1080014--3/8/2006--THERAVANCE

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{product, candidate, development}

{stock, price, operating}

{stock, price, share}

{provision, law, control}

{product, liability, claim}

{property, intellectual, protect}

{investment, property, distribution}

{regulation, government, change}

{cost, regulation, environmental}

{operation, natural, condition}

{control, financial, internal}

{debt, indebtedness, cash}

{personnel, key, retain}

{financial, litigation, operation}

Risks Related to our Business Any failure or delay in commencing or completing clinical studies for our product candidates, such as a failure or delay in GSK s commencement of the planned Phase 2b program in the Beyond Advair collaboration, would likely cause our stock price to decline. If our product candidates, in particular telavancin, which is currently in Phase 3 clinical studies, are determined to be unsafe or ineffective in humans, our business will be adversely affected. If the product candidates that we develop on our own or through collaborative partners are not approved by regulatory agencies, including the Food and Drug Administration, we will be unable to commercialize them. Even if our product candidates receive regulatory approval, commercialization of such products may be adversely affected by regulatory actions. We have incurred operating losses in each year since our inception and expect to continue to incur substantial and increasing losses for the foreseeable future. If we fail to obtain the capital necessary to fund our operations, we may be unable to develop our products and we could be forced to share our rights to commercialize our product candidates with third parties on terms that may not be favorable to us. If our partners do not satisfy their obligations under our agreements with them, we will be unable to develop our partnered product candidates as planned. Our relationship with GSK may have a negative effect on our ability to enter into relationships with third parties. If we are unable to enter into future collaboration arrangements or if any such collaborations with third parties are unsuccessful, our profitability may be delayed or reduced. We rely on a number of manufacturers for our product candidates and our business will be seriously harmed if these manufacturers are not able to satisfy our demand and alternative sources are not available. We depend on third parties in the conduct of our clinical studies for our product candidates. We face substantial competition from companies with more resources and experience than we have, which may result in others discovering, developing or commercializing products before or more successfully than we do. We have no experience selling or distributing products and no internal capability to do so. If approved, telavancin may not be accepted by physicians, patients, third party payors, or the medical community in general. If we lose key scientists or management personnel, or if we fail to recruit additional highly skilled personnel, it will impair our ability to discover, develop and commercialize product candidates. Our principal facility is located near known earthquake fault zones, and the occurrence of an earthquake, extremist attack or other catastrophic disaster could cause damage to our facilities and equipment, which could require us to cease or curtail operations. Risks Related to GSK s Ownership of Our Stock GSK s right to become a controlling stockholder of the company and its right to membership on our board of directors may create conflicts of interest, and may inhibit our management s ability to continue to operate our business in the manner in which it is currently being operated. GSK s rights under the strategic alliance and governance agreements may deter or prevent efforts by other companies to acquire us, which could prevent our stockholders from realizing a control premium. Our governance agreement with GSK limits our ability to raise debt and equity financing, undertake strategic acquisitions or dispositions and take certain other actions, which could significantly constrain and impair our business and operations. The market price of our common stock is not guaranteed, and could be adversely affected by the put and call arrangements with GSK. After September 1, 2012, GSK could sell or transfer a substantial number of shares of our common stock, which could depress our stock price or result in a change in control of our company. As a result of the call and put arrangements with GSK, there are uncertainties with respect to various tax consequences associated with owning and disposing of shares of our common stock. Therefore, there is a risk that owning and/or disposing of our common stock may result in certain adverse tax consequences to our stockholders. Risks Related to Legal and Regulatory Uncertainty If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market. Litigation or third-party claims of intellectual property infringement could require us to divert resources and may prevent or delay our drug discovery and development efforts. Product liability lawsuits could divert our resources, result in substantial liabilities and reduce the commercial potential of our medicines. Uncertainty regarding the effects of recent health care reform measures, trends in the managed health care and health insurance industries, and the likelihood of further legislative reform of the healthcare system could adversely affect our ability to sell our potential medicines profitably. If we use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages. Concentration of ownership will limit your ability to influence corporate matters. Our stock price may be extremely volatile and purchasers of our common stock could incur substantial losses. Anti-takeover provisions in our charter and bylaws, in our rights agreement and in Delaware law could prevent or delay a change in control of our company.

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1080014--3/8/2006--THERAVANCE_INC