules and procedures,
consistent with the Plan and with ERISA, as necessary and appropriate in carrying
out their responsibilities in reviewing benefit claims.&nbsp; If you wish to submit additional information
in connection with an appeal from the denial (or deemed denial) of benefits,
you may be required to do so at your own expense.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Exhaustion of Remedies.</font></b><font size=2>&nbsp; No legal
action for benefits under the Plan may be brought until (i) a written
application for benefits has been submitted in accordance with the procedures
described above, (ii) the person claiming benefits has been notified by the
Plan Administrator that the application is denied (or the application is deemed
denied due to the Plan Administrator&#146;s failure to act on it within the time
prescribed), (iii) a written request for a review of the application has been
submitted in accordance with the appeal procedure described above and (iv) the
person appealing the denial has been notified in writing that the Review Panel
has denied the appeal (or the appeal is deemed to be denied due to the Review
Panel&#146;s failure to take any action on the claim within the time prescribed).</font></p>

<page>


<p align=left><b><font size=2>SECTION 8.&nbsp;&nbsp;&nbsp; BASIS OF PAYMENTS TO AND FROM THE PLAN</font></b></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; All
benefits under the Plan shall be paid by the Company.&nbsp; The Plan shall be unfunded and benefits hereunder shall be paid
only from the general assets of the Company.</font></p>

<p align=left><b><font size=2>SECTION 9.&nbsp;&nbsp;&nbsp; LEGAL FEES.</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If there is termination of your
employment with the Company pursuant to Section 4 hereof followed by a dispute
as to whether you are entitled to the benefits provided under this Agreement,
then, during the period of that dispute the Company shall pay you fifty percent
(50%) of the amount specified in Section 4 (except that the Company shall pay
one hundred percent (100%) of any insurance premiums provided for in Section
4), if, and only if, you agree in writing that if the dispute is resolved against
you, you shall promptly refund to the Company all payments you receive plus
interest at the rate provided in Section 1274(d) of the Code, compounded
quarterly.&nbsp; If the dispute is resolved
in your favor, promptly after resolution of the dispute the Company shall pay
you the sum that was withheld during the period of the dispute plus interest at
the rate provided in Section 1274(d) of the Code, compounded quarterly.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Notwithstanding any other
provisions of this Plan, if you either (i) bring any action to enforce your
rights pursuant to Section 4 of this Plan, or (ii) defend any legal challenge
to your rights under Section 4 hereof, you shall be entitled to recover
reasonable attorneys&#146; fees and costs incurred in connection with such action
from the Company, payable on a monthly basis, regardless of the outcome of such
action; provided, however, that in the event such action is commenced by you,
the court finds the claim was brought in good faith.</font></p>

<p align=left><b><font size=2>SECTION 10.&nbsp; AMENDMENT AND TERMINATION</font></b></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The
Company reserves the right to amend or terminate this Plan at any time; <i>provided,
however,</i> that this Plan may not be amended or terminated following
the effective date of a Change in Control, and no amendment or termination of
the Plan shall adversely affect any benefits to which you have become entitled
prior to such amendment or termination.</font></p>

<p align=left><b><font size=2>SECTION 11.&nbsp; NON-ALIENATION OF BENEFITS</font></b></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No
Plan benefit may be anticipated, alienated, sold, transferred, assigned,
pledged, encumbered or charged, and any attempt to do so will be void.</font></p>

<p align=left><b><font size=2>SECTION 12.&nbsp; SUCCESSORS AND ASSIGNS</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This Plan shall be binding upon any
surviving entity resulting from a Change in Control and upon any other person
who is a successor by merger, acquisition, consolidation or otherwise to the
business formerly carried on by the Company without regard to whether or not
such person actively adopts or formally continues the Plan.&nbsp; Eligible Employees, to the extent they are
otherwise eligible for benefits under the Plan, are intended third party
beneficiaries of this provision.</font></p>

<page>


<p align=left><b><font size=2>SECTION 13.&nbsp; LEGAL CONSTRUCTION</font></b></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This
Plan shall be interpreted in accordance with ERISA and, to the extent not
preempted by ERISA, with the laws of the State of California.&nbsp; This Plan constitutes both a plan document
and a summary plan description for purposes of ERISA.</font></p>

<p align=left><b><font size=2>SECTION 14.&nbsp; OTHER PLAN INFORMATION</font></b></p>

<dir>
<table border=0 cellspacing=0 cellpadding=0 width="90%">
 <tr>
  <td  align=left width="50%" valign=top><font size=2 color=black>Plan Identification Number:</font></td>
  <td  align=left width="50%" valign=top><font size=2 color=black>502</font></td>
 </tr>
 <tr>
  <td  align=left width="50%" valign=top>&nbsp;</td>
  <td  align=left width="50%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=left width="50%" valign=top><font size=2 color=black>Employer Identification Number:</font></td>
  <td  align=left width="50%" valign=top><font size=2 color=black>33-0488580</font></td>
 </tr>
 <tr>
  <td  align=left width="50%" valign=top>&nbsp;</td>
  <td  align=left width="50%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=left width="50%" valign=top><font size=2 color=black>Ending of the Plan&#146;s Fiscal Year:</font></td>
  <td  align=left width="50%" valign=top><font size=2 color=black>December&nbsp;31</font></td>
 </tr>
 <tr>
  <td  align=left width="50%" valign=top>&nbsp;</td>
  <td  align=left width="50%" valign=top>&nbsp;</td>
 </tr>
 <tr>
  <td  align=left width="50%" valign=top><font size=2 color=black>Agent for the Service of Legal Process:</font></td>
  <td  align=left width="50%" valign=top><font size=2>AeroGen, Inc., 1310
  Orleans Drive, Sunnyvale, California 94089</font></td>
 </tr>
</table>
</dir>

<p align=left><b><font size=2>SECTION 15.&nbsp; STATEMENT OF ERISA RIGHTS</font></b></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; As
a participant in this Plan (which is a welfare benefit plan sponsored by the
Company) you are entitled to certain rights and protections under ERISA,
including the right to:</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></b><font size=2>Examine, without charge, at the Plan Administrator&#146;s
office and at other specified locations, such as work sites, all Plan documents
and copies of all documents filed by the Plan with the U.S. Department of
Labor, such as detailed annual reports;</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></b><font size=2>Obtain copies of all Plan documents and Plan
information upon written request to the Plan Administrator.&nbsp; The Plan Administrator may make a reasonable
charge for the copies; and</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font><b><font size=2>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </font></b><font size=2>Receive a summary of the Plan&#146;s annual financial
report, in the case of a plan which is required to file an annual financial
report with the Department of Labor.&nbsp;
(Generally, all pension plans and welfare plans with 100 or more
participants must file these annual reports.)</font></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In
addition to creating rights for Plan participants, ERISA imposes duties upon
the people responsible for the operation of the employee benefit plan.&nbsp; The people who operate the Plan, called
&#147;fiduciaries&#148; of the Plan, have a duty to do so prudently and in the interest of
you and other Plan participants and beneficiaries.</font></p>

<p align=left><font size=2 color=black>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No
one, including your employer or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a Plan
benefit or exercising your rights under ERISA.&nbsp;
If your claim for a Plan benefit is denied in whole or in part, you must
receive a written explanation of the reason for the denial.&nbsp; You have the right to have the Plan review
and reconsider your claim.</font></p>

<page>


<p align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <font size=2 color=black>Under ERISA, there are steps you can take to enforce the above
rights.&nbsp; For instance, if you request
materials from the Plan and do not receive them within thirty (30)&nbsp; days, you may file suit in a federal
court.&nbsp; In such a case, the court may
require the Plan Administrator to provide the materials and pay you up to $110
a day until you receive the materials, unless the materials were not sent
because of reasons beyond the control of the Plan Administrator.&nbsp; If you have a claim for benefits that is
denied or ignored, in whole or in part, you may file suit in a state or federal
court.&nbsp; If it should happen that the
Plan fiduciaries misuse the Plan&#146;s money, or if you are discriminated against
for asserting your rights, you may seek assistance from the U.S. Department of
Labor, or you may file suit in a federal court.&nbsp; The court will decide who should pay court costs and legal
fees.&nbsp; If you are successful, the court
may order the person you have sued to pay these costs and fees.&nbsp; If you lose, the court may order you to pay
these costs and fees, for example, if it finds your claim is frivolous.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; If you have any questions about
this statement or about your rights under ERISA, you should contact the nearest
office of the Pension and Welfare Benefits Administration, U.S. Department of
Labor, listed in your telephone directory, or the Division of Technical Assistance
and Inquiries, Pension and Welfare Benefit Administration, U.S. Department of
Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210.</font></p>

<p><font size=2>&nbsp;</font></p>

<p align=left><font size=2>Exhibit
A:&nbsp; Release (For Persons 40 Years of Age
or Older-Group Termination)<br>
Exhibit B:&nbsp; Release (For Persons 40
Years of Age or Older-Individual Termination)<br>
Exhibit C:&nbsp; Release (For Persons Under
40 Years of Age)</font></p>


<div align=left><b><font size=2>

<hr size=1 width="25%" noshade color=black align=left>

</font></b></div>

<p align=left><font size=2>Amended
by the Board of Directors on May 8, 2001 to replace Section 4(c).</font></p>

<page>


<p align=center><b><font size=2>EXHIBIT</font></b><b><font size=2> A</font></b></p>

<p align=center><b><font size=2>RELEASE
(For Persons 40 Years of Age or Older-Group Termination)</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I understand and agree completely
to the terms set forth in the AeroGen, Inc. Executive Severance Benefit Plan
(the &#147;Plan&#148;).</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In consideration of benefits I will
receive under the Plan, I hereby release, acquit and forever discharge the
Company, its parents and subsidiaries, and their respective officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys&#146; fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Agreement, including but not limited to: all such claims
and demands directly or indirectly arising out of or in any way connected with
my employment with the Company or the termination of that employment, including
but not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands
related to salary, bonuses, commissions, stock, stock options, or any other
ownership interests in the Company, vacation pay, fringe benefits, expense
reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964, as amended; the federal
Age Discrimination in Employment Act of 1967, as amended (&#147;ADEA&#148;); the federal
Americans with Disabilities Act of 1990; the California Fair Employment and
Housing Act, as amended; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the
implied covenant of good faith and fair dealing.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I acknowledge that I am knowingly
and voluntarily waiving and releasing any rights I may have under ADEA.&nbsp; I also acknowledge that the consideration
given for the waiver and release in the preceding paragraph hereof is in
addition to anything of value to which I was already entitled.&nbsp; I further acknowledge that I have been
advised by this writing, as required by the ADEA, that:&nbsp; (a) my waiver and release do not
apply to any rights or claims that may arise after I execute this Agreement; (b) I have the right to consult with an attorney prior to
executing this Agreement; (c) I have forty-five (45)
days from the date I receive this Agreement and the information specified in
(f) below to consider this Agreement (although I voluntarily may choose to
execute this Agreement earlier); (d) I have seven
(7) days following the execution of this Agreement to revoke the Agreement; and (e) this Agreement shall not be effective until the later
of (i) the date upon which the revocation period has expired, which shall be
the eighth (8<sup>th</sup>) day after I execute this Agreement, and (ii) the
date I return this Agreement, fully executed, to the Company; and (f) I have
received with this Agreement a detailed list of the job titles and ages of all
employees who were terminated in this group termination and the ages of all
employees of the Company and its affiliates in the same job classification or
organizational unit who were not terminated.</font></p>

<page>


<p align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <font size=2>I acknowledge that I
have read and understand Section 1542 of the California Civil Code which reads
as follows:&nbsp; <b>&#147;A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with the debtor.&#148;</b>&nbsp; I hereby expressly waive and relinquish all rights and benefits
under that section and any law of any jurisdiction of similar effect with
respect to my release of any claims I may have against the Company, its
affiliates, and the entities and persons specified above.</font></p>

<p align=left><b><font size=2>EMPLOYEE</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=left width="50%" valign=top><font size=2>Name:</font></td>
  <td  align=left width="50%" valign=top><font size=2>Date:</font></td>
 </tr>
</table>

<p align=center><b><font size=2>&nbsp;</font></b></p>

<page>


<p align=center><b><font size=2>EXHIBIT</font></b><b><font size=2> B</font></b></p>

<p align=center><b><font size=2>RELEASE
(For Persons 40 Years of Age or Older-Individual Termination)</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I understand and agree completely
to the terms set forth in the AeroGen, Inc. Executive Severance Benefit Plan
(the &#147;Plan&#148;).</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In consideration of benefits I will
receive under the Plan, I hereby release, acquit and forever discharge the
Company, its parents and subsidiaries, and their respective officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys&#146; fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Agreement, including but not limited to:&nbsp; all such claims and demands directly or
indirectly arising out of or in any way connected with my employment with the
Company or the termination of that employment, including but not limited to,
claims of intentional and negligent infliction of emotional distress, any and
all tort claims for personal injury, claims or demands related to salary,
bonuses, commissions, stock, stock options, or any other ownership interests in
the Company, vacation pay, fringe benefits, expense reimbursements, severance
pay, or any other form of compensation; claims pursuant to any federal, state
or local law or cause of action including, but not limited to, the federal
Civil Rights Act of 1964, as amended; the federal Age Discrimination in
Employment Act of 1967, as amended (&#147;ADEA&#148;); the federal Americans with
Disabilities Act of 1990; the California Fair Employment and Housing Act, as
amended; tort law; contract law; wrongful discharge; discrimination; fraud;
defamation; emotional distress; and breach of the implied covenant of good
faith and fair dealing.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I acknowledge that I am knowingly
and voluntarily waiving and releasing any rights I may have under the ADEA, as
amended.&nbsp; I also acknowledge that the
consideration given for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already
entitled.&nbsp; I further acknowledge that I
have been advised by this writing, as required by the ADEA, that:&nbsp; (a) my waiver and release do not apply to
any rights or claims that may arise after the execution date of this Release
Agreement; (b) I have been advised hereby that I have the right to consult with
an attorney prior to executing this Agreement; (c) I have twenty-one (21) days
to consider this Agreement (although I may choose to voluntarily execute this
Agreement earlier); (d) I have seven (7) days following the execution of this
Agreement by the parties to revoke the Agreement; and (e) this Agreement will
not be effective until the date upon which the revocation period has expired,
which will be the eighth day after this Agreement is executed by me, provided
that the Company has also executed this Agreement by that date (&#147;Effective
Date&#148;).</font></p>

<page>


<p align=left>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <font size=2>I acknowledge that I
have read and understand Section 1542 of the California Civil Code which reads
as follows:&nbsp; <b>&#147;A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with the debtor.&#148;</b>&nbsp; I hereby expressly waive and relinquish all rights and benefits
under that section and any law of any jurisdiction of similar effect with
respect to my release of any claims I may have against the Company, its
affiliates, and the entities and persons specified above.</font></p>

<p align=left><b><font size=2>E</font></b><b><font size=2>MPLOYEE</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=left width="50%" valign=top><font size=2>Name:</font></td>
  <td  align=left width="50%" valign=top><font size=2>Date:</font></td>
 </tr>
</table>

<page>


<p align=center><b><font size=2>E</font></b><b><font size=2>XHIBIT</font></b><b><font size=2> C</font></b></p>

<p align=center><b><font size=2>RELEASE
(For Persons Under 40 Years of Age)</font></b></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I understand and agree completely
to the terms set forth in the AeroGen, Inc. Executive Severance Benefit Plan
(the &#147;Plan&#148;).</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; In consideration of benefits I will
receive under the Plan, I hereby release, acquit and forever discharge the
Company, its parents and subsidiaries, and their respective officers,
directors, agents, servants, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys&#146; fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed (other than any claim for
indemnification I may have as a result of any third party action against me
based on my employment with the Company), arising out of or in any way related
to agreements, events, acts or conduct at any time prior to and including the
date I execute this Agreement, including but not limited to: all such claims
and demands directly or indirectly arising out of or in any way connected with
my employment with the Company or the termination of that employment, including
but not limited to, claims of intentional and negligent infliction of emotional
distress, any and all tort claims for personal injury, claims or demands
related to salary, bonuses, commissions, stock, stock options, or any other
ownership interests in the Company, vacation pay, fringe benefits, expense
reimbursements, severance pay, or any other form of compensation; claims
pursuant to any federal, state or local law or cause of action including, but
not limited to, the federal Civil Rights Act of 1964 as amended; the federal
Americans with Disabilities Act of 1990; the California Fair Employment and
Housing Act, as amended; tort law; contract law; wrongful discharge;
discrimination; fraud; defamation; emotional distress; and breach of the
implied covenant of good faith and fair dealing.</font></p>

<p align=left><font size=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; I acknowledge that to become
effective, I must sign and return this Agreement to the Company so that it is
received not later than fourteen (14) days following the date of my employment
termination.&nbsp; I acknowledge that I have
read and understand Section 1542 of the California Civil Code which reads as
follows:&nbsp; <b>&#147;A general release does not extend to
claims which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have materially
affected his settlement with the debtor.&#148;</b>&nbsp; I hereby expressly waive and relinquish all rights and benefits
under that section and any law of any jurisdiction of similar effect with respect
to my release of any claims I may have against the Company, its affiliates, and
the entities and persons specified above.</font></p>

<p align=left><b><font size=2>E</font></b><b><font size=2>MPLOYEE</font></b></p>

<table border=0 cellspacing=0 cellpadding=0 width="100%">
 <tr>
  <td  align=left width="50%" valign=top><font size=2>Name:</font></td>
  <td  align=left width="50%" valign=top><font size=2>Date:</font></td>
 </tr>
</table>

<p align=left><font size=3 face=Times>&nbsp;</font></p>

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