1273013--3/6/2008--PHARMACOPEIA

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RISKS RELATED TO OUR BUSINESS AND INDUSTRY If we consume cash more quickly than expected, and if we are unable to raise additional capital, we may be forced to curtail operations. Because PS433540 is in Phase 2 clinical development and PS178990 is in Phase 1 clinical development, there is a high risk that further development and testing will demonstrate that neither compound is suitable for commercialization. In addition, because we exclusively licensed each of PS433540 and PS178990 from BMS, any dispute with BMS may adversely affect our ability to develop and commercialize those product candidates. Our development of PS433540 may be adversely impacted if our clinical trials show certain adverse effects reported by other companies in connection with clinical trials of their ERA and ARB product candidates. Our development of PS178990 may be adversely impacted if our clinical trials show certain adverse effects reported in connection with testosterone and other anabolic steroids. We had net losses in recent years and our future profitability is uncertain. Our current revenue stream 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 third parties do not manufacture PS433540 in sufficient quantities and at an acceptable cost, clinical development of PS433540 would be delayed. Use of third-party manufacturers may increase the risk that we will not have adequate supplies of our product candidates. We are dependent on our collaborations, and events involving these collaborations or any future collaborations could prevent us from developing or commercializing product candidates. The development of our internal and collaborative products is at an early stage and is uncertain. 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. Disputes may arise between our partners and us as to royalties and milestones to which we believe we are entitled. 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. If third parties on whom we rely do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or to commercialize our product candidates. 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. Accounting for our collaboration agreements, our in-licensing agreements, our revenues and costs, our warrants and share-based compensation and other significant transactions involve significant estimates which, if incorrect, could have a material adverse effect on our financial position, results of operations, and our ability to raise capital. 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--3/6/2008--PHARMACOPEIA_INC