1273013--3/20/2006--PHARMACOPEIA_DRUG_DISCOVERY

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{property, intellectual, protect}

{product, candidate, development}

{acquisition, growth, future}

{tax, income, asset}

{stock, price, share}

{control, financial, internal}

{product, market, service}

{operation, natural, condition}

{capital, credit, financial}

{cost, regulation, environmental}

{personnel, key, retain}

{provision, law, control}

{operation, international, foreign}

{interest, director, officer}

{product, liability, claim}

RISKS RELATED TO OUR BUSINESS AND INDUSTRY Our revenue is highly concentrated in our two largest collaborators. The planned cessation of full-time employee funding from Schering-Plough or the termination of our collaboration with N.V. Organon would have a material adverse effect on our business as it is currently conducted, financial condition and results of operations if we are unable to replace the funding from these relationships. If we consume cash more quickly than expected, we may be unable to raise additional capital and we may be forced to curtail operations. The development of our internal and collaborative products is at an early stage and is uncertain. Our business is highly dependent upon the extent to which the pharmaceutical and biotechnology industries collaborate with drug discovery and development companies for one or more aspects of their drug discovery and development process. If our collaborators are not able to successfully develop our existing clinical candidates, our business will be harmed. Our stock price may be volatile, and your investment in our stock could decline in value. We had net losses in recent years, and our future profitability is uncertain. Disputes may arise between our partners and us as to royalties and milestones to which we believe we are entitled. We may not successfully enter into additional collaborations that allow us to participate in the future success of our product candidates through milestone, royalty and/or license payments, and we may never receive any milestone, royalty and/or license payments under our current or any future collaborations. The drug research and development industry is highly competitive and subject to technological change, and we may not have the resources necessary to compete successfully. If we cannot manage the multiple relationships and interests involved in our collaborative arrangements and internal programs, our business, financial condition and results of operations may be materially adversely affected. If we use hazardous materials in a manner that causes injury or violates laws, we may be liable for damages. We and our products are subject to strict government regulation, which may limit the development of products by us or our collaborators. Failure to attract and retain skilled personnel could materially and adversely affect us. Some of our development and marketing activities are, or will be, conducted by third parties. If these third parties fail to perform their functions satisfactorily, our revenue and earnings could be delayed, reduced or eliminated. We are subject to risks associated with the operation of an international business. We may not realize revenue from our business development efforts. Our operations may be interrupted by the occurrence of a natural disaster or other catastrophic event at our primary facilities. Because we do not intend to pay dividends, you will benefit from an investment in our common stock only if it appreciates in value. Anti-takeover provisions under Section 203 of the Delaware General Corporation Law, provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and our adoption of a stockholder rights plan may render more difficult the accomplishment of mergers or the assumption of control by a principal stockholder, making more difficult the removal of management. If we engage in an acquisition or business combination, we will incur a variety of risks that could adversely affect our business operations or our stockholders. RISKS RELATED TO ESTABLISHING OUR COMPANY AS INDEPENDENT FROM ACCELRYS We have agreed to certain restrictions to preserve the tax treatment of the distribution, which will reduce our strategic and operating flexibility. We may be required to indemnify Accelrys, or may not be able to collect on indemnification rights from Accelrys. CERTAIN RISKS RELATED TO INTELLECTUAL PROPERTY Positions taken by the U.S. Patent and Trademark Office or non-U.S. patent and trademark officials may preclude us from obtaining sufficient or timely protection for our intellectual property. Third parties may have filed patent applications of which we may or may not have knowledge, and which may adversely affect our business. We may not be able to protect adequately the trade secrets and confidential information that we disclose to our employees. Foreign laws may not afford us sufficient protections for our intellectual property, and we may not seek patent protection outside the United States. We may not be able to adequately defend our intellectual property from third party infringement, and third party challenges to our intellectual property may adversely affect our rights and be costly and time consuming. A patent issued to us may not be sufficiently broad to protect adequately our rights in intellectual property to which the patent relates. We may be subject to claims of infringement by third parties.

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1273013--3/20/2006--PHARMACOPEIA_DRUG_DISCOVERY_INC