<PAGE>
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON             , 1997
                                                      REGISTRATION NO. 333-20513
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------
   
                                AMENDMENT NO. 2
                                       TO
                                   FORM SB-2
    
                             REGISTRATION STATEMENT
                        UNDER THE SECURITIES ACT OF 1933
                            ------------------------
                                ANTIVIRALS INC.
          (Name of small business issuer as specified in its charter)
 

<TABLE>
<S>                              <C>                            <C>
            OREGON                           2834                  93-0797222
 (State or other jurisdiction    (Primary Standard Industrial    (IRS Employer
              of                 Classification Code Number)     Identification
incorporation or organization)                                      Number)
</TABLE>

 
                          ONE SW COLUMBIA, SUITE 1105
                             PORTLAND, OREGON 97201
                                 (503) 227-0554
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
 
                             DENIS R. BURGER, PH.D.
                            CHIEF EXECUTIVE OFFICER
                                ANTIVIRALS INC.
                         ONE S.W. COLUMBIA, SUITE 1105
                             PORTLAND, OREGON 97258
                                 (503) 227-0554
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                         ------------------------------
 
                                   COPIES TO:
 

<TABLE>
<S>                                       <C>
  JACK W. SCHIFFERDECKER, JR., ESQ.              MARK A. VON BERGEN, ESQ.
       BYRON W. MILSTEAD, ESQ.                    SUSAN L. PRESTON, ESQ.
 ATER WYNNE HEWITT DODSON & SKERRITT          WEISS, JENSEN, ELLIS & HOWARD
                 LLP
     222 SW COLUMBIA, SUITE 1800                 2300 U.S. BANCORP TOWER
        PORTLAND, OREGON 97201                    PORTLAND, OREGON 97204
      TELEPHONE: (503) 226-1191                 TELEPHONE: (503) 243-2300
</TABLE>

 
                         ------------------------------
 
        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this Registration Statement becomes effective.
                         ------------------------------
 
    If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
 
    If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
 
    If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. If any of the securities being registered on
this form are to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act, check the following. /X/
 
                        CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
                                                                                                                PROPOSED MAXIMUM
                              TITLE OF EACH CLASS OF                                       AMOUNT TO             OFFERING PRICE
                           SECURITIES TO BE REGISTERED                                 BE REGISTERED(1)            PER UNIT(1)
<S>                                                                                 <C>                      <C>
 (a) Units (2) each consisting of:................................................         1,725,000                 $10.00
     (i) One share of Common Stock, $.0001 par value, and
    (ii) Warrant to Purchase One Share of Common Stock
 (b) Units (3) each consisting of:................................................          150,000                   12.00
     (i) One share of Common Stock, $.0001 par value, and
    (ii) Warrant to Purchase One Share of Common Stock
 (c) Common Stock, $.0001 par value (4)...........................................         1,725,000                  15.00
 (d) Common Stock, $.0001 par value (5)...........................................          150,000                   15.00
Total.............................................................................
 
<CAPTION>
                                                                                       PROPOSED MAXIMUM
                              TITLE OF EACH CLASS OF                                       AGGREGATE                AMOUNT OF
 
                           SECURITIES TO BE REGISTERED                                 OFFERING PRICE(1)        REGISTRATION FEE
 
<S>                                                                                 <C>                      <C>
 (a) Units (2) each consisting of:................................................        $17,250,000               $5,948.28
 
     (i) One share of Common Stock, $.0001 par value, and
    (ii) Warrant to Purchase One Share of Common Stock
 (b) Units (3) each consisting of:................................................         1,800,000                 620.69
 
     (i) One share of Common Stock, $.0001 par value, and
    (ii) Warrant to Purchase One Share of Common Stock
 (c) Common Stock, $.0001 par value (4)...........................................        25,875,000                8,922.42
 
 (d) Common Stock, $.0001 par value (5)...........................................         2,250,000                 775.87
 
Total.............................................................................        $47,175,000              $16,267.26
 
</TABLE>

 
(1) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457.
(2) Includes 225,000 Units that the Underwriters have the option to purchase to
    cover overallotments, if any.
(3) Issuable upon exercise of a warrant to be granted to the representative of
    the Underwriters to purchase up to 10% of the Units sold in the Offering,
    excluding any overallotments, at 120% of the Unit Offering Price.
(4) Issuable upon exercise of the Common Stock Purchase Warrants registered
    hereby at 150% of the Unit Offering Price. The exercise price of such Common
    Stock Warrants is estimated solely for the purpose of determining the
    registration fee. An indeterminate number of additional shares of Common
    Stock are registered hereunder that may be issued, as provided in the Common
    Stock Purchase Warrants, if provisions in such warrants against dilution
    become operative. No additional registration fee is included for such
    shares.
(5) Issuable upon exercise of the Common Stock Purchase Warrants which are
    issuable upon exercise of the warrant to be granted to the representative of
    the Underwriters to purchase up to 10% of the Units sold in the Offering,
    excluding any overallotments, at 120% of the Unit Offering Price.
                         ------------------------------
 
    THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>
                                ANTIVIRALS INC.
 
                            ------------------------
 
                             CROSS REFERENCE SHEET
                 SHOWING LOCATION IN PROSPECTUS OF INFORMATION
                         REQUIRED BY ITEMS OF FORM SB-2
 
                            ------------------------
 

<TABLE>
<CAPTION>
               FORM SB-2 ITEM NUMBER AND CAPTION                                   PROSPECTUS CAPTION
- ----------------------------------------------------------------  -----------------------------------------------------
<C>        <S>                                                    <C>
       1.  Front of Registration Statement and Outside Front
             Cover of Prospectus................................  Outside Front Cover Page of Prospectus
       2.  Inside Front and Outside Back Cover Page of
             Prospectus.........................................  Inside Front Cover Page of Prospectus; Outside Back
                                                                    Cover Page of Prospectus; Additional Information
       3.  Summary Information and Risk Factors.................  Prospectus Summary; Risk Factors
       4.  Use of Proceeds......................................  Prospectus Summary; Use of Proceeds
       5.  Determination of Offering Price......................  Risk Factors; Underwriting
       6.  Dilution.............................................  Dilution
       7.  Selling Security Holders.............................  Not Applicable
       8.  Plan of Distribution.................................  Outside Front Cover Page of Prospectus; Underwriting
       9.  Legal Proceedings....................................  Not Applicable
      10.  Directors, Executive Officers, Promoters and Control
             Persons............................................  Management
      11.  Security Ownership of Certain Beneficial Owners and
             Management.........................................  Principal Shareholders
      12.  Description of Securities............................  Prospectus Summary; Dividend Policy; Capitalization;
                                                                    Description of Securities
      13.  Interest of Named Experts and Counsel................  Not Applicable
      14.  Disclosure of Commission Position on Indemnification
             for Securities Act Liabilities.....................  Management
      15.  Organization Within Last Five Years..................  Certain Transactions
      16.  Description of Business..............................  Prospectus Summary; Risk Factors; Management's
                                                                    Discussion and Analysis of Financial Condition and
                                                                    Results of Operations; Business
      17.  Management's Discussion and Analysis or Plan of
             Operations.........................................  Management's Discussion and Analysis of Financial
                                                                    Condition and Results of Operations
      18.  Description of Property..............................  Business
      19.  Certain Relationships and Related Transactions.......  Certain Transactions
      20.  Market for Common Equity and Related Stockholder
             Matters............................................  Risk Factors; Underwriting; Description of
                                                                    Securities; Shares Eligible for Future Sale
      21.  Executive Compensation...............................  Management
      22.  Financial Statements.................................  Financial Statements
      23.  Changes in and Disagreements With Accountants on
             Accounting and Financial Disclosure................  Not Applicable
</TABLE>


<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

<PAGE>
   
                  SUBJECT TO COMPLETION, DATED APRIL 17, 1997
    
 
PROSPECTUS
 
                                1,500,000 UNITS
 
                                     [LOGO]
 
               EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
                     AND ONE COMMON STOCK PURCHASE WARRANT
 
   
    ANTIVIRALS INC. ("ANTIVIRALS" or the "Company") is hereby offering 1,500,000
units ("Units"), each Unit consisting of one share (the "Shares") of the
Company's common stock, $.0001 par value (the "Common Stock"), and one warrant
to purchase one share of Common Stock (the "Warrants"). The Units will separate
immediately upon issuance, and Common Stock and Warrants that make up the Units
will trade only as separate securities. Each Warrant initially entitles the
holder thereof to purchase one share of Common Stock at a price of $      per
share (150% of the initial public offering price of the Units), subject to
adjustment under certain circumstances. The Warrants are exercisable at any
time, unless previously redeemed, until the fifth anniversary of this
Prospectus, subject to certain conditions. The Company may redeem the
outstanding Warrants, in whole or in part, at any time upon at least 30 days
prior written notice to the registered holders thereof, at a price of $.25 per
Warrant, provided that the closing bid price of the Common Stock has been at
least 200% of the then-current Warrant exercise price for each of the 20
consecutive trading days immediately preceding the date of the notice of
redemption.
    
 
   
    Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants, and there can be no assurance that an active trading
market will develop or be maintained following the offering. See "Underwriting"
for the factors to be considered in determining the initial public offering
price. It currently is anticipated that the initial public offering price will
be between $8.00 and $10.00 per Unit. The initial public offering price of the
Units will be determined by negotiation between the Company and Paulson
Investment Company, Inc. and Millennium Financial Group, Inc., the
representatives of the several Underwriters (the "Representatives").
    
 
    Application has been made to have the Common Stock and Warrants approved for
quotation on the Nasdaq National Market under the symbols "AVII" and "AVIIW,"
respectively.
 
   
    THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING AT PAGE 7.
    
                             ---------------------
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
       EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
           SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
                COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
                   OF THIS PROSPECTUS. ANY REPRESENTATION TO
                           THE CONTRARY IS A CRIMINAL
                                    OFFENSE.
 

<TABLE>
<CAPTION>
                                                            UNDERWRITING          PROCEEDS TO
                                    PRICE TO PUBLIC         DISCOUNT (1)          COMPANY (2)
<S>                               <C>                   <C>                   <C>
Per Unit........................           $                     $                     $
Total (3).......................           $                     $                     $
</TABLE>

 
(SEE ACCOMPANYING FOOTNOTES ON NEXT PAGE)
 
    The Units offered by this Prospectus are offered by the several Underwriters
subject to prior sale, when and if delivered to and accepted by the
Underwriters, and subject to the right to reject any order in whole or in part
and to certain other conditions. It is expected that delivery of the Units will
be made in New York, New York on or about            , 1997.
                            ------------------------
 
   
PAULSON INVESTMENT COMPANY, INC.
    
   
                                                MILLENNIUM FINANCIAL GROUP, INC.
    
                                ----------------
 
               THE DATE OF THIS PROSPECTUS IS            , 1997.

<PAGE>
(FOOTNOTES CONTINUED FROM FRONT COVER PAGE)
 
   
(1) Excludes a non-accountable expense allowance equal to 2.5% of the gross
    proceeds of this offering payable to the Representatives, and the value of
    the five-year warrant (the "Representatives' Warrants") entitling the
    Representatives to purchase up to 150,000 Units at a price of $    per Unit
    (120% of the initial public offering price of the Units). The Company has
    agreed to indemnify the Underwriters against certain liabilities, including
    liabilities under the Securities Act of 1933, as amended (the "Securities
    Act"). See "Underwriting."
    
 
   
(2) Before deducting estimated expenses payable by the Company estimated at
    $812,500, including the Representatives' non-accountable expense allowance.
    
 
(3) The Company has granted the Underwriters a 45-day option (the "Overallotment
    Option") to purchase up to 225,000 additional Units on the same terms as set
    forth above to cover overallotments, if any. If the Underwriters exercise
    such option in full, the total Price to Public, Underwriting Discount and
    Proceeds to Company will be $         , $         and $         ,
    respectively. See "Underwriting."
 
    The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company intends to furnish its shareholders with annual reports containing
financial statements audited by its independent auditors and quarterly reports
containing unaudited financial information for each of the first three quarters
of each fiscal year.
 
    IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
 
                            ------------------------
 
    This prospectus includes trademarks and registered trademarks of the
Company, including NEU-GENE-REGISTERED TRADEMARK- and CYTOPORTER-TM-, and
trademarks and registered trademarks of other companies.
 
                                       2

<PAGE>
                               PROSPECTUS SUMMARY
 
   
    THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED,
ALL INFORMATION IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE OF THE OVERALLOTMENT
OPTION, THE WARRANTS OR THE REPRESENTATIVES' WARRANTS, (II) A 1-FOR-3 REVERSE
SPLIT OF THE COMMON STOCK WHICH WAS COMPLETED ON NOVEMBER 4, 1996 AND (III)
EXCEPT AS OTHERWISE INDICATED, NO SHARES OF COMMON STOCK WILL BE TENDERED TO THE
COMPANY IN CONNECTION WITH THE RESCISSION OFFERING TO BE UNDERTAKEN AND
COMPLETED BY THE COMPANY IMMEDIATELY PRIOR TO THE CLOSING OF THIS OFFERING. SEE
"RISK FACTORS--POTENTIAL LIABILITY ARISING FROM RESCISSION RIGHTS OF CERTAIN
SHAREHOLDERS," "DESCRIPTION OF SECURITIES" AND "UNDERWRITING."
    
 
    THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS OR EXPERIENCE COULD DIFFER SIGNIFICANTLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS"
AS WELL AS THOSE ELSEWHERE IN THIS PROSPECTUS.
 
                                  THE COMPANY
 
    ANTIVIRALS is a pioneer company in the field of gene-inactivating technology
referred to as antisense and has developed a patented class of antisense
compounds which may be useful in the treatment of a wide range of human
diseases. The Company also has developed new drug delivery technology which may
be useful with many FDA-approved drugs as well as with its antisense compounds.
The Company's drug development program has two areas of near-term focus:
 
    - NEU-GENE antisense compounds for selected applications, and
 
    - CYTOPORTER drug delivery engines for enhanced delivery of FDA-approved
      drugs with delivery problems.
 
   
    The Company's long-term product development program combines its NEU-GENE
and CYTOPORTER technologies to produce combination drugs with potential
applications for many human diseases. The Company has 20 issued patents and
several patent applications covering the basic compositions of matter, methods
of synthesis, and medical uses of NEU-GENE and CYTOPORTER compounds.
    
 
    Antisense technology has the potential to provide safe and effective
treatment for a broad range of diseases that previously have been difficult to
address, including viral and host diseases. The Company's new approach uses
synthetic compounds designed to inactivate selected genetic sequences that
underlie the disease process and thereby halt the disease. Targeting genetic
sequences with antisense compounds provides the selectivity that is not
available in conventional drug development which typically targets proteins
directly. The antisense approach specifically inhibits the mechanisms which
underlie the production of disease-producing proteins.
 
    To reach their therapeutic targets, many drugs must cross tissue and
cellular barriers. Drugs that have an intracellular site of action must cross
the lipid (fat-like) barrier of cellular membranes to move from the aqueous
environment in blood into the interior of target cells. Therefore, these drugs
must achieve solubility in both water and lipids. Since few compounds have these
solubility characteristics, many drug candidates are a compromise between
inherent solubility and effective delivery. This trade-off reduces efficacy and
may significantly heighten toxicity of many drug candidates, as well as many
FDA-approved drugs.
 
    The Company has developed two distinct technologies to address the critical
issues in drug development: selectivity for the target and delivery to the
target. The Company's NEU-GENE antisense technology addresses the issue of drug
selectivity and its CYTOPORTER drug delivery technology addresses delivery
problems with FDA-approved drugs and antisense compounds. The patented structure
of the Company's NEU-GENE compounds distinguishes its antisense technology from
competing technologies and provides
 
                                       3

<PAGE>
the selectivity for a single disease target that is the hallmark of antisense
drug development. The Company's molecular engine, CYTOPORTER, is designed to
transport drugs with delivery problems across the lipid barrier of cellular
membranes into the interior of cells to reach their targets.
 
   
    The first application of the Company's NEU-GENE antisense technology is
designed to treat restenosis, a cardiovascular disease. The Company is currently
in pre-clinical development with this compound and expects to file an IND to
begin clinical trials in 1998. The Company's first planned drug delivery
products combine its CYTOPORTER delivery engine with two FDA-approved drugs that
have delivery problems. These drugs, cyclosporin and paclitaxel (Taxol), will
both be off patent by late 1997 and could have much broader usage if their
delivery problems were reduced. The Company expects to file an IND to begin
clinical trials with its enhanced form of cyclosporin and to initiate
pre-clinical studies with its enhanced form of paclitaxel in 1998.
    
 
    The Company plans to market its initial products through marketing
agreements or other licensing arrangements with large pharmaceutical companies.
The Company intends to retain manufacturing rights to all products incorporating
its technology, whether such products are marketed directly by the Company or
through collaborative agreements with industry partners.
 
   
    The Company is a developmental stage biotechnology company which must
achieve additional significant milestones before it can commercialize either
NEU-GENE-REGISTERED TRADEMARK- antisense compounds or its CYTOPORTER-TM- drug
delivery engines. Successful commercialization of these potential products also
is dependent on the Company's successful testing of and obtaining regulatory
approval of the potential products. This testing and regulatory approval
process, if successful, will not be completed for several years. The Company
will require substantial funds for further development of its potential products
and to commercialize the products that may be developed. There can be no
assurance that the Company will achieve the necessary milestones, successfully
test its proposed products, obtain necessary regulatory approvals, or obtain
necessary financing to successfully commercialize its proposed products.
    
 
   
    Prior to the closing of this offering, as a condition to this offering, the
Company will offer to certain holders of 1,292,973 shares of its Common Stock
the right to rescind the holder's purchase of shares of the Company's Common
Stock (the "Rescission Offer"). If all such offerees elect to rescind their
purchases, the Company will be required to pay these holders $3,121,965 and
568.67 units of limited partnership interest in the Anti-Gene Development Group,
a research and development limited partnership from which the Company acquired
certain technologies, plus approximately $2,129,000 in statutory interest.
Although the Company believes that its potential liability to shareholders who
receive the Rescission Offer for violations of state securities laws will be
effectively eliminated as a result of the Rescission Offer and the running of
applicable statutes of limitations, the Securities and Exchange Commission takes
the position that liabilities under the federal securities laws are not
terminated by the making of a rescission offer. In addition, the fact that the
Company will issue promissory notes in lieu of cash to rescinding shareholders
residing in Oregon and Colorado if the total rescission price exceeds $1,500,000
may limit the preclusive effect of the Rescission Offer in those states.
    
 
    The Company's principal executive office is located at One S.W. Columbia,
Suite 1105, Portland, Oregon 97258, where the telephone number is (503)
227-0554.
 
                                       4

<PAGE>
                                  THE OFFERING
 
   

<TABLE>
<S>                                 <C>
Securities offered................  1,500,000 Units, each consisting of one share of Common
                                    Stock and one Warrant to purchase one share of Common
                                    Stock. The Common Stock and Warrants will be separately
                                    tradeable immediately following this offering. See
                                    "Description of Securities."
 
Common Stock to be outstanding
  after this offering.............  10,279,763 shares(1)
 
Use of proceeds...................  To fund research and development, and for working
                                    capital, and other general corporate purposes. See "Use
                                    of Proceeds."
 
Proposed Nasdaq National Market
  symbols.........................  Common Stock--AVII
 
                                    Warrants--AVIIW
</TABLE>

    
 
- ------------------------
 
   
(1) Excludes an aggregate of 1,123,827 shares of Common Stock issuable upon
    exercise of stock options outstanding at March 31, 1997, and an aggregate of
    427,434 shares of Common Stock issuable upon exercise of outstanding
    warrants as of March 31, 1997. An additional 209,506 shares are reserved for
    issuance under the Company's Stock Incentive Plan. See "Capitalization and
    Management--Stock Incentive Plan."
    
 
                                       5

<PAGE>
                             SUMMARY FINANCIAL DATA
 
   

<TABLE>
<CAPTION>
                                                                 PERIOD
                                                                FROM JULY
                                                                22, 1980
                                         YEAR ENDED DECEMBER    (INCEPTION)
                                                 31,             THROUGH
                                        ----------------------  DECEMBER
                                           1995        1996     31, 1996
                                        ----------  ----------  ---------
<S>                                     <C>         <C>         <C>
STATEMENTS OF OPERATIONS DATA:
Revenues, from grants and research
  contracts...........................  $   82,500  $   27,227  $689,497
                                        ----------  ----------  ---------
Operating expenses:
  Research and development............   2,097,796   1,729,554  9,011,574
  General and administrative..........     609,723     613,811  4,549,582
                                        ----------  ----------  ---------
    Total operating expenses..........   2,707,519   2,343,365  13,561,156
                                        ----------  ----------  ---------
Other income..........................      68,133     228,776   446,176
                                        ----------  ----------  ---------
Net loss..............................  $(2,556,886) $(2,087,362) $(12,425,483)
                                        ----------  ----------  ---------
                                        ----------  ----------  ---------
Net loss per share(1).................  $    (0.37) $    (0.25)
                                        ----------  ----------
                                        ----------  ----------
Shares used in per share
  calculation(1)......................   6,982,459   8,233,548
                                        ----------  ----------
                                        ----------  ----------
</TABLE>

    
 

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31, 1996
                                                                    DECEMBER    ----------------------------
                                                                    31, 1995     ACTUAL     AS ADJUSTED(2)
                                                                   ----------   --------  ------------------
<S>                                                                <C>          <C>       <C>
BALANCE SHEET DATA:
Working capital..................................................   $646,814    $2,738,677    14$,346,177
Total assets.....................................................  2,324,736    4,248,899    15,856,399
Common stock subject to rescission...............................  3,121,965    3,121,965     3,121,965
Deficit accumulated during the development stage.................  (10,338,121) (12,425,483)   (12,425,483)
Total shareholders' equity (deficit).............................  (1,051,293)   796,127     12,403,627
</TABLE>

 
- ------------------------------
 
(1) See Note 2 of Notes to Financial Statements for an explanation of the
    determination of the number of shares used in computing net loss per share.
 
   
(2) Adjusted to give effect to the application of the estimated net proceeds of
    the proposed offering of 1,500,000 Units by the Company based upon an
    assumed initial public offering price of $9.00 per Unit. See "Management's
    Discussion and Analysis of Financial Condition and Results of Operations."
    
 
                                       6

<PAGE>
                                  RISK FACTORS
 
    IN EVALUATING THE COMPANY AND ITS BUSINESS, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS IN ADDITION TO THE OTHER INFORMATION
CONTAINED ELSEWHERE HEREIN. BECAUSE ANY INVESTMENT IN THE COMPANY'S CAPITAL
STOCK INVOLVES A HIGH DEGREE OF RISK, ONLY INVESTORS WHO CAN ACCOMMODATE SUCH
RISKS, INCLUDING A COMPLETE LOSS OF THEIR INVESTMENT, SHOULD PURCHASE THE UNITS.
 
    DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES.  The Company is a
development stage biotechnology company. Since its inception in 1980 through
December 31, 1996, the Company had incurred losses of $12,425,483, substantially
all of which resulted from expenditures related to research and development and
general and administrative expenses. The Company has not generated any material
revenues from product sales to date, and there can be no assurance that material
revenues from product sales will ever be achieved. Moreover, even if the Company
does realize revenues from product sales, the Company nevertheless expects to
incur significant operating losses over the next several years. The financial
statements accompanying this Prospectus have been prepared assuming that the
Company will continue as a going concern. The Company's ability to achieve a
profitable level of operations in the future will depend in large part on the
completion of product development of its antisense and/or drug delivery
products, obtaining regulatory approvals for such products and bringing several
of these products to market. The likelihood of the long-term success of the
Company must be considered in light of the expenses, difficulties and delays
frequently encountered in the development and commercialization of new
pharmaceutical products, competitive factors in the marketplace as well as the
burdensome regulatory environment in which the Company operates. There can be no
assurance that the Company will ever achieve significant revenues or profitable
operations. See "Selected Financial Data" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
 
    TECHNOLOGICAL UNCERTAINTY; EARLY STAGE OF PRODUCT DEVELOPMENT; NO ASSURANCE
OF REGULATORY APPROVALS. The Company's proposed products are in the pre-clinical
stage of development and will require significant further research, development,
clinical testing and regulatory clearances. The Company has no products
available for sale other than research reagents and does not expect to have any
products resulting from its research efforts commercially available for at least
several years. None of the Company's proposed products has been tested in
humans, nor has the Company filed an Investigational New Drug Application
("IND") with the United States Food and Drug Administration ("FDA") on any of
its products currently under research and development. The Company's proposed
products are subject to the risks of failure inherent in the development of
products based on innovative technologies. These risks include the possibilities
that some or all of the proposed products could be found to be ineffective or
toxic, or otherwise fail to receive necessary regulatory clearances; that the
proposed products, although effective, will be uneconomical to manufacture or
market; that third parties may now or in the future hold proprietary rights that
preclude the Company from marketing its products; or that third parties will
develop and market a superior or equivalent products. Accordingly, the Company
is unable to predict whether its research and development activities will result
in any commercially viable products or applications. Furthermore, due to the
extended testing and regulatory review process required before marketing
clearance can be obtained, the Company does not expect to be able to
commercialize any therapeutic drug for at least several years, either directly
or through any potential corporate partners or licensees. Although the Company
and others have demonstrated the effectiveness of antisense compounds in living
cells and, in some cases, in animal models, none of the Company's proposed
products has been tested in humans and there can be no assurance that the
Company's proposed products will prove to be safe or effective in humans or will
receive the regulatory approvals that are required for commercial sale.
 
    NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL.  The Company
will require substantial funds for further development of its potential products
and to commercialize any products that may be developed. The Company's capital
requirements depend on numerous factors, including the progress of its research
and development programs, the progress of pre-clinical and clinical testing, the
time and cost involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent
 
                                       7

<PAGE>
   
claims and other intellectual property rights, competing technological and
market developments and the ability of the Company to establish collaborative
arrangements. The Company has no current anticipated sources of funding beyond
the proceeds from this offering. The Company believes that its existing capital
resources, including the estimated net proceeds of this offering, will be
sufficient to satisfy its current and projected funding requirements for at
least 24 months from the date of this Prospectus. The Company anticipates that
after 24 months, it will require substantial additional capital. Moreover, if
the Company experiences unanticipated cash requirements during the next 24
months, the Company could require additional capital to fund its operations, to
continue research and development programs, to continue the pre-clinical and
clinical testing of its potential products and to commercialize any products
that may be developed. The Company may seek such additional funding through
public or private financings, collaborative arrangements, or other arrangements
with third parties. There can be no assurance that additional funds will be
available on acceptable terms, if at all. The Company may receive additional
funds upon the exercise from time to time of the Warrants and other outstanding
warrants and stock options, but there can be no assurance that any such warrants
or stock options will be exercised or that the amounts received will be
sufficient for the Company's purposes. If additional funds are raised by issuing
equity securities, further substantial dilution to existing shareholders,
including purchasers of the Units offered hereby, may result. If adequate funds
are not available, the Company may be required to delay, scale back or eliminate
one or more of its development programs, or to obtain funds by entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its products or technologies that the Company
would not otherwise relinquish. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
    
 
    POTENTIAL LIABILITY ARISING FROM RESCISSION RIGHTS OF CERTAIN
SHAREHOLDERS.  Throughout its existence, the Company has financed its activities
through periodic offerings of equity securities. During 1992, the Company's
management conducted a review of its past operations, including capital-raising
activities. At that time, although management did not identify any specific,
material failures to comply with obligations imposed on the Company by
applicable federal and state securities laws, management concluded that the
record with respect to such activities was sufficiently incomplete that a
conclusion could not be drawn with substantial certainty that such obligations
were complied with in all material respects. Although the Company believes that,
as of the date of this Prospectus, any potential rescission liability to
shareholders for failure to comply with these obligations has been effectively
eliminated by the running of applicable statutes of limitation, a review of the
Company's securities offering documents prepared in connection with certain
sales of Common Stock during 1991, 1992, 1993 and 1994 and an exchange offering
during 1993 indicated that the Company had omitted to disclose or provided only
limited disclosure with respect to its then potential rescission liability to
prospective purchasers of its Common Stock. As a result of this omission or
limited disclosure, the Company has been unable to conclude that sales of the
Company's Common Stock made in accordance with those offering documents complied
in all material respects with federal and state securities laws.
 
   
    Prior to the closing of this offering, as a condition to this offering, the
Company is offering to each holder of 1,292,973 shares of its Common Stock and
who reside in the states of Alabama, Colorado, Illinois, Massachusetts, Montana,
New Jersey, Ohio, Oregon, Texas, Utah, Washington and Wisconsin the right to
rescind the holder's purchase of shares of the Company's Common Stock (the
"Rescission Offer"). If all such offerees elect to rescind their purchases, the
Company will be required to pay these holders $3,121,965 and 568.67 units of
limited partnership interest in the Anti-Gene Development Group, plus
approximately $2,129,000 in statutory interest. The Company has reserved up to
$1,500,000 for payment to offerees. If shares are tendered to the Company
requiring payments in excess of such amount, rescinding Oregon and Colorado
shareholders will receive cash and interest-bearing promissory notes of the
Company in payment of the rescission liability.
    
 
   
    The Company believes that its potential liability to shareholders who
receive the Rescission Offer for possible violations of the laws of the states
of Alabama, Colorado, Illinois, Massachusetts, Montana, New
    
 
                                       8

<PAGE>
   
Jersey, Ohio, Oregon, Texas, Utah, Washington and Wisconsin will be effectively
eliminated as a result of the Rescission Offer or the running of applicable
statutes of limitations. The Securities and Exchange Commission, however, takes
the position that liabilities under federal securities laws are not terminated
by the making of a rescission offer. The Company believes that its potential
liability to shareholders who receive the Rescission Offer for possible
violations of federal securities laws has been effectively eliminated as a
result of the running of applicable statutes of limitations.
    
 
   
    The fact that the Company will issue promissory notes in lieu of cash to
rescinding shareholders residing in Oregon and Colorado if the aggregate
rescission price exceeds $1,500,000 may limit the preclusive effect of the
Rescission Offer in Oregon and Colorado. If all Oregon and Colorado holders of
the 1,072,252 shares successfully asserted claims against the Company, the
Company would be required to pay these holders approximately $2,674,613, plus
approximately 472.67 units of limited partnership interest in Anti-Gene
Development Group, plus statutory interest. Even if the Company were successful
in defending any securities law claims, the assertion of such claims against the
Company additionally would result in costly litigation and significant
diversions of effort by the Company's management.
    
 
   
    The Securities and Exchange Commission takes the position that liabilities
under the federal securities laws are not terminated by making a rescission
offer. To the extent that eligible offerees affirmatively reject or fail to
respond to the Company's rescission offer, potential liability of the Company
under the 1933 Act may not be completely extinguished. Nevertheless, under those
circumstances, the Company will assert that an eligible offeree who
affirmatively rejects or fails to respond to the Company's Rescission Offer has
released his claims to recover the purchase price of the securities and that
such claims further are barred by applicable statutes of limitation. If the
affirmative rejection or failure to respond to the Rescission Offer does not act
as a release of claims, each eligible offeree who affirmatively rejects or fails
to respond to the Rescission Offer would retain any rights or claims such
eligible offeree may have under the federal securities laws, subject to the
statute of limitations with respect to such rights and claims. In general, for a
claim based on violations of the registration provisions of the federal
securities laws, such a claim must be brought within one year after discovery of
the violation upon which the claim is based, provided that, in no event may such
claims be brought more than three years after the occurrence of the violation.
The Company accordingly believes that the applicable statute of limitations has
run with respect to such claims. Notwithstanding the foregoing, if all holders
of the 1,292,973 shares subject to the Rescission Offer successfully asserted
claims against the Company, the Company would be required to pay these holders
approximately $3,121,965, plus approximately 568.67 units of limited partnership
interest in the Anti-Gene Development Group, plus statutory interest. Even if
the Company were successful in defending any securities law claims, the
assertion of such claims against the Company additionally could result in costly
litigation and diversions of effort by the Company's management. In addition,
the rescission offer will not prevent the Securities and Exchange Commission
from pursuing enforcement action against the Company with respect to any
violations of the federal securities laws that may have occurred.
    
 
   
    In addition, the Rescission Offer is not being made to holders of 22,021
shares of the Company's Common Stock who reside in Florida, the laws of which do
not permit rescission offerings to cure omissions in securities offering
documents. These holders of 22,021 shares of Common Stock originally purchased
such shares from the Company at prices ranging from $4.56 to $4.95 per share or
through the exchange of one unit of limited partnership interest in the
Anti-Gene Development Group. There can be no assurance that claims asserting
violations of federal or state securities laws will not be asserted by any of
these shareholders against the Company or that certain holders will not prevail
against the Company in the assertion of such claims, thereby compelling the
Company to repurchase their shares. If all of the holders of the 22,021 shares
successfully asserted claims against the Company, the Company would be required
to pay these holders $100,000, plus one unit of limited partnership interest in
Anti-Gene Development Group, plus approximately $44,000 in statutory interest.
The Rescission Offer also is not being made to holders of 192,603 shares of the
Company's Common Stock who reside in the states of California and Nevada because
the Company believes that its potential liability to these shareholders has been
eliminated
    
 
                                       9

<PAGE>
by the running of applicable statutes of limitation. There can be no assurance,
however, that claims asserting violations of federal or state securities laws
will not be asserted by any of those shareholders or that certain holders will
not prevail against the Company in the assertion of such claims, compelling the
Company to repurchase their shares. If all of the holders of the 192,603 shares
successfully asserted claims against the Company, the Company would be required
to pay these holders $218,450, plus 54 units of limited partnership interest in
the Anti-Gene Development Group, plus approximately $193,000 in statutory
interest. Even if the Company were successful in defending any securities laws
claims, the assertion of such claims against the Company additionally could
result in costly litigation and significant diversions of effort by the
Company's management.
 
   
    The Company will satisfy the cash requirements with respect to the
Rescission Offer from existing cash and cash equivalents. If shares with an
aggregate rescission price greater than $1,500,000 are tendered to the Company
and the Company is required to issue promissory notes, the Company could require
additional capital to fund operations, continue research and development
programs, perform pre-clinical and clinical testing of its potential antisense
and drug delivery compounds, commercialize any products that may be developed
and satisfy its obligations under the terms of the promissory notes. In
addition, if the Rescission Offer is not deemed to have a preclusive effect and
securities laws claims are successfully asserted against the Company, the
Company may be required to seek additional funds to satisfy the liabilities
arising from such claims and to fund operations, continue research and
development programs, perform pre-clinical and clinical testing of its potential
antisense and drug delivery compounds, commercialize any products that may be
developed and satisfy its obligations under the terms of the promissory notes.
There can be no assurance that additional funds will be available on acceptable
terms, if at all. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its development
programs, or to obtain funds by entering into arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its products or technologies that the Company would not otherwise relinquish.
    
 
   
    SECURITIES LITIGATION.  Although the Company believes that its potential
liability under state securities laws for the sale of securities with inadequate
disclosure will be effectively eliminated by the Rescission Offer and the
running of applicable statutes of limitations, and that its potential liability
under federal securities laws has been effectively eliminated by the running of
applicable statutes of limitations, there can be no assurance that claims
asserting violations of state or federal securities laws based on the facts
underlying the Rescission Offer will not be asserted. A successful claim brought
against the Company could have a material adverse effect on the Company's
business, financial condition and results of operations. Even unsuccessful
claims could result in costly litigation and significant diversions of effort by
the Company's management.
    
 
    LACK OF OPERATING EXPERIENCE.  To date, the Company has engaged exclusively
in the development of pharmaceutical technology. Although members of the
Company's management have experience in biotechnology company operations, the
Company has no experience in manufacturing or procuring products in commercial
quantities or selling pharmaceutical products and has only limited experience in
negotiating, setting up and maintaining strategic relationships, conducting
clinical trials and other later-stage phases of the regulatory approval process.
There can be no assurance that the Company will successfully engage in any of
these activities. See "Management."
 
    MANUFACTURING.  The Company intends to undertake the manufacture of its
products through the clinical development phase. The Company has not previously
manufactured pharmaceutical products of any kind, nor has it manufactured
antisense or drug delivery compounds in commercial quantities. Establishing
manufacturing facilities will require the retention of experienced personnel and
compliance with complex regulations relating to the manufacture of
pharmaceutical products. There is no assurance that the Company will be
successful in establishing and operating a manufacturing facility. See
"Business-- Manufacturing."
 
                                       10

<PAGE>
    DEPENDENCE ON THIRD PARTIES FOR CLINICAL TESTING, MANUFACTURING AND
MARKETING.  The Company does not have the resources and does not currently
intend to conduct later-stage human clinical trials itself or to manufacture all
of its proposed products for commercial sale. The Company therefore intends to
seek larger pharmaceutical company partners to conduct such activities for most
or all of its proposed products and to contract with third parties for the
manufacture of its proposed products for commercial sale. In connection with its
efforts to secure corporate partners, the Company will seek to retain certain
co-marketing rights to certain of its proposed products, so that it may promote
such products to selected medical specialists while its corporate partner
promotes these products to the general medical market. There can be no assurance
that the Company will be able to enter into any such partnering arrangements on
this or any other basis. In addition, there can be no assurance that either the
Company or its prospective corporate partners can successfully introduce its
proposed products, that they will achieve acceptance by patients, health care
providers and insurance companies, or that they can be manufactured and marketed
at prices that would permit the Company to operate profitably. With respect to
the Company's products, the Company may seek to enter into joint venture,
sublicense or other marketing arrangements with another party that has an
established marketing capability. There can be no assurance that the Company
will be able to enter into any such marketing arrangements with third parties,
or that such marketing arrangements would be successful. Failure to market its
products successfully would have a material adverse effect on the Company's
business and results of operations. In addition, the Company has no current
joint venture, strategic partnering or other similar agreements with
pharmaceutical companies, and there can be no assurance that the Company could
negotiate any such arrangements, on an acceptable basis or at all, if it chose
to do so. Accordingly, the commercial viability of the Company's proposed
products has not been independently evaluated by any independent pharmaceutical
company. See "Business--Manufacturing" and "--Marketing Strategy."
 
    NEED TO COMPLY WITH GOVERNMENTAL REGULATION AND TO OBTAIN PRODUCT
APPROVALS.  The testing, manufacturing, labeling, distribution, marketing and
advertising of products such as the Company's proposed products and its ongoing
research and development activities are subject to extensive regulation by
governmental regulatory authorities in the United States and other countries.
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of new pharmaceutical products through lengthy
and detailed clinical testing procedures and other costly and time-consuming
compliance procedures. The Company's compounds require substantial clinical
trials and FDA review as new drugs. The Company cannot predict with certainty
when it might submit its products currently under development for regulatory
review. Once the Company submits its potential products for review, there can be
no assurance that FDA or other regulatory approvals for any pharmaceutical
products developed by the Company will be granted on a timely basis or at all. A
delay in obtaining or failure to obtain such approvals would have a material
adverse effect on the Company's business and results of operations. Failure to
comply with regulatory requirements could subject the Company to regulatory or
judicial enforcement actions, including, but not limited to, product recalls or
seizures, injunctions, civil penalties, criminal prosecution, refusals to
approve new products and withdrawal of existing approvals, as well as
potentially enhanced product liability exposure. Sales of the Company's products
outside the United States will be subject to regulatory requirements governing
clinical trials and marketing approval. These requirements vary widely from
country to country and could delay introduction of the Company's products in
those countries. See "Business--Drug Approval Process and Other Government
Regulation."
 
   
    DEPENDENCE ON KEY PERSONNEL.  The success of the Company's business will
depend to a large extent on the abilities and continued participation of certain
key employees, including Drs. Denis Burger, James Summerton, and Dwight Weller,
upon whom the Company holds key man life insurance in the face amounts of
$500,000, $1,000,000 and $500,000, respectively. The Company has entered into
employment agreements with each of the key employees, which agreements restrict
their ability to compete with the Company for a period of two years following
termination of their employment. The loss of any of these persons or of other
key employees could significantly delay the achievement of the Company's planned
development objectives. Competition for qualified personnel among pharmaceutical
companies is intense,
    
 
                                       11

<PAGE>
and the loss of key personnel, or the inability to attract and retain the
additional, highly skilled personnel required for the expansion of the Company's
activities, could have a material adverse effect on the Company's business and
results of operations. See "Management."
 
    COMPETITION.  Competition in the area of pharmaceutical products is intense.
There are many companies, both public and private, including well-known
pharmaceutical companies, that are engaged in the development of products for
certain of the applications being pursued by the Company. The Company's probable
competitors in the antisense and drug delivery fields include Glaxo Ltd.
("Glaxo"), Boehringer Ingelheim Inc. ("Boehringer Ingelheim"), Gilead Sciences
Inc. ("Gilead"), Hybridon Inc. ("Hybridon"), ISIS Pharmaceuticals, Inc.
("ISIS"), Lynx Therapeutics Inc. ("Lynx"), Cygnus, Inc. ("Cygnus"), Biovail
Corporation International ("Biovail"), and Noven Pharmaceuticals, Inc.
("Noven"), among others. Most of these companies have substantially greater
financial, research and development, manufacturing and marketing experience, and
resources than the Company does and represent substantial long-term competition
for the Company. Such companies may succeed in developing pharmaceutical
products that are more effective or less costly than any that may be developed
by the Company.
 
    Factors affecting competition in the pharmaceutical industry vary depending
on the extent to which the competitor is able to achieve a competitive advantage
based on patented or proprietary technology. If the Company is able to establish
and maintain a significant patent position with respect to its antisense
compounds and drug delivery technology, its competition will likely depend
primarily on the effectiveness of the products and the number, gravity and
severity of unwanted side effects, if any, with its products as compared with
alternative products.
 
    The industry in which the Company competes is characterized by extensive
research and development efforts and rapid technological progress. Although the
Company believes that its patent position may give it a competitive advantage
with respect to its proposed antisense compounds and drug delivery products, new
developments are expected to continue and there can be no assurance that
discoveries by others will not render the Company's potential products
noncompetitive. The Company's competitive position also depends on its ability
to attract and retain qualified scientific and other personnel, develop
effective products, implement development and marketing plans, obtain patent
protection, and secure adequate capital resources. See "Business--Competition."
 
   
    PATENTS AND PROPRIETARY RIGHTS.  The Company believes that its ultimate
success will depend in part on the strength of its existing patents and
additional patents that it files in the future. Patent applications have been
filed covering the basic compositions of matter, methods of synthesis and
medical uses of NEU-GENES. These applications were filed in the United States,
Canada, Europe, Australia, and Japan. Certain of the Company's patents were
issued in the United States from 1991 through the present. Additionally, patents
on NEU-GENE chemistry and CYTOPORTER drug delivery systems have recently been
filed or are near filing. There can be no assurance, however, that any
additional patents will ultimately issue. Although the Company believes that its
technology is adequately protected, there is no assurance that any existing or
future patents will survive a challenge or will otherwise provide meaningful
protection from competition. There is also no assurance that the Company will
have the financial resources to provide a vigorous defense of its patent
position, if challenged, or that the practice of its patented and proprietary
technology will not infringe third-party patents. If an actual infringement
action were instituted against the Company, there can be no assurance that the
Company would have the financial ability to defend the action or that the action
would not have an adverse effect on the Company. The Company's success will also
depend on its ability to avoid infringement of patent or other proprietary
rights of others or that it will be able to obtain any technology licenses it
may require in the future. See "Business--Patents and Proprietary Rights."
    
 
    RISK OF PRODUCT LIABILITY.  Clinical trials or marketing of any of the
Company's potential pharmaceutical products may expose the Company to liability
claims from the use of these products. The Company currently intends to obtain
product liability insurance at the appropriate time; however, there can be no
 
                                       12

<PAGE>
   
assurance that the Company will be able to obtain or maintain insurance on
acceptable terms for its clinical and commercial activities or that such
insurance would be sufficient to cover any potential product liability claim or
recall. Failure to have sufficient coverage could have a material adverse effect
on the Company's business and results of operations.
    
 
   
    BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS.  The Company
expects that the proceeds of this offering will be used for the pre-clinical and
clinical phases of the Company's near-term therapeutic programs, for working
capital and general corporate purposes. The Company is not currently able to
estimate precisely the allocation of the proceeds among such uses, and the
timing and amount of expenditures will vary, depending upon numerous factors.
The Company's management will have broad discretion to allocate the proceeds of
this offering and to determine the timing of expenditures. See "Use of
Proceeds."
    
 
   
    CONTROL BY EXISTING SHAREHOLDERS.  Upon the closing of this offering, the
Company's officers, directors and 5% shareholders and their affiliates will
beneficially own approximately 38% of the Company's outstanding shares of Common
Stock. The Company's existing shareholders will own approximately 85% of the
Company's outstanding shares of Common Stock. Accordingly, these shareholders,
if they were to act as a group, may be able to elect all of the Company's
directors and otherwise control matters requiring approval by the shareholders
of the Company, including approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company. See "Principal Shareholders."
    
 
   
    NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF COMMON STOCK PRICE.  Prior to
this offering, there has been no public market for the Company's Common Stock or
Warrants. There can be no assurance that an active public market for the Common
Stock or Warrants will develop or be sustained after this offering. The initial
public offering price of the Units has been determined by negotiations between
the Company and the Representatives and may not be indicative of future market
prices. The trading price of the Company's Common Stock and Warrants could be
subject to significant fluctuations in response to such factors as variations in
the Company's anticipated or actual results of operations, announcements of new
products or technological innovations by the Company or its competitors, FDA and
foreign regulatory actions, developments with respect to patents and proprietary
rights, public concern as to the safety of products developed by the Company or
others, changes in health care policy in the United States and in foreign
countries, changes in stock market analyst recommendations regarding the
Company, the pharmaceutical industry in general and overall market conditions.
Moreover, the stock market has from time to time experienced extreme price and
volume fluctuations which have particularly affected the market prices for
emerging growth companies and which have often been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock and Warrants. In the past,
following periods of volatility in the market price of a company's common stock,
securities class action litigations have occurred against the issuing company.
There can be no assurance that such litigation will not occur in the future with
respect to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect on the Company's business and results of operations. Any adverse
determination in such litigation could also subject the Company to significant
liabilities. See "Management--Stock Incentive Plan" and "Underwriting."
    
 
   
    ADVERSE EFFECT ON MARKET PRICE DUE TO SHARES ELIGIBLE FOR FUTURE
SALE.  Sales of a substantial number of shares of the Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock and the Company's ability to raise capital in the future in the
equity markets. Upon completion of this offering, there will be 10,279,763
shares of Common Stock outstanding, assuming no exercise of the Overallotment
Option, of outstanding warrants, outstanding options under the Company's Stock
Incentive Plan, the warrants or the Representatives' Warrants after the date of
this Prospectus. In addition to the 1,500,000 shares of Common Stock sold in
this offering, approximately
    
 
                                       13

<PAGE>
   
1,358,055 shares not subject to lock-up agreements will be eligible for
immediate resale without restriction under Rule 144(k) of the Securities Act. An
additional 19,000 shares held for more than one but less than two years by
shareholders who are not affiliates of the Company and who are not subject to
lock-up agreements are eligible for sale under Rule 144 of the Securities Act,
subject to the volume and other limitations thereunder. Upon expiration of
lock-up agreements three months after the date of this Prospectus (or earlier
with the consent of Paulson Investment Company, Inc. ("Paulson"), approximately
56,000 shares will be eligible for immediate resale subject to the limitations
of Rule 144 and approximately 1,492,035 shares will be eligible for resale
immediately without restriction pursuant to Rule 144(k). Upon expiration of
lock-up agreements six months after the date of this Prospectus (or earlier with
the consent of Paulson), approximately 952,500 shares will be eligible for
immediate resale subject to the limitations of Rule 144 and approximately
1,826,924 shares will be eligible for resale immediately without restriction
pursuant to Rule 144(k). Upon expiration of lock-up agreements nine months after
the date of this Prospectus (or earlier with the consent of Paulson),
approximately 1,199,000 shares will be eligible for immediate resale subject to
the limitations of Rule 144 and approximately 2,402,933 shares will be eligible
for resale immediately without restriction pursuant to Rule 144(k). Upon
expiration of lock-up agreements one year after the date of this Prospectus (or
earlier with the consent of Paulson), approximately 5,943,911 shares will be
eligible for immediate resale subject to the limitations of Rule 144 and
approximately 2,835,852 shares will be eligible for resale immediately without
restriction pursuant to Rule 144(k). As of the date of this Prospectus, options
to purchase 1,126,886 shares of Common Stock have been granted under the Stock
Incentive Plan, which shares, if acquired pursuant to the exercise of options,
are subject to lock-up agreements which expire one year after the date of this
Prospectus (or earlier with the consent of the Paulson). See "Management--Stock
Incentive Plan," "Underwriting," "Description of Securities" and "Shares
Eligible for Future Sale."
    
 
   
    REDEMPTION OF WARRANTS.  The outstanding Warrants are subject to redemption
at $.25 per Warrant on 30 days written notice provided that the closing bid
price of the Common Stock for each of the 20 consecutive trading days
immediately preceding the date of the notice of redemption equals or exceeds
200% of the then-current warrant exercise price. If the Company exercises the
right to redeem the outstanding Warrants, a holder would be forced either to
exercise the Warrant or accept the redemption price. See "Description of
Securities--Warrants."
    
 
   
    CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE THE
WARRANTS.  Holders will be able to exercise the Warrants only if a current
prospectus relating to the Common Stock underlying the Warrants is then in
effect, and only if the Common Stock is qualified for sale or exempt from
qualification under applicable state securities law of the state in which such
holders of the Warrants reside. Although the Company has undertaken to maintain
the effectiveness of a current prospectus covering the Common Stock underlying
the Warrants, there can be no assurance that the Company will be able to do so.
The value of the Warrants may be impaired if a current prospectus covering the
Common Stock issuable upon exercise of the Warrants is not kept effective, or if
such Common Stock is not qualified or exempt from qualification in the states in
which the holders of Warrants reside.
    
 
    The Warrants are separately transferable immediately upon issuance. Although
the Units will not knowingly be sold to purchasers in jurisdictions in which the
Units are not registered or otherwise qualified for sale, purchasers may buy
Warrants in the after market in, or may move to, jurisdictions in which the
shares underlying the Warrants are not so registered or qualified during the
period that the Warrants are exercisable. In this event, the Company would be
unable to issue shares to those persons desiring to exercise their warrants, and
holders of Warrants would have no choice but to attempt to sell the Warrants in
a jurisdiction where such sale is permissible or allow them to expire
unexercised. See "Description of Securities--Warrants."
 
    DILUTION.  Investors acquiring shares of Common Stock included in the Units
offered hereby will incur immediate and substantial net tangible value dilution
of $7.47 per share, assuming no value is
 
                                       14

<PAGE>
attributed to the Warrant included in a Unit. To the extent that currently
outstanding options and warrants to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution."
 
   
    ABSENCE OF DIVIDENDS.  The Company has never paid cash dividends on its
Common Stock and does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."
    
 
   
    ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS AND OREGON LAW.  Certain
provisions of the Company's Third Restated Articles of Incorporation and Bylaws
could discourage potential acquisition proposals, could delay or prevent a
change in control of the Company and could make removal of management more
difficult. Such provisions could diminish the opportunities for a shareholder to
participate in tender offers, including tender offers that are priced above the
then-current market value of the Common Stock. The provisions may also inhibit
increases in the market price of the Common Stock and Warrants that could result
from takeover attempts. For example, the Board of Directors of the Company,
without further shareholder approval, may issue up to 2,000,000 shares of
Preferred Stock, in one or more series, with such terms as the Board of
Directors may determine, including rights such as voting, dividend and
conversion rights which could adversely affect the voting power and other rights
of the holders of Common Stock. Preferred Stock thus may be issued quickly with
terms calculated to delay or prevent a change in control of the Company or make
removal of management more difficult. Additionally, the issuance of Preferred
Stock may have the effect of decreasing the market price of the Common Stock.
The Oregon Control Share Act and Business Combination Act limit the ability of
parties who acquire a significant amount of voting stock to exercise control
over the Company. These provisions may have the effect of lengthening the time
required for a person to acquire control of the Company through a proxy contest
or the election of a majority of the Board of Directors and may deter efforts to
obtain control of the Company. Finally, the Company's Board of Directors is
divided into two classes, each of which serves for a staggered two-year term,
which may make it more difficult for a third party to gain control of the
Company's Board of Directors. See "Description of Securities."
    
 
                                       15

<PAGE>
                                USE OF PROCEEDS
 
    The net proceeds to the Company from the sale of the Units offered hereby,
based on an assumed initial public offering price of $9.00 per Unit, are
estimated to be $11,607,500 ($13,419,875 if the Overallotment Option is
exercised in full) after deducting the estimated underwriting discount and
offering expenses and assuming no exercise of the Warrants.
 
   
    The Company expects to use up to $5 million of the net proceeds of this
offering for the pre-clinical and the clinical trial phases of the Company's
near term therapeutic programs. The Company expects to use approximately $5
million to fund future research and development. The balance of the net proceeds
of this offering will be used for working capital and general corporate
purposes. Where appropriate, proceeds of this offering also may be used to
acquire products or technologies that complement the Company's business,
although there are no present understandings, agreements or commitments with
respect to any such acquisitions. The cost, timing and amount of funds required
for such uses by the Company will be based on the timing of regulatory
approvals, the results of clinical testing and trials, and the results of the
Company's research and development programs. The amounts actually expended on
any particular project may vary significantly from the Company's current plans,
particularly given the Company's early stage of development and the uncertainty
of the drug development process. The Company intends that the cash requirements
with respect to the Rescission Offer will be satisfied from existing cash and
cash equivalents. If shares with an aggregate rescission price greater than
$1,500,000 are tendered to the Company and the Company is required to issue
promissory notes, the Company's management retains broad discretion to use the
remaining proceeds for payment of the note obligations.
    
 
    Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term, interest-bearing securities,
including government obligations and money market instruments.
 
                                DIVIDEND POLICY
 
    The Company has not declared or paid cash dividends on its Common Stock. The
Company currently intends to retain all future earnings to fund the operation of
its business and, therefore, does not anticipate paying dividends in the
foreseeable future. Future cash dividends, if any, will be determined by the
Board of Directors.
 
                                       16

<PAGE>
                                 CAPITALIZATION
 
    The following table sets forth the capitalization of the Company as of
December 31, 1996 (i) on an actual basis and (ii) as adjusted to reflect the
receipt and application of the estimated net proceeds from the sale of the
1,500,000 Units offered hereby at an assumed initial offering price of $9.00 per
Unit.
 
   

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31, 1996
                                                                                    ------------------------------
                                                                                        ACTUAL       AS ADJUSTED
                                                                                    --------------  --------------
<S>                                                                                 <C>             <C>
Common Stock subject to rescission, $.0001 par value:
  1,292,973 issued and outstanding................................................  $    3,121,965  $    3,121,965
                                                                                    --------------  --------------
Shareholders' equity:
  Preferred Stock, $.0001 par value: 2,000,000 shares authorized; no shares issued
    and outstanding, actual and as adjusted(1)....................................        --              --
  Common Stock, $.0001 par value: 50,000,000 shares authorized; 7,486,790 shares
    issued and outstanding, actual; 8,986,790 shares issued and outstanding, as
    adjusted(2)...................................................................             749             899
  Additional paid-in capital......................................................      13,220,861      24,828,211
  Deficit accumulated during the development stage................................     (12,425,483)    (12,425,483)
                                                                                    --------------  --------------
  Total shareholders' equity......................................................         796,127      12,403,627
                                                                                    --------------  --------------
Total capitalization..............................................................  $      796,127  $   12,403,627
                                                                                    --------------  --------------
                                                                                    --------------  --------------
</TABLE>

    
 
- ------------------------
 
(1) Reflects an amendment to the Company's Articles of Incorporation that was
    effective November 4, 1996, authorizing the issuance of up to 2,000,000
    shares of Preferred Stock.
 
   
(2) Excludes 1,551,261 shares of Common Stock issuable upon exercise of stock
    options and warrants outstanding as of December 31, 1996, at a weighted
    average exercise price of $4.66 per share. Also excludes 209,506 shares
    reserved for future issuance pursuant to the Company's Stock Incentive Plan.
    See "Management--Stock Incentive Plan" and Note 3 of Notes to Financial
    Statements.
    
 
                                    DILUTION
 
   
    The net tangible book value of the Company as of December 31, 1996, was
$3,443,286 or $0.39 per share of Common Stock. Net tangible book value per share
is determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the total number of outstanding
shares of Common Stock. After giving effect to the sale of the 1,500,000 Units
offered by the Company hereby and the receipt of the estimated net proceeds
therefrom (after deducting the estimated underwriting discount and other
estimated expenses of this offering and attributing no portion of the value of a
Unit to the Warrant), the net tangible book value of the Company at December 31,
1996, would have been $15,050,786 or $1.46 per share. This represents an
immediate increase in the net tangible book value of $11,607,500 or $1.07 per
share to existing holders of Common Stock and an immediate dilution (i.e., the
difference between the initial public offering price and the net tangible book
value after this offering) to new investors purchasing Units in this offering of
$7.54 per share. The following table illustrates the per share dilution to new
investors purchasing Units in this offering:
    
 

<TABLE>
<S>                                                             <C>        <C>
Initial public offering price per share.......................             $    9.00
  Net tangible book value per share at December 31, 1996......  $    0.39
  Increase per share attributable to new investors............       1.07
Pro forma net tangible book value per share after this
  offering....................................................                  1.46
                                                                           ---------
Net tangible book value dilution per share to new investors...             $    7.54
                                                                           ---------
                                                                           ---------
</TABLE>

 
                                       17

<PAGE>
   
    The following table summarizes on a pro forma basis as of December 31, 1996,
the number of shares of Common Stock purchased, the percentage of total cash
consideration paid, and the average price per share (i) paid by present
shareholders and (ii) paid by investors purchasing Units in this offering. The
calculation in this table with respect to shares of Common Stock to be purchased
by new investors in this offering excludes shares of Common Stock issuable upon
exercise of the Warrants (after deducting the estimated underwriting discount
and other estimated expenses of this offering and attributing no portion of the
value of a Unit to the Warrant).
    
 

<TABLE>
<CAPTION>
                                     SHARES PURCHASED          TOTAL CONSIDERATION        AVERAGE
                                 -------------------------  --------------------------   PRICE PER
                                    NUMBER       PERCENT       AMOUNT        PERCENT       SHARE
                                 ------------  -----------  -------------  -----------  -----------
<S>                              <C>           <C>          <C>            <C>          <C>
Existing Shareholders..........     8,779,763         85%      16,343,575         55%    $    1.86
New Investors..................     1,500,000         15%      13,500,000         45%    $    9.00
                                 ------------       -----   -------------       -----
  Total........................    10,279,763        100%      29,843,575        100%
                                 ------------       -----   -------------       -----
                                 ------------       -----   -------------       -----
</TABLE>

 
    The above computations assume no exercise of outstanding options or
warrants. As of December 31, 1996, there were options and warrants outstanding
to purchase a total of 1,551,261 shares of Common Stock at a weighted average
exercise price of $4.66 per share. The exercise of such options or warrants will
result in further dilution to new investors. See "Capitalization."
 
                                       18

<PAGE>
                            SELECTED FINANCIAL DATA
 
    The Selected Financial Data set forth below for the years ended December 31,
1995 and 1996 and with respect to the Balance Sheet Data at December 31, 1995
and 1996 are derived from, and are qualified by reference to, the audited
Financial Statements and related Notes thereto included elsewhere in this
Prospectus and should be read in conjunction with those audited Financial
Statements and Notes thereto. The Selected Financial Data set forth below are
qualified by reference to, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes thereto included elsewhere in this
Prospectus.
 
   

<TABLE>
<CAPTION>
                                                                 PERIOD
                                                                FROM JULY
                                                                22, 1980
                                         YEAR ENDED DECEMBER    (INCEPTION)
                                                 31,             THROUGH
                                        ----------------------  DECEMBER
                                           1995        1996     31, 1996
                                        ----------  ----------  ---------
<S>                                     <C>         <C>         <C>
STATEMENTS OF OPERATIONS DATA:
Revenues, from grants and research
  contracts...........................  $   82,500  $   27,227  $ 689,497
                                        ----------  ----------  ---------
Operating expenses:
  Research and development............   2,097,796   1,729,554  9,011,574
  General and administrative..........     609,723     613,811  4,549,582
                                        ----------  ----------  ---------
    Total operating expenses..........   2,707,519   2,343,365  13,561,156
                                        ----------  ----------  ---------
Other income..........................      68,133     228,776    446,176
                                        ----------  ----------  ---------
Net loss..............................  $(2,556,886) $(2,087,362) $(12,425,483)
                                        ----------  ----------  ---------
                                        ----------  ----------  ---------
Net loss per share(1).................  $    (0.37) $    (0.25)
                                        ----------  ----------
                                        ----------  ----------
Shares used in per share
  calculation(1)......................   6,982,459   8,233,548
                                        ----------  ----------
                                        ----------  ----------
</TABLE>

    
 
   

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31, 1996
                                                                    DECEMBER    ----------------------------
                                                                    31, 1995     ACTUAL     AS ADJUSTED(2)
                                                                   ----------   --------  ------------------
<S>                                                                <C>          <C>       <C>
BALANCE SHEET DATA:
Working capital..................................................   $ 646,814   $2,738,677    14$,346,177
Total assets.....................................................   2,324,736   4,248,899    15,856,399
Common Stock subject to rescission...............................   3,121,965   3,121,965     3,121,965
Deficit accumulated during the development stage.................  (10,338,121) (12,425,483)   (12,425,483)
Total shareholders' equity (deficit).............................  (1,051,293)   796,127     12,403,627
</TABLE>

    
 
- ------------------------
 
(1) See Note 2 of Notes to Financial Statements for an explanation of the
    determination of the number of shares used in computing net loss per share.
 
   
(2) Adjusted to give effect to the application of the estimated net proceeds of
    the proposed offering of 1,500,000 Units by the Company based upon an
    assumed initial public offering price of $9.00 per Unit. See "Use of
    Proceeds" and "Management's Discussion and Analysis of Financial Condition
    and Results of Operations."
    
 
                                       19

<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
OVERVIEW
 
   
    From its inception in July 1980, the Company has devoted its resources
primarily to fund its research and development efforts. The Company has been
unprofitable since inception and, other than limited interest and grant revenue,
has had no material revenues from the sale of products or other sources, and
does not expect material revenues for at least the next 12 months. The Company
expects to continue to incur losses for the foreseeable future as it expands its
research and development efforts. As of December 31, 1996, the Company's
accumulated deficit was $12,425,483.
    
 
   
    The Company expects to use approximately $5 million the net proceeds of this
offering for the pre-clinical development and the clinical trial phases of the
Company's near-term therapeutic programs. See "Use of Proceeds." The Company
intends to increase its research staff as it prepares to initiate pre-clinical
studies and file INDs for Resten-NG and Cyclosporin-CP. The Company's
administrative staff will be supplemented as needed to support the research and
development activities, to assure compliance with governmental regulatory
requirements, and to develop and establish strategic pharmaceutical alliances.
    
 
RESULTS OF OPERATIONS
 
   
    YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31,
1996.  The Company had revenues from research contracts of $82,500 and $27,227
for the years ended December 31, 1995 and 1996, respectively. Revenues for both
time periods were derived from research collaborations with outside
organizations, and the decrease between the current and prior year periods was
due primarily to the completion of a collaborative research program in 1996.
Operating expenses were $2,707,519 in 1995 and $2,343,365 in 1996. The decrease
in operating expenses was due to a reduction in staff and other efficiencies
that resulted from a shift in focus of the Company's research to pre-clinical
development. General and administrative expenses, however, remained relatively
constant, with $609,723 in 1995 and $613,811 in 1996. Other income increased
from $68,133 in 1995 to $228,776 in 1996, primarily due to the sale of
short-term investments and increased interest income in 1996.
    
 
LIQUIDITY AND CAPITAL RESOURCES
 
   
    The Company has financed its operations since inception primarily through
private equity sales totaling $16,343,575 and grants and contract research
funding of $689,497 from various sources. The Company's cash and cash
equivalents were $680,892 at December 31, 1995 and $3,011,229 at December 31,
1996. The increase of $2,330,337 was due to net proceeds from the sale of the
Company's Common Stock of approximately $4,031,532 offset by the use of
approximately $1,608,088 for operations in 1996.
    
 
   
    The Company's future expenditures and capital requirements will depend on
numerous factors, including without limitation, the progress of its research and
development programs, the progress of its pre-clinical and clinical trials, the
time and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, the ability of
the Company to establish collaborative arrangements and the terms of any such
arrangements, and the costs associated with commercialization of its products.
The Company's cash requirements are expected to continue to increase
significantly each year as it expands its activities and operations. There can
be no assurance, however, that the Company will ever be able to generate product
revenues or achieve or sustain profitability. See "Risk Factors."
    
 
   
    The proceeds of this offering are the only source of capital currently
available to the Company, other than existing cash and cash equivalents. See
"Use of Proceeds." The Company believes that the estimated net proceeds from
this offering and existing cash and cash equivalents will satisfy its budgeted
cash requirements for at least the next 24 months based upon the Company's
current operating plan. This plan
    
 
                                       20

<PAGE>
   
shows that at the end of the 24-month period, the Company will require
substantial additional capital. Moreover, if the Company experiences
unanticipated cash requirements during the 24-month period, including without
limitation, cash required to pay the holders of a significant number of shares
of Common Stock in connection with the Company's Rescission Offer, the Company
could require additional capital to fund operations, continue research and
development programs and pre-clinical and clinical testing of its potential
antisense and drug delivery products and commercialize any products that may be
developed. See "Risk Factors--Potential Liability Arising from Rescission Rights
of Certain Shareholders." The Company may seek such additional funding through
public or private financings or collaborative or other arrangements with third
parties. There can be no assurance, however, that additional funds will be
available on acceptable terms, if at all. See "Risk Factors--Additional
Financing Requirements."
    
 
   
    The Company anticipates that it will satisfy the cash requirements of the
Rescission Offer from current cash and cash equivalents. Potential continuing
liability from the issuance of notes related to the Rescission Offer could
result in substantial ongoing interest expense and adversely affect the
Company's access to capital markets. For example, the Company's issuance of
notes would result in additional annual interest expense of approximately
$90,000 for each $1,000,000 of notes payable, up to a maximum of approximately
$300,000 if all eligible offerees exercise their right to rescind. All such
potential increases in annual interest expense could have the effect of
increasing the Company's net loss. Additionally, the potential additional debt
would make it more difficult for the Company to satisfy minimum net worth
standards required to maintain the Company's Common Stock listing on the Nasdaq
National Market System. Finally, the potential additional debt could adversely
affect the Company's creditworthiness in the view of potential lenders and
investors, making it more difficult and expensive for the Company to obtain
needed financing.
    
 
                                       21

<PAGE>
 
                                   BUSINESS
 
GENERAL OVERVIEW
 
    ANTIVIRALS is a pioneer in the field of the gene-inactivating technology
referred to as ANTISENSE and has developed a patented class of antisense
compounds which may be useful in the treatment of a wide range of human
diseases. The Company also has developed new drug delivery technology which may
be useful with many FDA-approved drugs as well as with its antisense compounds.
The Company's drug development program has two areas of near-term focus:
 
    - NEU-GENE antisense compounds for selected applications, and
 
    - CYTOPORTER drug delivery engines for enhanced delivery of FDA-approved
      drugs with delivery problems.
 
   
The Company's long-term product development program combines its NEU-GENE and
CYTOPORTER technologies to produce combination drugs with potential applications
for many diseases. The Company has filed patent applications covering the basic
compositions of matter, methods of synthesis and therapeutic uses of NEU-GENES
in the United States, Canada, Europe, Australia and Japan. Eleven patents have
issued in the United States and nine others have been granted by the European
Patent Office and in Japan, Canada and Australia. Additional patent
applications, covering the Company's basic compositions of matter, methods of
synthesis and medical uses of CYTOPORTER compounds have been filed.
    
 
   
    The first application of the Company's antisense technology is designed to
treat restenosis, a cardiovascular disease. The Company is currently in
pre-clinical development with this compound and expects to file an IND to begin
clinical trials in 1998. The Company's first planned drug delivery products
combine its CYTOPORTER delivery engine with two FDA-approved drugs that have
delivery problems. These drugs, cyclosporin and paclitaxel (Taxol), will both be
off patent by late 1997 and could have much wider use if their delivery problems
are reduced. The Company expects to file an IND to begin clinical trials with
its enhanced form of cyclosporin and to initiate pre-clinical studies with its
enhanced form of paclitaxel in 1998. See "Drug Approval Process and Other
Government Regulations."
    
 
   
    DRUG DESIGN AND DEVELOPMENT.  Most conventional drugs are chemicals designed
to induce or inhibit the function of a target protein molecule with as few side
effects as possible. Conventional drugs are not available for many diseases due
to their low level of selectivity for the specific disease target or because
they are difficult to deliver to their targets. These two issues, lack of
selectivity and poor delivery, may contribute to poor efficacy, unwanted side
effects or high toxicity, even at suboptimal dosages. Moreover, the development
of conventional drugs is usually time consuming and expensive, since thousands
of compounds must be produced and analyzed to find one with an acceptable
balance between efficacy and toxicity. Safe and effective therapeutics for viral
and host diseases have been particularly difficult to develop because these
diseases use the patient's own cellular machinery and therefore provide few
specific targets for therapeutic intervention that will not prove toxic to the
patient.
    
 
    Antisense technology has the potential to provide safe and effective
treatment for a wide range of diseases, including viral and host diseases. This
new approach uses synthetic compounds, or polymers, designed to inactivate
selected genetic sequences, thereby halting the disease process. Targeting these
genetic sequences provides the selectivity that is not available in conventional
drug development which typically targets proteins directly. The antisense
approach inhibits at the genetic level the mechanisms which underlie the
production of disease-producing proteins.
 
                                       22

<PAGE>
    To reach their therapeutic targets, many drugs must cross tissue and
cellular barriers. Drugs that have an intracellular site of action must cross
the lipid barrier of cellular membranes to move from the aqueous environment in
blood into the interior of target cells. Therefore, these drugs must achieve
solubility in both water and lipids. Since few compounds have these solubility
characteristics, many drug candidates are a compromise between inherent
solubility and effective delivery. This trade-off greatly reduces efficacy and
may significantly heighten toxicity of many drug candidates as well as many
FDA-approved drugs.
 
    The Company has developed two distinct technologies designed to address the
critical issues in drug development. The Company's NEU-GENE antisense technology
addresses the issue of drug selectivity, and its CYTOPORTER drug delivery
technology addresses delivery problems with both FDA-approved drugs and
antisense compounds. The characteristics of the patented structure of the
Company's NEU-GENE compounds distinguish its antisense technology from competing
technologies and provide the selectivity for a single disease target that is the
hallmark of all antisense technology. The Company's molecular engine,
CYTOPORTER, is designed to transport certain drugs with poor delivery
characteristics across the lipid barrier of cellular membranes into the interior
of cells to reach their targets.
 
NEAR-TERM PRODUCT DEVELOPMENT SUMMARY
 
   
    The first application of the Company's antisense technology is designed to
treat restenosis. The Company's first planned drug delivery products combine its
CYTOPORTER delivery engine with two FDA-approved drugs, paclitaxel (Taxol) and
cyclosporin, each of which the Company believes could have much broader usage if
its delivery problems were reduced.
    
 
   

<TABLE>
<CAPTION>
                                                       POTENTIAL
COMPOUND                              DRUG             INDICATION                 DEVELOPMENT STATUS
- ------------------------------  -----------------  ------------------  ----------------------------------------
<S>                             <C>                <C>                 <C>
AVI-2221 NEU-GENE.............  Resten-NG          Restenosis          Pre-clinical studies in 1997 and IND
                                                                         filing expected in 1998
 
AVI-2401 CYTOPORTER...........  Cyclosporin-CP     Transplantation     Pre-clinical studies in 1997 and IND
                                                                         filing expected in 1998
 
AVI-2301 CYTOPORTER...........  Paclitaxel-CP      Cancer              Pre-clinical studies expected in 1998
</TABLE>

    
 
ANTISENSE--NEU-GENE
 
    TECHNICAL OVERVIEW
 
   
    GENETIC STRUCTURE AND FUNCTION.  All life forms contain genetic information
in molecules called DNA and RNA which comprise the operating instructions for
all life processes. The specific instructions are called genes, which are long
chains or strands of the four genetic bases: adenine, cytosine, guanine and
thymine, represented by the letters, A, C, G, and T, respectively. The molecular
structures of these letters are complementary, such that A pairs with T, and C
pairs with G. Consequently, each genetic strand has the unique ability to bind
specifically to its complementary strand to form a duplex.
    
 
                                       23

<PAGE>
    The information encoded in the DNA by its sequence of genetic letters is
used to make proteins. To accomplish this, one strand (called the template
strand) of the duplex DNA is copied to make a new complementary strand, referred
to as messenger RNA. This messenger RNA is referred to as the SENSE strand
because it carries the information used to assemble a specific protein. See
"Figure 1" below. An ANTISENSE compound is a synthetic strand that is
complementary to a small portion of the messenger RNA. Antisense compounds pair
with their complementary messenger RNA sense strand to form a duplex, preventing
the message from initiating protein assembly. See "Figure 2" below.
 
                           FIGURE 1--GENETIC FUNCTION
 
                             [Genetic Function Diagram]
 
    GENE-TARGETED THERAPEUTICS.  Most human diseases arise from the function or
dysfunction of genes within the body, either those of pathogens, such as
viruses, or of one's own genes. New techniques in molecular biology have led to
the identification of the genes associated with most of the major human diseases
and to the determination of the sequence of their genetic letters. Using modern
methods of chemical synthesis, a genetic compound can be prepared that is
complementary to a critical SENSE sequence in a pathogen or pathogenic process.
When this complementary ANTISENSE compound binds tightly to the disease-causing
sequence, the selected protein is inhibited, and thus the pathogen or pathogenic
process is disabled. See "Figure 2" below.
 
               FIGURE 2--ANTISENSE INHIBITION OF GENETIC FUNCTION
 
                           [Antisense Inhibition Diagram]
 
                                       24

<PAGE>
    Antisense compounds are composed of repeating structures or subunits that
are linked together forming a polymer, referred to as the antisense BACKBONE.
Each subunit carries a genetic letter (A, C, G, or T) that pairs with its
corresponding letter in the genetic target. Although the genetic letters are a
feature common to all antisense compounds, the structure of the subunits and the
linkage groups that string them together may differ greatly. These differences
in the subunits and the linkages define the different types of antisense
backbones and their corresponding physical and biological properties. The
Company is distinguished from all other antisense companies by the
characteristics of its patented antisense backbone. The subunits which carry the
genetic letters on the Company's backbone are synthetic products rather than
modified natural materials. In addition, the linkages used to string the
subunits together carry no charge in the Company's backbone. The Company
believes these differences may provide pharmaceutical advantages that are
critical for antisense drug development to meet the challenges of broad clinical
utility.
 
    FIRST-GENERATION COMPOUNDS.  The first gene-inactivating compounds had
backbones composed of natural genetic materials and linkages. Development of
these compounds began in the late 1960s. As work continued in this new field, it
became increasingly clear that there were significant problems with these
structures. These natural compounds were degraded or broken down by enzymes in
the blood and within cells and had difficulty crossing cellular membranes to
enter the cells that contained their genetic target.
 
    SECOND-GENERATION COMPOUNDS.  To overcome these problems of degradation and
permeability, several research groups developed modified backbones in the late
1970s which were designed to resist degradation by enzymes and to enter tissues
and cells more efficiently. The most common of these types, the phosphorothioate
backbones used by ISIS Pharmaceuticals and Hybridon, use natural DNA subunits
linked together by a sulfur-containing, charged linkage. The Company was also
extensively involved in developing second-generation backbones through the
mid-1980s. After extensive investigation, however, the Company concluded that
even after optimization, these second-generation compounds might lack the
combination of properties desirable for broad clinical utility. For this reason,
the Company abandoned development of second-generation backbones in the
mid-1980s and started development of third-generation backbones designed to
address these drawbacks. Today, in spite of extensive progress in the field, the
Company believes that there remain serious limitations to second-generation
compounds due to problems with the stability, specificity, cost effectiveness,
and delivery of these compounds.
 
    NEU-GENE THIRD-GENERATION TECHNOLOGY.  By the mid-1980s, the limitations of
the second-generation compounds led the Company to pursue the development of
antisense technology with improved pharmaceutical properties which could be
produced in a cost-effective manner. This effort culminated in the Company's
development of a new class of compounds having a backbone of synthetic subunits
carrying each genetic letter, with each subunit linked together by a patented
uncharged linkage group. The synthetic subunits and linkages are not found in
nature, but rather were designed and synthesized to meet specific pharmaceutical
parameters. These patented third-generation agents, known as NEU-GENE compounds,
display advantageous pharmaceutical properties (stability, neutral charge, high
binding affinity and specificity). Moreover, they are made from less expensive,
more abundant materials, and the Company believes that they will cost
significantly less to produce than second-generation compounds.
 
    The Company and others have shown in cell culture and animal studies that
NEU-GENE compounds inhibit targeted genetic sequences. With these scientific
benchmarks in place, the Company's objective is to develop its third-generation
antisense compounds into effective and affordable therapeutics for major
infectious and host diseases.
 
    PHARMACEUTICAL PROPERTIES OF ANTISENSE COMPOUNDS.  If antisense compounds
are to become widely applicable pharmaceutical compounds, the following
challenges must be addressed.
 
    - Stability: resistance to enzymatic degradation both in blood and inside
      cells
 
    - Efficacy: ability to inhibit expression of the target gene
 
    - Specificity: binding restricted to the selected target, reducing toxicity
 
                                       25

<PAGE>
    - Cost effectiveness: manufacturing efficiency which allows a broad range of
      applications
 
    - Delivery: ability to cross tissue and cellular barriers in order to reach
      targeted genetic sequences
 
    The Company's core technology differentiates it from others developing
gene-inactivating compounds. The Company believes its principal competitive
advantage in the antisense area is the chemical structure of the NEU-GENE
backbone which was developed to address all of the above parameters.
 
    STABILITY.  Biological stability is principally determined by the degree of
resistance to enzymatic degradation. Because the NEU-GENE backbone is a unique
synthetic structure, the Company believes that there are no enzymes found in man
to degrade it. The Company has conducted studies indicating that these agents
are stable in blood and are stable to a broad range of degradative enzymes.
 
    EFFICACY AND SPECIFICITY.  Efficacy refers to the efficiency with which the
antisense compounds block selected protein production. In a direct comparison
with second-generation compounds conducted by the Company, its NEU-GENE
compounds exhibited significantly better binding to both RNA and DNA, as well as
substantially greater inhibition of the activity of targeted genetic sequences.
Specificity can be assessed by comparing target inactivation of perfectly paired
sequences and mispaired sequences. In the Company's direct comparison studies,
NEU-GENE compounds exhibited substantially greater specificity than all other
backbone types tested.
 
    COST EFFECTIVENESS.  The difficulty of synthesizing antisense compounds has
been a concern in the field since its inception. The cost of producing
gene-inactivating polymers depends to a considerable extent on the cost of the
subunits from which they are constructed. The Company believes that because of
abundant, low-cost materials, simpler production techniques and higher yields,
the subunits used for NEU-GENE synthesis will cost substantially less than those
used in the synthesis of second-generation backbones. After the genetic subunits
are prepared, they must be assembled in a defined order to form the desired
gene-inactivating polymer. The Company believes that the total cost of
production of commercial quantities of NEU-GENES will be significantly less than
that of gene-inactivating compounds prepared from natural or modified subunits
by competitors.
 
    DELIVERY.  To reach their targets, antisense compounds must cross tissue and
cellular barriers, including cellular and nuclear membranes. Preliminary
research indicates that antisense compounds, including those of the Company, may
face delivery problems when addressing many diseases. Accordingly, the Company
has devoted substantial research effort to develop technology for delivering
NEU-GENES to the interior of the cell. See "Drug Delivery--CYTOPORTER."
 
    NEAR-TERM ANTISENSE PRODUCT DEVELOPMENT--RESTENOSIS
 
   
    The first application of the Company's antisense technology is designed to
treat restenosis, a cardiovascular disease. Restenosis results from the failure
of balloon angioplasty due to a rapid growth of smooth muscle cells leading to a
second blockage of a coronary artery. There are approximately 500,000 balloon
angioplasties done in the United States each year with a failure rate of
approximately 30% - 40%. During angioplasty, small metal supports, known as
stents, may be placed at the site of blockage to keep the artery open. Recent
studies suggest that stent placement may reduce the incidence of restenosis to
approximately 20%. Although balloon angioplasty may avoid expensive bypass
surgery if successful, restenosis may ultimately require the patient to undergo
bypass surgery. The Company has selected restenosis as its first antisense
product opportunity because the Company believes that delivery of NEU-GENE
compounds is achievable in this disease setting, NEU-GENE compounds have the
combination of properties to address this disease, and because the restenosis
market is estimated at more than $1 billion annually in the United States.
    
 
   
    When a patient has a blocked coronary artery, a procedure called balloon
angioplasty is frequently used to remove the blockage. In this procedure, a
balloon catheter is inserted in the artery up to the blockage and the balloon is
inflated to open the artery. The balloon increases the diameter of the channel
    
 
                                       26

<PAGE>
   
through the blocked portion of the artery. During this process, vascular cells,
including smooth muscle cells which underlie the blockage, may be damaged. This
process may result in rapid cell division leading to closure of the artery a
second time. Restenosis occurs in approximately 30% - 40% of these procedures
when stents are not placed and cannot be predicted from patient to patient. Even
when stents are placed, the incidence of restenosis is significant. The precise
mechanisms which cause this reaction are not known. However, scientific evidence
suggests that, if the smooth muscle cells can be prevented from dividing for a
few days until the integrity of the artery is reestablished, restenosis could be
prevented in a significant number of cases. Although there are a few new
clinical approaches that attempt to prevent restenosis, none is very effective
and all have significant risks associated with them.
    
 
   
    There is scientific evidence that antisense compounds readily enter
scrape-damaged artery cells, and the Company has demonstrated that its NEU-GENE
antisense compounds readily enter and function in scraped cells in the
laboratory. The Company has selected target genetic sequences, has produced drug
candidates, and has demonstrated that its NEU-GENE compounds inhibit cell
division in laboratory models for this disease. Compound AVI-2221, Resten-NG, is
now in pre-clinical development for restenosis, and the Company expects to file
an IND to begin clinical trials in 1998. See "Drug Approval Process and Other
Government Regulations." The Company intends to co-develop its NEU-GENE
restenosis compound with a pharmaceutical partner. There can be no assurance,
however, that the Company will be able to enter into any partnerships or
establish any such relationship on favorable terms, or at all.
    
 
DRUG DELIVERY--CYTOPORTER
 
    Since NEU-GENES are large molecules that do not readily make their way into
cells, the Company has been developing a delivery mechanism that would allow
NEU-GENES, as well as other drugs, to be transported directly into their
intercellular site of action. The Company has developed and has filed a patent
for a molecular engine, called CYTOPORTER, to transport drugs across the lipid
layers of cellular and endosomal membranes into the interior of cells. This
engine is powered by the acidic differential (pH gradient) across the endosomal
membrane, does not disrupt the membrane, and is disassembled into harmless
byproducts after carrying out its transport function.
 
    TECHNICAL OVERVIEW
 
    The body has protective barriers that shield it from penetration by foreign
agents. Two of these barriers, cell membranes and the outermost layer of the
skin, are composed of lipid layers (fat-like substances). The lipid composition
of these barriers prevents aqueous or water-soluble agents from the environment
or in the blood from penetrating into the interior of cells and interfering with
critical cellular functions. These lipid layers are the principal barriers to
effective drug delivery for many drugs that have an intracellular site of
action.
 
   
    For optimal delivery, a drug should penetrate readily into both the aqueous
compartments of the body (body fluids and the interior of cells) and into the
lipid layers which enclose those compartments. This is rarely achieved because
when lipid solubility is increased, water solubility is decreased, and vice
versa. In the past, to achieve delivery, the structure of a selected drug
candidate was chemically adjusted to produce a compromise in the solubility
profile (e.g., less than ideal water solubility in order to achieve some level
of lipid solubility). This trade-off has been successful with many drugs, but
markedly less successful for many others. Currently, a significant number of
FDA-approved drugs have delivery problems, and many others never make it into
clinical development due to delivery problems.
    
 
    Small substances of low polarity can usually pass directly through the lipid
layers of cell membranes. This appears to be the principal route of entry for
most drugs without delivery problems. In contrast, substances with greater
polarity and/or larger molecular size generally enter cells by being taken up
and sequestered in a closed cellular compartment, or endosome, in a process
called endocytosis. In this process, the interior of the endosome is acidified
and the contents are exposed to degradative enzymes
 
                                       27

<PAGE>
resulting in their breakdown. This is a natural cellular mechanism that protects
the interior of the cell from exposure to foreign material.
 
    Drugs that are polar in nature or are of a larger molecular size must cross
the lipid membrane of the endosome before being degraded in order to gain entry
into the interior of the cell. Many drugs in this category fail to achieve entry
rapidly enough to be practical for pharmaceutical purposes.
 
    CYTOPORTER DRUG DELIVERY SOLUTION.  The Company believes it has developed an
effective drug delivery engine, called CYTOPORTER, to facilitate the transport
of polar and larger size drugs across the lipid barriers of the skin, cell
membranes, and endosomes into the interior of cells at a rate that is practical
to achieve pharmaceutical results. When drugs in this category are taken up by
cells, they are sequestered within an endosome surrounded by a lipid barrier.
The Company's CYTOPORTER drug delivery engine is designed to transport these
problem drugs from the endosome into the interior of cells without disruption of
the lipid membrane that traps them. CYTOPORTER is a synthetic peptide containing
specifically positioned acidic groups along its structure. In neutral
conditions, CYTOPORTER exists as a water-soluble random form with its acidic
groups exposed and hydrated. On acidification in the endosome, CYTOPORTER
undergoes a transition to a lipid-soluble, needle-like form where the acidic
groups are masked by associating as mated pairs, and other polar groups are
shielded from the environment. As the engine becomes lipid soluble, it
penetrates across the surrounding lipid membrane. As it enters into the interior
of the cell, it encounters a neutral environment which induces a transition back
to a water-soluble form resulting in movement of the engine and drug into the
interior of the cell. See "Figure 3" below.
 
            FIGURE 3--CYTOPORTER DRUG DELIVERY AT THE CELLULAR LEVEL
 
                              [Drug Delivery Diagram]
 
    CYTOPORTER DRUG TRANSPORT MECHANISM.  In preparation for enhanced drug
delivery, the selected drug is chemically linked to the CYTOPORTER engine. This
process will be unique for each drug and must take into account each drug's mode
and site of action. Several steps are involved in the transport of the selected
drug from the blood or body fluids across lipid barriers into the interior of
target cells. After the drug is taken up by endocytosis, the endosome is
acidified as the cell attempts to degrade its contents. As this acidification
takes place, the engine converts from a water-soluble random form into a
lipophilic, needle-like form. As the engine converts to its lipophilic form, it
is PUSHED into the lipid membrane. Because the engine is longer than the
membrane is thick, continued entry pushes the leading end of the engine into the
interior of the cell. As the engine enters the neutral environment of the
interior of the cell, it reverts automatically to its random, water-soluble
form. This provides the motive force to PULL more of the engine across the
membrane. Finally, ionization and solvation of the engine as it enters the
interior pull the attached drug into the interior of the cell. The interior of
the cell contains enzymes which rapidly break
 
                                       28

<PAGE>
down the engine into harmless by-products. This is a natural process that
results in freeing the drug to react with its intracellular target.
 
    The Company believes that its CYTOPORTER delivery engine can be chemically
adjusted to accommodate a range of delivery challenges. The transition from
water to lipid solubility can be manipulated to afford a wide range of
transitions to accommodate various endosome characteristics. Moreover, the
Company believes that its CYTOPORTER can be adjusted to accommodate various drug
loads from modest polar drugs to the more challenging large polymers like
uncharged antisense compounds.
 
    CYTOPORTER APPLICATIONS.  The Company believes its CYTOPORTER molecular
engines may provide improved pharmaceutical properties for a wide variety of
drugs, including:
 
    - Improved aqueous solubility for lipophilic drugs, such as Taxol.
 
   
    - Improved transport of peptides from endosomes into the interior of cells
      (e.g., cyclosporin) and transport of antisense polymers, particularly
      non-charged types such as NEU-GENES.
    
 
    - Protection of polymer drugs from degradation by virtue of transport out of
      endosomes prior to the start of the degradation process.
 
    - Improved transport of drugs into cells of the brain by specialized
      CYTOPORTER engines designed to provide both transport across the
      blood/brain barrier and subsequent entry into the interior of the brain.
 
    - Delivery of highly cytotoxic drugs into bacteria living in an acidic
      environment, specifically H. PYLORI, a major cause of ulcers in the
      stomach.
 
    - Transdermal delivery of lipophilic drugs.
 
    TRANSDERMAL DRUG DELIVERY.  The Company believes that its CYTOPORTER drug
delivery engine may have the potential for transdermal delivery of selected
substances. Placing an acidic, lipid-soluble form of the engine with an attached
drug in contact with the surface of the skin results in the diffusion of the
drug-engine through the lipid layers of the outer barrier of the skin (the
extracellular matrix of the stratum corneum). Upon contact with the aqueous
compartment underlying the stratum corneum, the drug-engine is drawn actively
into this compartment through progressive ionization and solvation of the engine
in the neutral conditions of this environment. This results in delivery of the
attached drug into the underlying tissues, with subsequent distribution
throughout the body.
 
    NEAR-TERM DRUG DELIVERY PRODUCTS
 
    The Company has selected cyclosporin and paclitaxel (Taxol) as the initial
drugs to be combined with its CYTOPORTER delivery engine for its enhanced drug
products. Additionally, the Company plans to apply its drug delivery technology
to current drugs used to treat inflammation, pain, and infectious diseases. The
Company plans to work with pharmaceutical collaborators to bring its drug
delivery technology to the market in a timely fashion. The Company has not,
however, entered into any arrangements with pharmaceutical collaborators, and
there can be no assurance that the Company will be able to do so or that, if
entered into, the arrangements will be successful in bringing the technology to
the market in a timely fashion.
 
    CYCLOSPORIN-CP.  Cyclosporin is a drug marketed by Sandoz AG whose patent
life expired in 1996. It is the transplantation anti-rejection drug of choice
worldwide, with an estimated market size of $1 billion. Difficulties with
delivery prevent broader systemic use and topical applications.
 
    Cyclosporin is an immunosuppressive drug that inhibits the function of
lymphocytes involved in mounting a rejection response in patients undergoing
organ transplantation. It has both poor solubility and poor delivery to its site
of action. Consequently, larger doses of the drug are required in order to
achieve a
 
                                       29

<PAGE>
clinical level of effectiveness than if the drug readily reached its site of
action. These higher dosages lead to renal toxicity and other problems that
limit broader use. The Company believes that combining its CYTOPORTER drug
delivery engine with cyclosporin (Cyclosporin-CP) potentially would eliminate
these delivery difficulties, resulting in lower dosages, fewer side effects, and
broader usage.
 
   
    The Company expects to begin pre-clinical studies with Cyclosporin-CP in
1997 and to file an IND to begin clinical trials with this agent in 1998. There
can be no assurance that the Company will be able to file or obtain approval for
an IND in 1998 or at all.
    
 
   
    PACLITAXEL-CP.  Taxol is a Bristol-Myers Squibb drug whose patent life
expires in 1997. It is the largest selling cancer therapeutic worldwide, with
sales of $580 million in 1995. However, severe solubility and delivery problems
greatly limit its use and effectiveness.
    
 
    Paclitaxel is indicated to treat ovarian cancer and is being used
experimentally to treat numerous cancers including breast cancer. The current
paclitaxel formulation is not readily soluble in aqueous solutions, requiring
the use of the solvent Cremophor-Registered Trademark-EL. Injection of the
drug/solvent combination causes hypersensitivity reactions, leaching of
plasticizer from PVC infusion bags, haziness of diluted solutions and the need
for in-line filters. The Company believes that combining its CYTOPORTER delivery
engine with paclitaxel (Paclitaxel-CP) could eliminate the need for solvent in
the formulation, thereby eliminating solvent-associated problems. This
development could result in more optimized dosing, a reduction in side effects,
and broader usage. The Company expects to begin pre-clinical trials of
Paclitaxel-CP in 1998.
 
LONG-TERM PRODUCT DEVELOPMENT PROGRAM--NEU-GENE/CYTOPORTER DRUG COMBINATIONS
 
    The following table summarizes the Company's broader drug development
program. These programs combine the Company's NEU-GENE antisense technology with
its CYTOPORTER drug delivery technology. For each indication, NEU-GENES have
been designed to target the disease process at the genetic level. The Company
has designed CYTOPORTER to deliver the NEU-GENE drugs to their intracellular
site of action. Although NEU-GENES may display clinical efficacy on their own,
the Company believes that broad use of NEU-GENES and other antisense compounds
will require a drug delivery strategy. CYTOPORTER drug delivery engines were
developed to facilitate the delivery of the NEU-GENE backbone and are currently
being optimized for that purpose.
 
    All of the development programs listed below are in the research or lead
compound stage. Disease targets have been identified and NEU-GENE compounds have
been produced and tested in laboratory and/ or animal models. In some cases,
lead compounds have been produced which are undergoing optimization prior to
pre-clinical development. The Company believes that several of these compounds
may move into pre-clinical development in the next two years.
 
   

<TABLE>
<CAPTION>
                                                                HOST DISEASE TARGETS
             INFECTIOUS DISEASE TARGETS               -----------------------------------------
- ----------------------------------------------------                             POTENTIAL
  DEVELOPMENT PROGRAM       POTENTIAL INDICATIONS     DEVELOPMENT PROGRAM       INDICATIONS
- ------------------------  --------------------------  --------------------  -------------------
<S>                       <C>                         <C>                   <C>
HIV                       AIDS, HIV-I Infection       TNF Alpha             Inflammation
 
Hepatitis B, C            Hepatitis, Liver Cancer     ICAM-1                Inflammation
 
Herpes Simplex Virus      Ocular, Genital Herpes      Telomerase            Cancer
 
Cytomegalovirus           Retinitis
</TABLE>

    
 
    INFECTIOUS DISEASE TARGETS
 
   
    HUMAN IMMUNODEFICIENCY VIRUS ("HIV").  The Company has initiated a program
to produce and evaluate NEU-GENE agents directed at HIV targets. The Centers for
Disease Control ("CDC") estimated that, by the end of 1995, there were one
million HIV-infected persons in the United States and the cumulative number of
diagnosed AIDS cases approximated 500,000. The World Health Organization
    
 
                                       30

<PAGE>
   
estimated that worldwide there were approximately 10 million individuals
infected with HIV by the end of 1995. Currently, there are few FDA-approved
therapies for the treatment of HIV-infected individuals and drugs that are
available have significant toxic side effects.
    
 
   
    HEPATITIS B ("HBV").  The Company has initiated a program to produce and
evaluate NEU-GENE compounds directed at HBV targets. HBV is a major health
problem throughout the world, with epidemic infection levels in certain less
developed countries. HBV was estimated in 1995 to be the second leading cause of
death in the world. There are an estimated 300,000 new hepatitis infections in
the United States each year and approximately one million people with chronic
infection. Although there are effective vaccines against HBV, there are
currently no FDA-approved therapies for the treatment of chronic or acute HBV
infection.
    
 
    HEPATITIS C ("HCV").  The Company has initiated a program to produce and
evaluate NEU-GENE compounds directed at HCV targets. HCV is a major health
problem in many parts of the world, including the United States where there are
approximately 150,000 new infections each year (about 40% of all acute hepatitis
cases). The mechanism of transmission may involve the exchange of blood,
although the route of transmission in many cases is obscure. There are no
FDA-approved vaccines or therapeutic drugs for the treatment of HCV.
 
   
    HERPES SIMPLEX VIRUS ("HSV").  The Company is developing HSV NEU-GENE
compounds for the treatment of HSV type I and type II. Primary herpes infections
are usually severe and may involve skin, mucous membranes, conjunctivae or the
central nervous system. After remission of the initial infection, the virus
establishes a latent phase which is interrupted periodically by outbreaks or
herpetic lesions. Newborns can be infected at birth, which results in 50%
mortality, and survivors may suffer from permanent neurological damage.
Approximately 500,000 new cases each of genital herpes and oral herpes infection
occur annually in the United States. It is estimated that approximately 10
million Americans suffer from some form of primary or recurrent herpes infection
each year.
    
 
    CYTOMEGALOVIRUS ("CMV").  The Company is developing NEU-GENE compounds for
the treatment of CMV infections. CMV is a member of the herpes family of viruses
and is the most common cause of intrauterine and congenital infections in
newborns of infected mothers. CMV retinitis is a severe problem in transplant
patients and patients with immunosuppression (e.g., AIDS), often leading to
blindness and pneumonitis, one of the most lethal viral syndromes. Current
FDA-approved treatments for CMV retinitis suffer from dose-limiting side effects
and have been associated with the emergence of drug-resistant CMV strains.
 
    HOST DISEASE TARGETS
 
   
    The Company is evaluating NEU-GENES for the treatment of inflammatory
diseases and cancer, two major host diseases. Inflammation is a crucial
component of a number of acute and chronic diseases. Although inflammation is a
key part of the normal physiological response to injury, alterations to the
normal inflammatory process often lead to inflammatory diseases. These
inflammatory disorders can affect practically every organ system in the body.
The interactions at the molecular level that cause inflammation are becoming
better understood and provide targets for intervention by antisense approaches.
Two families of potential targets include cellular mediators (TNF alpha) and
cellular adhesion molecules (ICAM-1), which are proteins involved in various
stages of the inflammatory process. The Company believes that by targeting
messenger RNA with NEU-GENE compounds, control of these mediators of
inflammation may be possible.
    
 
   
    TNF ALPHA.  TNF alpha has been implicated as a significant factor in
psoriasis, arthritis and other inflammatory disorders. Psoriasis is a serious
chronic, recurring skin disease that involves proliferation of keratinocytes
within the epidermal layer of the skin. Approximately six million individuals in
the United States are afflicted by psoriasis and approximately 200,000 new cases
are diagnosed annually. Current
    
 
                                       31

<PAGE>
psoriasis therapies are varied but offer limited results. The Company has
demonstrated that its NEU-GENE compounds are effective in inhibiting TNF alpha
in laboratory and animal models of inflammation.
 
   
    ICAM-1.  ICAM-1 facilitates the migration of immune cells involved in both
acute and chronic inflammation. Over-production of ICAM-1 is specifically
implicated in a wide variety of inflammatory disorders, such as rheumatoid
arthritis, asthma, psoriasis, organ transplant rejection, and inflammatory bowel
disease. The Company has targeted NEU-GENES against the adhesion molecule ICAM-1
and is testing these compounds in models of inflammation.
    
 
    TELOMERASE.  Telomerase is an enzyme found in cancer cells but rarely in
normal cells and the Company believes that inhibiting it may provide a broad
general approach to treat most cancers. There are approximately one million new
cases of cancer of all types reported in the United States annually. This leads
to about 500,000 deaths in the United States attributed to cancer each year,
making it the country's second leading cause of death. The Company has developed
NEU-GENE compounds that block telomerase activity in model systems in the
laboratory.
 
COLLABORATIVE AGREEMENTS
 
    The Company believes that antisense and drug delivery technologies are
broadly applicable for the potential development of pharmaceutical products in
many therapeutic areas. To exploit its core technologies as fully as possible,
the Company's strategy is to enter into collaborative research agreements with
major pharmaceutical companies directed at specific molecular targets. It is
anticipated that collaborative research agreements may provide the Company with
funding for programs conducted by the Company aimed at discovering and
developing antisense compounds to inhibit the production of individual molecular
targets. Partners may be granted options to obtain licenses to co-develop and to
market drug candidates resulting from its collaborative research programs. The
Company intends to retain manufacturing rights to its antisense products. There
can be no assurance, however, it will be able to enter into collaborative
research agreements with large pharmaceutical companies on terms and conditions
satisfactory to the Company.
 
MANUFACTURING
 
    The Company believes that it has developed significant proprietary
manufacturing techniques which will allow large-scale, low-cost synthesis and
purification of NEU-GENES. Because the Company's NEU-GENE compounds are based
upon a malleable backbone chemistry, the Company believes that NEU-GENE
synthesis will be more cost-effective than those of competing technologies. The
Company has established sufficient manufacturing capacity to meet immediate
research and development needs.
 
   
    The Company currently intends to retain manufacturing rights to all products
incorporating its proprietary and patented technology, whether such products are
sold directly by the Company or through collaborative agreements with industry
partners. The Company's current production capacity is insufficient for the
requirements of human clinical studies. Consequently, the Company intends to
contract with a Good Manufacturing Practices ("GMP") facility beginning in 1997
to produce its near term therapeutic candidates for pre-clinical and clinical
trial studies. There is no assurance, however, that the Company's plans will not
change as a result of unforeseen contingencies.
    
 
   
    In March 1993, the Company moved to its present laboratory facility. This
facility and the laboratory procedures followed by the Company have not been
formally inspected by the FDA and will have to be approved as products move from
the research phase through the clinical testing phase to commercialization. The
Company will be required to comply with FDA requirements for GMP in connection
with human clinical trials and commercial production. See "Drug Approval Process
and Other Government Regulations."
    
 
                                       32

<PAGE>
MARKETING STRATEGY
 
   
    The Company plans to market the initial products for which it obtains
regulatory approval, through marketing arrangements or other licensing
arrangements with large pharmaceutical companies. Implementation of this
strategy will depend on many factors, including the market potential of any
products the Company develops and the Company's financial resources. The Company
does not expect to establish a direct sales capability for therapeutic compounds
for at least the next several years. To market products that will serve a large,
geographically diverse patient population, the Company expects to enter into
licensing, distribution, or partnering agreements with pharmaceutical companies
that have large, established sales organizations. The timing of the Company's
entry into marketing arrangements or other licensing arrangements with large
pharmaceutical companies will depend on successful product development and
regulatory approval within the regulatory framework established by the Federal
Food, Drug and Cosmetics Act, as amended, and regulations promulgated
thereunder. Although the implementation of initial aspects of the Company's
marketing strategy may be undertaken before this process is completed, the
development and approval process typically is not completed in less than three
to five years after the filing of an IND application and the Company's marketing
strategy therefore may not be implemented for several years. See "Drug Approval
Process and Other Governmental Regulation" and "Risk Factors-- Dependence on
Third Parties for Clinical Testing, Manufacturing and Marketing."
    
 
PATENTS AND PROPRIETARY RIGHTS
 
    The proprietary nature of, and protection for, the Company's product
candidates, processes and know-how are important to its business. The Company
plans to prosecute and defend aggressively its patents and proprietary
technology. The Company's policy is to patent the technology, inventions, and
improvements that are considered important to the development of its business.
The Company also relies upon trade secrets, know-how, and continuing
technological innovation to develop and maintain its competitive position.
 
   
    The Company has filed patent applications covering the basic compositions of
matter, methods of synthesis and therapeutic uses of NEU-GENES. These
applications were filed in the United States, Canada, Europe, Australia, and
Japan. Of these, eleven patents have issued in the United States and a total of
nine others have been granted by the European Patent Office and in Japan, Canada
and Australia. The issued U.S. patents expire between 2008 and 2014, and the
granted foreign patents, between 2006 and 2012. Additional patent applications
covering the Company's basic compositions of matter, methods of synthesis and
medical uses of CYTOPORTER compounds have been filed. The Company feels that its
patent protection is broad in scope and expects to continue to protect its
proprietary technology with additional filings as appropriate.
    
 
    There can be no assurance that any patents applied for will be granted or
that patents held by the Company will be valid or sufficiently broad to protect
the Company's technology or provide a significant competitive advantage, nor can
the Company provide assurance that practice of the Company's patents or
proprietary technology will not infringe third-party patents.
 
    Although the Company believes that it has independently developed its
technology and attempts to ensure that its technology does not infringe the
proprietary rights of others, if infringement were alleged and proven, there can
be no assurance that the Company could obtain necessary licenses on terms and
conditions that would not have an adverse effect on the Company. The Company is
not aware of any asserted or unasserted claims that its technology violates the
proprietary rights of any person. See "Risk Factors--Patents and Proprietary
Rights."
 
DRUG APPROVAL PROCESS AND OTHER GOVERNMENT REGULATION
 
    The production and marketing of the Company's products and its research and
development activities are subject to regulation for safety, efficacy and
quality by numerous governmental authorities in the
 
                                       33

<PAGE>
   
United States and other countries. In the United States, drugs are subject to
rigorous regulation. The Federal Food, Drug and Cosmetics Act, as amended, and
the regulations promulgated thereunder, as well as other federal and state
statutes and regulations, govern, among other things, the testing, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, advertising and
promotion of the Company's proposed products. Product development and approval
within this regulatory framework take a number of years and involve the
expenditure of substantial resources. In addition to obtaining FDA approval for
each product, each drug manufacturing establishment must be registered with, and
approved by, the FDA. Domestic manufacturing establishments are subject to
regular inspections by the FDA and must comply with GMP. To supply products for
use in the United States, foreign manufacturing establishments must also comply
with GMP and are subject to periodic inspection by the FDA or by regulatory
authorities in certain of such countries under reciprocal agreement with the
FDA.
    
 
    NEW DRUG DEVELOPMENT AND APPROVAL.  The United States system of new drug
approval is the most rigorous in the world. According to a February 1993 report
by the Congressional Office of Technology Assessment, it cost an average of $359
million and took an average of 15 years from discovery of a compound to bring a
single new pharmaceutical product to market. Approximately one in 1,000
compounds that enter the pre-clinical testing stage eventually makes it to human
testing and only one-fifth of those are ultimately approved for
commercialization. In recent years, societal and governmental pressures have
created the expectation that drug discovery and development costs can be reduced
without sacrificing safety, efficacy and innovation. The need to significantly
improve or provide alternative strategies for successful pharmaceutical
discovery, research and development remains a major health care industry
challenge.
 
    DRUG DISCOVERY.  In the initial stages of drug discovery, before a compound
reaches the laboratory, typically tens of thousands of potential compounds are
randomly screened for activity in an assay assumed to be predictive of a
particular disease process. This drug discovery process can take several years.
Once a "screening lead" or starting point for drug development is found,
isolation and structural determination are initiated. Numerous chemical
modifications are made to the screening lead (called "rational synthesis") in an
attempt to improve the drug properties of the lead. After a compound emerges
from the above process, it is subjected to further studies on the mechanism of
action and further IN VITRO animal screening. If the compound passes these
evaluation points, animal toxicology is performed to begin to analyze the toxic
effect of the compound, and if the results indicate acceptable toxicity
findings, the compound emerges from the basic research mode and moves into the
pre-clinical phase. The Company has many compounds at the drug discovery phase
and three compounds that it expects to move to pre-clinical testing within 12 to
24 months.
 
   
    PRE-CLINICAL TESTING.  During the pre-clinical testing stage, laboratory and
animal studies are conducted to show biological activity of the compound against
the targeted disease, and the compound is evaluated for safety. These tests can
take up to three years or more to complete. The Company's restenosis compound
currently is in pre-clinical testing, and the Company presently anticipates that
Cyclosporin-CP will enter this phase in 1997 and Paclitaxel-CP in 1998.
    
 
    INVESTIGATIONAL NEW DRUG APPLICATION.  After pre-clinical testing, an IND is
filed with the FDA to begin human testing of the drug. The IND becomes effective
if the FDA does not reject it within 30 days. The IND must indicate the results
of previous experiments, how, where and by whom the new studies will be
conducted, how the chemical compound is manufactured, the method by which it is
believed to work in the human body, and any toxic effects of the compound found
in the animal studies. In addition, the IND must be reviewed and approved by an
Institutional Review Board consisting of physicians at the hospital or clinic
where the proposed studies will be conducted. Progress reports detailing the
results of the clinical trials must be submitted at least annually to the FDA.
The Company expects to file two INDs in 1998.
 
    PHASE I CLINICAL TRIALS.  After an IND becomes effective, Phase I human
clinical trials can begin. These studies, involving usually between 20 and 80
healthy volunteers, can take up to one year or more to
 
                                       34

<PAGE>
complete. The studies determine a drug's safety profile, including the safe
dosage range. The Phase I clinical studies also determine how a drug is
absorbed, distributed, metabolized and excreted by the body, as well as the
duration of its action.
 
   
    PHASE II CLINICAL TRIALS.  In Phase II clinical trials, controlled studies
of approximately 100 to 300 volunteer patients with the targeted disease assess
the drug's effectiveness. These studies are designed primarily to evaluate the
effectiveness of the drug on the volunteer patients as well as to determine if
there are any side effects on these patients. These studies can take up to two
years or more and may be conducted concurrently with Phase I clinical trials. In
addition, Phase I/II clinical trials may be conducted that evaluate not only the
efficacy but also the safety of the drug on the patient population. The Company
anticipates that its phase I/phase II clinical trials with Resten-NG and
Cyclosporin-CP will begin in 1998.
    
 
    PHASE III CLINICAL TRIALS.  This phase typically lasts up to three years or
more and usually involves 1,000 to 3,000 patients with the targeted disease.
During the Phase III clinical trials, physicians monitor the patients to
determine efficacy and to observe and report any adverse reactions that may
result from long-term use of the drug.
 
   
    NEW DRUG APPLICATION ("NDA").  After the completion of all three clinical
trial phases, the data are analyzed and if the data indicate that the drug is
safe and effective, an NDA is filed with the FDA. The NDA must contain all of
the information on the drug that has been gathered to date, including data from
the clinical trials. NDAs are often over 100,000 pages in length. The average
NDA review time for new pharmaceuticals approved in 1995 was approximately 19
months.
    
 
    FAST TRACK REVIEW.  In December 1992, the FDA formalized procedures for
accelerating the approval of drugs to be marketed for the treatment of certain
serious diseases for which no satisfactory alternative treatment exists, such as
Alzheimer's disease and AIDS. If it is demonstrated that the drug has a positive
effect on survival or irreversible morbidity during Phase II clinical trials,
then the FDA may approve the drug for marketing without completion of Phase III
testing.
 
    APPROVAL.  If the FDA approves the NDA, the drug becomes available for
physicians to prescribe. The Company must continue to submit periodic reports to
the FDA, including descriptions of any adverse reactions reported. For certain
drugs which are administered on a long-term basis, the FDA may request
additional clinical studies (Phase IV) after the drug has begun to be marketed
to evaluate long-term effects.
 
   
    In addition to regulations enforced by the FDA, the Company also is or will
be subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and future federal, state or
local regulations. The Company's research and development activities involve the
controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds. Although the Company believes that its safety procedures
for handling and disposing of such materials comply with the standard prescribed
by state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result, and any
such liability could exceed the resources of the Company.
    
 
    For marketing outside the United States, the Company or its prospective
licensees will be subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs and devices. The requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursement vary widely from country to country.
 
COMPETITION
 
    Several companies are pursuing the development of antisense technology,
including Glaxo, Boehringer Ingelheim, Gilead, Hybridon, ISIS, and Lynx. All of
these companies are in development stages, and,
 
                                       35

<PAGE>
   
in some cases, are in human trials with antisense compounds generally similar to
the Company's NEU-GENE compounds. While the Company believes that none of these
companies is likely to introduce an antisense compound into the commercial
market in the immediate future, many pharmaceutical and biotechnology companies,
including all of those listed above, have financial and technical resources
greater than those currently available to the Company and have more established
collaborative relationships with industry partners than does the Company. Lynx
has recently announced that it plans to begin clinical trials with an antisense
compound for restenosis and that it will co-develop this potential application
with Schwarz Pharma AG. The Company believes that the combination of
pharmaceutical properties of its NEU-GENE compounds for restenosis afford it
competitive advantages when compared with the antisense compounds of
competitors. Many companies are pursuing drug delivery technology, including
Biovail, Cellegy Pharmaceuticals, Cygnus, and Noven, among others. If the
Company's antisense and drug delivery technologies attain regulatory and
commercial acceptance as the basis for the commercial pharmaceutical products,
it is to be expected that additional companies, including large, multinational
pharmaceutical companies, will choose to compete in the Company's markets,
either directly or through collaborative arrangements.
    
 
    The Company can also expect to compete with other companies exploiting
alternative technologies that address the same therapeutic needs as does the
Company's technology. The biopharmaceutical market is subject to rapid
technological change, and it can be expected that competing technologies will
emerge and will present a competitive challenge to the Company.
 
FACILITIES
 
    The Company occupies 18,400 square feet of leased laboratory and office
space at 4575 S.W. Research Way, Suite 200, Corvallis, Oregon 97333. The
Company's executive office is located in 2,400 square feet of leased space at
One S.W. Columbia, Suite 1105, Portland, Oregon 97258.
 
EMPLOYEES
 
   
    As of December 31, 1996, the Company had 32 employees, 12 of whom hold
advanced degrees. Twenty-seven employees are engaged directly in research and
development activities, and five are in administration. None of the Company's
employees is covered by collective bargaining agreements, and management
considers relations with its employees to be good.
    
 
                                       36

<PAGE>
   
                                   MANAGEMENT
    
 
DIRECTORS AND EXECUTIVE OFFICERS
 
    The directors and officers of the Company and their ages are as follows:
 

<TABLE>
<CAPTION>
NAME                                               AGE                                POSITION
- ---------------------------------------------      ---      -------------------------------------------------------------
<S>                                            <C>          <C>
John A. Beaulieu(1)(2).......................          62   Chairman of the Board
 
Denis R. Burger, Ph.D.(1)....................          53   Chief Executive Officer, Director
 
James E. Summerton, Ph.D.(1).................          52   President, Chief Scientific Officer, Director
 
Alan P. Timmins..............................          37   Chief Operating Officer, Chief Financial Officer
 
Dwight D. Weller, Ph.D.......................          46   Vice President of Research and Development, Director
 
Frederick C. Pearson, Ph.D...................          53   Vice President of Regulatory Affairs and Clinical Development
 
Nick Bunick..................................          60   Director
 
James B. Hicks, Ph.D.........................          50   Director
 
Donald R. Johnson, Ph.D.(1)..................          68   Director
 
James E. Reinmuth, Ph.D.(2)..................          56   Director
 
Joseph Rubinfeld, Ph.D.(2)...................          64   Director
</TABLE>

 
- ------------------------
 
(1) Member of the Executive Committee
 
(2) Member of the Compensation and Audit Committees
 
    JOHN A. BEAULIEU has served as a director at the Company since 1991 and was
elected Chairman in January 1996. He is the Managing Partner of Cascadia Pacific
Management, LLC. ("CPM"). CPM is the contract manager for the Oregon Resource
and Technology Development Fund, a state-funded venture capital fund. Mr.
Beaulieu is also a general partner in Seed Management, a Vancouver B.C.-based
venture capital firm. Mr. Beaulieu is a director of TCC Communications, Biozyme
Inc., Virtual Corp., EPC Inc., and Puriponics LLC. Mr. Beaulieu received his
BS&C degree in Accounting and an M.B.A. from the University of Santa Clara.
 
   
    DENIS R. BURGER, PH.D. has served as Chief Executive Officer of the Company
since January 1996 and as a director of the Company since 1991. From 1992 to
1995, he was President and Chief Operating Officer of the Company. He co-founded
Epitope, Inc., a biotechnology company, and served as Chairman from 1981 to
1990. Dr. Burger has also been a member of Sovereign Ventures, LLC., a
biotechnology consulting and merchant banking venture since 1991. Dr. Burger is
a member of the Board of Directors of Cellegy Pharmaceuticals, Inc., an emerging
pharmaceutical company focused on drug delivery, SuperGen, Inc., a
pharmaceutical company focused on life-threatening diseases, and Trinity
Biotech, plc., an Irish diagnostics company. Dr. Burger held the positions of
Assistant Professor, Associate Professor and Professor at the Oregon Health
Sciences University ("OHSU") from 1969 to 1986. Dr. Burger received a B.A. in
Bacteriology and Immunology from the University of California at Berkeley and
his M.S. and Ph.D. degrees in Microbiology and Immunology from the University of
Arizona.
    
 
    JAMES E. SUMMERTON, PH.D. has been President and Chief Scientific Officer
since January 1996. He founded the Company in 1980 and was its Chairman and
Chief Executive Officer until January 1996. He held the position of assistant
professor of Biochemistry-Biophysics at Oregon State University from 1978 to
1980. He is the inventor or co-inventor on all of the Company's patents and
pending applications. Dr. Summerton received a B.S. in Chemistry from Northern
Arizona University and a Ph.D. from the University of Arizona. Dr. Summerton
first conceived of the concept of sequence-specific gene-inactivation in 1969.
 
                                       37

<PAGE>
   
    ALAN P. TIMMINS has served as Chief Operating Officer and Chief Financial
Officer of the Company since October 1996 and Executive Vice President and Chief
Financial Officer since 1992. From 1981 to 1991, he served in a variety of
positions at the firm of Price Waterhouse LLP, most recently as a Senior Manager
specializing in high technology and emerging growth companies. Mr. Timmins
received a B.B.A. in Accounting and Management from the University of Portland
and an M.B.A. from Stanford University. He is a Certified Public Accountant.
    
 
    DWIGHT D. WELLER, PH.D. has served as Vice President of Research and
Development of the Company since 1992 and as a director of the Company since
1991. He joined the faculty of Oregon State University in 1978 as Assistant
Professor and was an Associate Professor in the Chemistry Department from 1984
to 1992. He is co-inventor on all but one of the Company's issued patents and
patent applications. Dr. Weller received a B.S. in Chemistry from Lafayette
College and a Ph.D. in Chemistry from the University of California at Berkeley,
followed by postdoctoral work in Bio-Organic Chemistry at the University of
Illinois.
 
   
    FREDERICK C. PEARSON, PH.D. has served as Vice President of Regulatory
Affairs and Clinical Development for the Company since March 1997. From 1994 to
1997 he served as Director of Biotechnology for the Colorado Advanced Technology
Institute. During 1992 and 1993 he was Vice President and General Manager of
Greenwich Pharmaceuticals, Inc., and Vice President, Product Development for the
Virus Research Institute. Additionally, he served from 1988 to 1992 as Vice
President, Scientific Affairs for Cell Technology. From 1986 through 1988, he
was Vice President, Renal Therapy Division, Baxter International. Dr. Pearson
received a B.S. in Biology from Nasson College in 1966 and his Ph.D. in
Microbiology/ Virology from the University of New Hampshire in 1972.
    
 
    NICK BUNICK has served as a director of the Company since 1992. Mr. Bunick
is the President and Chairman of the Board of three real estate development
companies and one investment management company. From 1987 to 1990, he was a
Vice President of In-Focus Systems, Inc., a company that specializes in the
design and manufacturing of flat panel display products. Mr. Bunick received a
B.S. in Business Administration and Marketing from the University of Florida.
 
   
    JAMES B. HICKS, PH.D. has served as a director of the Company since 1997. He
has served as the Chief Executive Officer, Chief Scientist and a director of
Hedral Therapeutics, Inc., a biotechnology company, since its founding in 1993.
Previously, he was a founding scientist and a Senior Scientific Director at ICOS
Corporation from 1990 to 1993, and Director of the PPG Industries/Scripps Joint
Research Program at Scripps Clinic, as well as an Adjunct Member of the
Molecular Biology Department in the Research Institute of Scripps Clinic from
1986 to 1990. From 1978 through 1986, he was Senior Scientist and Lab Chief of
the Delbruck Laboratory at Cold Spring Harbor Laboratory. Dr. Hicks received his
B.A. degree in Biology from Willamette University and his Ph.D. in Molecular
Biology from the University of Oregon, followed by post-doctoral research at
Cornell University.
    
 
   
    DONALD R. JOHNSON, PH.D. has served as a director of the Company since 1991.
He founded Technology Conversion, a research and new product development
consulting firm in 1986, and has served as its President since that time. Dr.
Johnson was Director, New Technology Research, Diagnostic and Bioresearch
Products at E. I. du Pont de Nemours and Company, Inc., from 1983 to 1986. Dr.
Johnson received a B.A. in Chemistry from the University of Minnesota and a
Ph.D. in Analytical Chemistry from the University of Wisconsin.
    
 
    JAMES E. REINMUTH, PH.D. has served as a director of the Company since 1991.
He was Dean of the College of Business Administration at the University of
Oregon from 1976 to 1994 and since 1995 has been the Charles H. Lundquist
Distinguished Professor of Business at University of Oregon. Dr. Reinmuth is the
Chairman of the Board of Directors and Chief Executive Officer of Athena Medical
Corp., a feminine health care company. He is also the President and Chief
Executive Officer of Fuji Advanced Filtration, Inc. Dr. Reinmuth is a general
partner in Rubicon Asset Management Corp. Dr. Reinmuth received a B.S. in
 
                                       38

<PAGE>
Mathematics from the University of Washington and his M.S. and Ph.D. degrees in
Statistics from Oregon State University.
 
    JOSEPH RUBINFELD, PH.D. has been a director of the Company since 1996. He
has served as Chief Executive Officer, President, Chief Scientific Officer and a
director of SuperGen, Inc. since its inception in 1992. Dr. Rubinfeld was one of
the four initial founders of Amgen Inc. in 1980 and served as Vice President and
Chief of Operations until 1983. From 1987 to 1990, he was Senior Director at
Cetus Corporation. From 1968 to 1980, Dr. Rubinfeld was employed at
Bristol-Myers Squibb (formerly Bristol-Myers International Corporation) in a
variety of positions, most recently as Vice President and Director of Research
and Development. He received his B.S. in Chemistry from C.C.N.Y., and his M.A.
and Ph.D. degrees in Chemistry from Columbia University.
 
DIRECTOR COMPENSATION
 
    Directors who are not employees of the Company receive a non-qualified
option to purchase 33,334 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date of the grant pursuant to
the Company's Stock Incentive Plan, which vests over four years. See "Stock
Incentive Plan." Drs. Johnson and Rubinfeld are reimbursed for expenses for
attendance at board meetings.
 
SCIENTIFIC ADVISORY COMMITTEE
 
    The Company has established relationships with a group of scientific
advisors with expertise in their respective fields that complement the Company's
product research and development. The following individuals serve on the
Scientific Advisory Committee to the Company's Board of Directors:
 
    CHRISTOPHER K. MATHEWS, PH.D. is Chairman of the Scientific Advisory
Committee. He is the Chairman of the Biochemistry-Biophysics Department at
Oregon State University. Dr. Mathews received a B.A. from Reed College and a
Ph.D. in Biochemistry from the University of Washington. He performed
postdoctoral work in Biochemistry at the University of Pennsylvania. Dr. Mathews
joined the Scientific Advisory Committee in 1994 and was a director of the
Company from 1991 to 1994.
 
   
    STEVEN H. HEFENEIDER, PH.D. has been a staff immunologist at the Veterans
Administration Medical Center in Portland, Oregon since 1985 and Research
Associate Professor in the Department of Medicine at Oregon Health Sciences
University ("OHSU") since 1987. He received a B.S. in Biology from the
University of Oregon, an M.S. in Genetics from the University of Minnesota and a
Ph.D. in Microbiology and Immunology from OHSU in 1981.
    
 
   
    DAVID J. HINRICHS, PH.D. is a Research Scientist at the Veterans
Administration Medical Center in Portland, Oregon and a Professor of
Microbiology and Immunology at OHSU. From 1976 to 1985, he was a Professor of
Microbiology at Washington State University. He received a Ph.D. in Microbiology
from the University of Arizona in 1967.
    
 
   
    JEFFREY D. HOSENPUD, M.D. has been Chief of Cardiology and a Professor of
Medicine at the Medical College of Wisconsin in Milwaukee since 1994. Dr.
Hosenpud was Professor of Medicine and Head of the Cardiac Transplant Medicine
at OHSU from 1984 to 1994, and Medical Director for the Registry of the
International Society for Heart & Lung Transplantation since 1993. Dr. Hosenpud
completed his M.D. at the University of California, Los Angeles.
    
 
EXECUTIVE COMPENSATION
 
   
    Summary Compensation Table.  The following table sets forth, for the fiscal
year ended December 31, 1996, certain summary information concerning
compensation of the persons serving as the Company's Chief Executive Officer
(the "Named Officers"). No other executive officer received compensation
exceeding $100,000.
    
 
                                       39

<PAGE>
                           SUMMARY COMPENSATION TABLE
 

<TABLE>
<CAPTION>
                                                                                        LONG-TERM
                                                                                      COMPENSATION
                                                                                     ---------------
                                                                1996 COMPENSATION      SECURITIES
                                                              ---------------------    UNDERLYING         ALL OTHER
                                                                SALARY      BONUS        OPTIONS       COMPENSATION(1)
                                                              ----------  ---------  ---------------  -----------------
<S>                                                           <C>         <C>        <C>              <C>
Denis R. Burger, Ph.D.
  Chief Executive Officer...................................  $  121,925     --            --                 2,443
James E. Summerton, Ph.D.,
  President and Chief Scientific Officer(2).................  $   92,483     --            --                 2,712
</TABLE>

 
- ------------------------
 
(1) Represents matching amounts received under the Company's 401(k) plan.
 
(2) Dr. Summerton resigned as the Chairman and Chief Executive Officer in
    January 1996 and is now the Company's President and Chief Scientific
    Officer.
 
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
 
   
    The following table sets forth information concerning the value of
unexercised options as of December 31, 1996, held by the Named Officers. No
options were exercised by the Named Officers during the year ended December 31,
1996.
    
 

<TABLE>
<CAPTION>
                                                            NUMBER OF SECURITIES
                                                           UNDERLYING UNEXERCISED       VALUE OF UNEXERCISED
                                                          OPTIONS AT DECEMBER 31,     IN-THE-MONEY OPTIONS AT
                                                                  1996 (#)            DECEMBER 31, 1996 ($)(1)
                                                         --------------------------  --------------------------
NAME                                                     EXERCISABLE  UNEXERCISABLE  EXERCISABLE  UNEXERCISABLE
- -------------------------------------------------------  -----------  -------------  -----------  -------------
<S>                                                      <C>          <C>            <C>          <C>
Denis R. Burger, Ph.D..................................     365,735        --           520,487        --
James Summerton, Ph.D.(2)..............................     132,220        93,334       144,502        125,418
</TABLE>

 
- ------------------------
 
(1) Based upon the difference between the fair market value of the securities
    underlying the options at December 31, 1996 ($6.00 per share as determined
    by the Board of Directors) and the exercise price of the options.
 
(2) Dr. Summerton resigned as the Chairman and Chief Executive Officer in
    January 1996 and is now the Company's President and Chief Scientific
    Officer.
 
EMPLOYMENT AGREEMENTS
 
    The Company has entered into employment contracts with Drs. Burger and
Summerton that provide for annual base salaries for Drs. Burger and Summerton of
$120,000 and $90,000, respectively, that increase to $225,000 and $150,000,
respectively, on January 1, 1997. The employment agreements also provide for the
payment to Drs. Burger and Summerton of one additional year of base salary and
the immediate and full vesting of all options granted to them under the
Company's Stock Incentive Plan in the event of the termination of their
respective employment for reasons, other than cause, or upon their voluntary
termination upon a change in control of the Company. In addition, the employment
agreements prevent Drs. Burger and Summerton from competing with the Company for
a period of two years following termination of their employment for any reason.
Dr. Summerton's agreement also provides that the Company shall engage him as a
consultant for a term of one year following the termination of his employment at
the rate of $75,000 per year and grants the Company the option to engage him as
a consultant on the same terms for a second year. Drs. Burger and Summerton are
deferring their January 1, 1997, salary increases until completion of the
Company's initial public offering.
 
                                       40

<PAGE>
STOCK INCENTIVE PLAN
 
    The Stock Incentive Plan was adopted by the Board of Directors and was
approved by the shareholders in 1992. The purposes of the Stock Incentive Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to the employees and
consultants of the Company and to promote the success of the Company's business.
 
   
    The Stock Incentive Plan is administered by the Compensation Committee (the
"Committee"). Transactions under the Stock Incentive Plan are intended to comply
with all applicable conditions of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934. In addition to determining who will be granted options,
the Committee has the authority and discretion to determine when options will be
granted and the number of options to be granted. The Committee may determine
which options may be intended to qualify ("Incentive Stock Options") for special
treatment under the Internal Revenue Code of 1986, as amended from time to time
(the "Code"), or whether options are non-qualified options ("Non-Qualified Stock
Options") which are not intended to so qualify. The Committee also may determine
the time or times when each option becomes exercisable, the duration of the
exercise period for options and the form or forms of the instruments evidencing
options granted under the Stock Incentive Plan. The Committee may adopt, amend
and rescind such rules and regulations as in its opinion may be advisable for
the administration of the Stock Incentive Plan. The Committee also may construe
the Stock Incentive Plan and the provisions in the instruments evidencing option
granted under Stock Incentive Plan to employee and officer participants and is
empowered to make all other determinations deemed necessary or advisable for the
administration of the Stock Incentive Plan. SARs and stock bonuses may also be
granted under the Stock Incentive Plan.
    
 
    The Stock Incentive Plan contains provisions for proportionate adjustment of
the number of shares for outstanding options and the option price per share in
the event of stock dividends, recapitalizations resulting in stock splits or
combinations or exchanges of shares. In addition, the Stock Incentive Plan
provides for adjustments in the purchase price and exercise period by the
Committee in the event of a proposed dissolution or liquidation of the Company,
or any corporate separation or division, including, but not limited to,
split-up, split-off or spin-off, or a merger or consolidation of the Company
with another corporation, or in the event there is a change in constitution of
the Common Stock of the Company.
 
    Participants in the Stock Incentive Plan may be selected by the Committee
from employees, officers, directors and consultants of the Company. In
determining the persons to whom options will be granted and the number of shares
to be covered by each option, the Committee will take into account the duties of
the respective persons, their present and potential contributions to the success
of the Company and such other factors as the Committee deems relevant to
accomplish the purposes of the Stock Incentive Plan.
 
    Only employees of the Company as the term "employees" is defined for the
purposes of Code will be entitled to receive Incentive Stock Options. Incentive
Stock Options granted under the Stock Incentive Plan are intended to satisfy all
requirements for incentive stock options under Section 422 of the Code and the
Treasury Regulations thereunder.
 
    Each option granted under the Stock Incentive Plan will be evidenced by a
written option agreement between the Company and the optionee. The option price
of any Incentive Stock Option may be not less than 100% of the fair market value
per share on the date of grant of the option; provided, however, that any
Incentive Stock Option granted under the Stock Incentive Plan to a person owning
more than 10% of the total combined voting power of the Common Stock will have
an option price of not less than 110% of the fair market value per share on the
date of grant of the Incentive Stock Option. Each Non-Qualified Stock Option
granted under the Stock Incentive Plan will be at an exercise price as
determined by the Board of Directors. Fair market value on the date of grant is
defined as a value determined in the discretion of the Board; provided, however,
that where there is a public market for the Common Stock, the fair market value
per share shall be the closing price of the Common Stock for the date of grant
or authorization of sale, as reported in THE WALL STREET JOURNAL.
 
                                       41

<PAGE>
    The exercise period of Incentive Stock Options granted under the Stock
Incentive Plan generally may not exceed 10 years from the date of grant thereof.
Incentive Stock Options granted to a person owning more than 10 percent of the
total combined voting power of the Common Stock of the Company will be for no
more than five years. The Committee will have the authority to accelerate or
extend the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of an Incentive Stock
Option beyond 10 years from the date of grant.
 
    To exercise an option, the optionee must pay the full exercise price in
whole or in part consisting of cash or transfer to the Company of shares having
a fair market value at the time of such exercise equal to the option exercise
price.
 
    An option may not be exercised unless the optionee then is an employee,
officer, director or consultant of the Company, and unless the optionee has
remained continuously as an employee, officer, director or consultant of the
Company since the date of grant of the option. If the optionee ceases to be an
employee, officer, director or consultant of the Company, all options which are
not vested under the Stock Incentive Plan by the time of death, disability,
retirement or termination of employment, immediately terminate. All options
granted to such optionee that are fully vested to such optionee but not yet
exercised, will terminate (i) 12 months after the date the optionee ceases to be
an employee, officer or director of the Company by reason of death or
disability; or (ii) 30 days after termination of employment for any other
reason.
 
    If an optionee dies while an employee, officer, director or consultant, or
is terminated by reason of disability, all options theretofore granted to such
optionee, unless earlier terminated in accordance with their terms, may be
exercised at any time within one year after the date of death or disability of
said optionee, by the optionee or by the optionee's estate or by a person who
acquired the right to exercise such options by request or inheritance, but only
to the extent of the right to exercise as of the date of death or disability.
 
    Options granted under the Stock Incentive Plan are not transferable other
than by will or by the laws of descent and distribution. Options may be
exercised during the lifetime of the optionee only by the optionee. An optionee
has no rights as a shareholder with respect to any shares covered by an option
until the option has been exercised.
 
    The Company, to the extent permitted by law, may deduct a sufficient number
of shares due to the optionee upon exercise of the option to allow the Company
to pay federal, state and local taxes of any kind required by law to be withheld
upon the exercise otherwise due to the optionee. The Company is not obligated to
advise any optionee of the existence of any tax or the amount which the Company
will be required to withhold.
 
    As of the date of this Prospectus, options to purchase 1,126,886 shares of
the Company's Common Stock have been granted and are outstanding under the Stock
Incentive Plan, at a weighted average exercise price of $4.73 per share, and
206,447 shares were available for future grants.
 
LIMITATION OF LIABILITY AND INDEMNIFICATION
 
    The Company's Third Restated Articles of Incorporation eliminate, to the
fullest extent permitted by Oregon law, liability of a director to the Company
or its shareholders for monetary damages for conduct as a director. While
liability for monetary damages has been eliminated, equitable remedies such as
injunctive relief or rescission remain available. In addition, a director is not
relieved of his or her responsibilities under any other law, including the
federal securities laws.
 
    The Company's Third Restated Articles of Incorporation require the Company
to indemnify its directors to the fullest extent not prohibited by law. The
Oregon Business Corporation Act authorizes a corporation, through its articles
of incorporation and bylaws, to limit the liability of directors and to grant
 
                                       42

<PAGE>
indemnity to directors, officers, employees or agents for actions taken with
respect to corporation in their respective capacities as directors, officers,
employees or agents. Indemnification for such liabilities may be provided to an
officer, director, employee or agent based upon the determination by a vote of
the disinterested Board of Directors, a vote by a special committee of the Board
of Directors, by the determination of a special legal counsel or by a vote of
the shareholders that the director, officer, employee or agent may properly be
indemnified under the statute. The Company believes that the limitation of
liability provisions in its Third Restated Articles may enhance the Company's
ability to attract and retain qualified individuals to serve as directors.
 
    Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
 
                                       43

<PAGE>
                              CERTAIN TRANSACTIONS
 
    James E. Summerton, Ph.D., the President, Chief Scientific Officer, and a
director of the Company, is the general partner of Anti-Gene Development Group
("AGDG"), and was the general partner of NEU-GENE Development Group ("NGDG").
AGDG was founded in 1981 and NGDG was founded in 1984 to own and fund the
Company's development of gene-targeted therapeutics and NEU-GENE technology.
NGDG and AGDG were combined in 1989, with AGDG as the surviving entity. The
Company entered into numerous research and development contracts with AGDG and
NGDG, all of which were completed or were superseded by the Technology Transfer
Agreement described below.
 
    On February 9, 1993, the Company and AGDG entered into a Technology Transfer
Agreement wherein effective May 19, 1993, AGDG conveyed all intellectual
property in its control related to antisense technology (the "Intellectual
Property") to the Company. As part of the conveyance, the Company tendered to
AGDG for liquidation all partnership units received pursuant to an exchange
offer and received a 49.37% undivided interest in the intellectual property. The
Company then purchased the remaining undivided interest in the Intellectual
Property in consideration of payments of 4.05% of gross revenues in excess of
$200 million, if any, sales of products by the Company which would, in the
absence of the Technology Transfer Agreement, infringe a valid claim under any
patent transferred to the Company (the "Technology Fees"). The Company's
obligation to make payments of the Technology Fees with respect to a particular
product terminates upon the expiration of all patents transferred to the Company
pursuant to the Technology Transfer Agreement related to that product.
 
    Pursuant to a License and Option Agreement by and between AGDG and the
Company dated February 9, 1993 (the "License Agreement"), the Company granted to
AGDG a royalty-free non-exclusive license to use the Intellectual Property for
internal research and development and to sell small quantities of products
incorporating the Intellectual Property. In addition, if AGDG develops any
specific prototype products which incorporate any of the Intellectual Property,
the Company has the right to commercialize and market such products in
consideration of payments of 4.05% of gross revenues, in excess of the $200
million exemption for all products utilizing the Intellectual Property, to AGDG.
If the Company elects not to commercialize the proposed AGDG product or fails to
meet certain product development milestones, the Company is required to grant
AGDG a license to develop and market the proposed product (an "AGDG License").
The Company is entitled to payments for the AGDG License but only if the
proposed product incorporates patented improvements developed by the Company to
the Intellectual Property. The amount of the license fee payable to the Company
by AGDG pursuant to an AGDG License, if any, is equal to the percentage payable
to AGDG for products sold by the Company and covered by the Technology Transfer
Agreement. AGDG also has the right to obtain an exclusive royalty-free license
to use, develop, make, sell, distribute and sublicense products utilizing the
Intellectual Property at such time as the Company has less than 10 full-time
employees engaged in developing, testing or marketing products based upon the
Intellectual Property for a period of at least 180 consecutive days.
 
    On January 20, 1997, AGDG and the Company amended the Technology Transfer
Agreement to reduce the Technology Fees arising from the sale of diagnostic
products from 4.05% to 2% and to remove the $200 million exemption with respect
to sales of such diagnostic products. The Company also granted to AGDG
royalty-bearing licenses to make, use and sell certain quantities of product
derived from the Intellectual Property.
 
    The Company's Board of Directors has required, in conformity with Oregon
law, that a transaction in which a director has a conflict of interest be
approved by a majority of disinterested directors. The Board has recognized that
Dr. Summerton has a direct or indirect conflict of interest in connection with
transactions between the Company and AGDG and, in such circumstances, the terms
and conditions of such transactions have been negotiated for the Company by
officers other than Dr. Summerton and have been approved by a majority of
disinterested directors after disclosure of the conflict of interest.
 
                                       44

<PAGE>
   
    Pursuant to an August 4, 1992 restatement of earlier agreements between
Oregon Resource and Technology Development Fund ("ORTDF"), the Company, AGDG and
Dr. Summerton, warrants to purchase 600,000 shares of the Company's Common Stock
were issued to ORTDF. John A. Beaulieu was president of ORTDF and a director of
the Company at that time. In connection with this issuance to ORTDF, they
acquired certain rights to register such shares under the Securities Act. See
"Description of Securities--Registration Rights." In May 1993, ORTDF acquired
warrants to purchase an additional 357,500 shares in exchange for 325
partnership units in AGDG conveyed to the Company. Such warrants carry no
registration rights. In March 1996, ORTDF exercised its warrants in a cashless
exercise for which ORTDF acquired 957,452 shares of the Company's Common Stock.
    
 
                                       45

<PAGE>
                             PRINCIPAL SHAREHOLDERS
 
   
    The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of April 11, 1997, and as
adjusted to give effect to the sale by the Company of the shares of Common Stock
offered (assuming no exercise of the Overallotment Option or the Warrants) by
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially 5% or more of the Common Stock, (ii) each of the Company's
directors, (iii) the Named Officer, and (iv) all executive officers and
directors of the Company as a group. The information as to each person or entity
has been furnished by such person or entity, and unless otherwise indicated, the
persons named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable.
    
 
   

<TABLE>
<CAPTION>
                                                                                                PERCENT OF SHARES
                                                                                                   OUTSTANDING
                                                                                  SHARES     ------------------------
                                                                                BENEFICIALLY BEFORE UNIT  AFTER UNIT
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                                          OWNED(1)     OFFERING    OFFERING(1)
- ------------------------------------------------------------------------------  -----------  -----------  -----------
<S>                                                                             <C>          <C>          <C>
James E. Summerton, Ph.D.(2)..................................................   2,553,473        24.8%        21.6%
  ANTIVIRALS INC.
  4575 S.W. Research Way, Suite 200
  Corvallis, OR 97333
 
John A. Beaulieu(3)...........................................................     990,785         9.7%         8.5%
  4370 N.E. Halsey, Suite 233
  Portland, OR 97213
 
Oregon Resource and Technology................................................     990,785         9.7%         8.5%
  Development Fund(4)
  4370 N.E. Halsey, Suite 233
  Portland, OR 97213
 
Wayne Embree(5)...............................................................     957,452         9.4%         8.2%
  4370 N.E. Halsey, Suite 233
  Portland, OR 97213
 
Denis R. Burger, Ph.D.(6).....................................................     406,886         3.9%         3.4%
  ANTIVIRALS INC.
  1 S.W. Columbia, Suite 1105
  Portland, OR 97258
 
Dwight D. Weller, Ph.D.(7)....................................................     370,178         3.6%         3.1%
  ANTIVIRALS INC.
  4575 S.W. Research Way, Suite 200
  Corvallis, OR 97333
 
Nick Bunick(8)................................................................     200,733         2.0%         1.7%
  ANTIVIRALS INC.
  1 S.W. Columbia, Suite 1105
  Portland, OR 97258
 
Alan P. Timmins(9)............................................................      68,825        *            *
  ANTIVIRALS INC.
  1 S.W. Columbia, Suite 1105
  Portland, OR 97258
</TABLE>

    
 
                                       46

<PAGE>

<TABLE>
<CAPTION>
                                                                                                PERCENT OF SHARES
                                                                                                   OUTSTANDING
                                                                                  SHARES     ------------------------
                                                                                BENEFICIALLY BEFORE UNIT  AFTER UNIT
NAME AND ADDRESS OF BENEFICIAL OWNER(1)                                          OWNED(1)     OFFERING    OFFERING(1)
- ------------------------------------------------------------------------------  -----------  -----------  -----------
<S>                                                                             <C>          <C>          <C>
Donald R. Johnson, Ph.D.(10)..................................................      64,333        *            *
  ANTIVIRALS INC.
  1 S.W. Columbia, Suite 1105
  Portland, OR 97258
 
James E. Reinmuth, Ph.D.(11)..................................................      51,817        *            *
  ANTIVIRALS INC.
  1 S.W. Columbia, Suite 1105
  Portland, OR 97258
 
Joseph Rubinfeld, Ph.D.(12)...................................................       8,334        *            *
  ANTIVIRALS INC.
  1 S.W. Columbia, Suite 1105
  Portland, OR 97258
 
James B. Hicks, Ph.D..........................................................           0        *            *
  ANTIVIRALS INC.
  1 S.W. Columbia, Suite 1105
  Portland, OR 97258
 
Frederick C. Pearson, Ph.D....................................................           0        *            *
  ANTIVIRALS INC.
  4575 S.W. Research Way, Suite 200
  Corvallis, OR 97333
 
All executive officers and directors as a group (11 persons)..................   4,715,365        53.7%        45.9%
</TABLE>

 
- ------------------------
 
*   Less than 1%.
 
   
 (1) Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission and generally includes voting or
    investment power with respect to securities. Shares of Common Stock subject
    to options and warrants currently exercisable or convertible, or exercisable
    or convertible within 60 days of April 11, 1997, are deemed beneficially
    owned and outstanding for computing the percentage of the person holding
    such securities, but are not considered outstanding for computing the
    percentage of any other person.
    
 
   
 (2) Includes 158,886 shares subject to options exercisable within 60 days of
    April 11, 1997, and 727,154 shares held jointly or by others over which Dr.
    Summerton exercises voting and investment power. Does not include 66,667
    shares subject to options exercisable after June 10, 1997.
    
 
   
 (3) Includes 33,334 shares subject to options exercisable within 60 days of
    April 11, 1997, of which Mr. Beaulieu is the record owner. ORTDF is the
    beneficial owner of all of the 33,334 options for which Mr. Beaulieu is the
    record owner. Includes 957,452 shares of common stock issued to Cascadia
    Pacific Management, LLC for the benefit of ORTDF.
    
 
   
 (4) Includes 33,334 shares subject to options held of record by Mr. Beaulieu
    and exercisable within 60 days of April 11, 1997 and 957,942 shares issued
    to Cascadia Pacific Managment, LLC for the benefit of ORTDF. See Note 3
    above.
    
 
 (5) Includes 957,452 shares of Common Stock issued to Cascadia Pacific
    Management, LLC for the benefit of ORTDF.
 
                                       47

<PAGE>
   
 (6) Includes 34,434 shares held by Sovereign Ventures, LLC, a limited liability
    company in which Dr. Burger is a general partner. Also includes 365,735
    shares subject to options exercisable within 60 days of April 11, 1997.
    
 
   
 (7) Includes 247,634 shares held jointly or by others over which Dr. Weller
    exercises voting and investment power, 94,018 shares subject to options
    exercisable by Dr. Weller and 1,860 shares subject to options exercisable by
    Dr. Weller's spouse within 60 days of April 11, 1997, and 25,000 shares
    subject to warrants exercisable within 60 days of April 11, 1997. Does not
    include 25,000 shares subject to warrants exercisable after June 10, 1997.
    
 
   
 (8) Includes 50,667 shares held jointly or by others over which Mr. Bunick
    exercises voting and investment power. Includes 33,334 shares subject to
    options exercisable within 60 days of April 11, 1997.
    
 
   
 (9) Includes 68,825 shares subject to options exercisable within 60 days of
    April 11, 1997. Does not include 38,333 shares subject to options
    exercisable after June 10, 1997.
    
 
   
(10) Includes 33,334 shares subject to options and 16,667 shares subject to
    warrants exercisable within 60 days of April 11, 1997.
    
 
   
(11) Includes 33,334 shares subject to options exercisable within 60 days of
    April 11, 1997. Also includes 5,051 shares held jointly with others over
    which Dr. Reinmuth exercises voting and investment power.
    
 
   
(12) Includes 8,334 shares subject to options exercisable within 60 days of
    April 11, 1997. Does not include 25,000 shares subject to options
    exercisable after June 10, 1997.
    
 
                                       48

<PAGE>
                           DESCRIPTION OF SECURITIES
 
    The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock.
 
UNITS
 
    Each Unit consists of one share of Common Stock and one redeemable Warrant.
The Units will separate immediately upon issuance, and the Common Stock and
Warrants that comprise the Units will trade as separate securities.
 
COMMON STOCK
 
   
    The Company is authorized to issue 50,000,000 shares of Common Stock. As of
March 31, 1997, 8,779,763 shares of Common Stock were outstanding, held of
record by 881 shareholders. The holders of Common Stock are entitled to one vote
for each share held of record on all matters submitted to a vote of shareholders
(and do not have any cumulative voting rights). Subject to preferences that may
be applicable to outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Company's Board of Directors out of funds legally available therefor.
Holders of Common Stock have no preemptive, subscription or redemption rights,
and there are no redemption, conversion or similar rights with respect to such
shares. In the event of a liquidation, dissolution or winding up of the Company,
holders of the Common Stock are entitled to share equally and ratably in the
assets of the Company, if any, remaining after the payment of all liabilities of
the Company and the liquidation preference of any outstanding class or series of
Preferred Stock. The outstanding shares of Common Stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to any series of Preferred Stock that the Company may issue in the
future, as described below.
    
 
PREFERRED STOCK
 
    The Company is authorized to issue up to 2,000,000 shares of undesignated
Preferred Stock. No shares of Preferred Stock have been issued. The Board of
Directors has the authority to issue the undesignated Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued shares of undesignated Preferred
Stock, as well as to fix the number of shares constituting any series and the
designation of such series, without any further vote or action by the
shareholders. The Board of Directors, without shareholder approval, may issue
Preferred Stock with voting and conversion rights which could materially
adversely affect the voting power of the holders of Common Stock. The issuance
of Preferred Stock could also decrease the amount of earnings and assets
available for distribution to holders of Common Stock. In addition, the issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company. At present, the Company has no plans to issue
any shares of Preferred Stock. See "Risk Factors--Anti-Takeover Effects of
Certain Charter Provisions and Oregon Law" and "Certain Provisions of the
Company's Articles of Incorporation and Bylaws."
 
WARRANTS
 
   
    REPRESENTATIVES' WARRANTS.  In connection with this offering, the Company
has authorized the issuance of the Representatives' Warrants and has reserved
300,000 shares of Common Stock for issuance upon exercise of such warrant
(including the warrants issuable upon exercise of the Representatives'
Warrants). The Representatives' Warrants will entitle the holder to acquire up
to an aggregate of 150,000 Units at an exercise price of $          per Unit
(120% of the initial public offering price for the Units). The Representatives'
Warrants will be exercisable at any time from the first anniversary of the date
of this Prospectus until the fifth anniversary of the date of this Prospectus.
    
 
                                       49

<PAGE>
    THE WARRANTS.  Each Warrant will entitle the holder to purchase one share of
Common Stock at a price of $          per share (150% of the initial public
offering price for the Units). The Warrants will, subject to certain conditions,
be exercisable at any time until the fifth anniversary of the date of this
Prospectus, unless earlier redeemed. The Warrants are redeemable by the Company
at $.25 per Warrant, upon 30 days written notice, if the closing bid price (as
defined in the Warrant Agreement described below) per share of the Common Stock
for each of the 20 consecutive trading days immediately preceding the date
notice of redemption is given equals or exceeds 200% of the then-current Warrant
exercise price. If the Company gives notice of its intention to redeem, a holder
would be forced either to exercise his or her Warrant before the date specified
in the redemption notice or accept the redemption price.
 
   
    The Warrants will be issued in registered form under a Warrant Agreement
(the "Warrant Agreement") between the Company and ChaseMellon Shareholder
Services, as warrant agent (the "Warrant Agent"). The shares of Common Stock
underlying the Warrants, when issued upon exercise of a Warrant, will be fully
paid and nonassessable, and the Company will pay any transfer tax incurred as a
result of the issuance of Common Stock to the holder upon its exercise.
    
 
   
    The Warrants and the Representatives' Warrants contain provisions that
protect the holders against dilution by adjustment of the number of shares that
may be purchased by the holders. Such adjustments will occur in the event, among
others, that the Company makes certain distributions to holders of its Common
Stock. The Company is not required to issue fractional shares upon the exercise
of a Warrant or Representatives' Warrants. The holder of a Warrant or
Representatives' Warrants will not possess any rights as a shareholder of the
Company until such holder exercises the Warrant or Representatives' Warrants.
    
 
    A Warrant may be exercised upon surrender of the Warrant Certificate on or
before the expiration date of the Warrant at the offices of the Warrant Agent,
with the form of "Election To Purchase" on the reverse side of the Warrant
Certificate completed and executed as indicated, accompanied by payment of the
exercise price (by certified or bank check payable to the order of the Company
or by wire transfer of good funds) for the number of shares with respect to
which the Warrant is being exercised.
 
    For a holder to exercise the Warrants, there must be a current registration
statement in effect with the Commission and qualification in effect under
applicable state securities laws (or applicable exemptions from state
qualification requirements) with respect to the issuance of shares or other
securities underlying the Warrants. The Company has agreed to use all
commercially reasonable efforts to cause a registration statement with respect
to such securities under the Securities Act to be filed and to become and remain
effective in anticipation of and prior to the exercise of the Warrants and to
take such other actions under the laws of various states as may be required to
cause the sale of Common Stock (or other securities) issuable upon exercise of
Warrants to be lawful. If a current registration statement is not in effect at
the time a Warrant is exercised, the Company may at its option redeem the
Warrant by paying to the holder cash equal to the difference between the market
price of the Common Stock on the exercise date and the exercise price of the
Warrant. The Company will not be required to honor the exercise of Warrants if,
in the opinion of the Company's Board of Directors upon advice of counsel, the
sale of securities upon exercise would be unlawful.
 
   
    The foregoing discussion of certain terms and provisions of the Warrants and
Representatives' Warrants is qualified in its entirety by reference to the
detailed provisions of the Warrant Agreement and Representatives' Warrant
Certificate, the form of each of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
    
 
   
    For the life of the Warrants and Representatives' Warrants, the holders
thereof have the opportunity to profit from a rise in the market price of the
Common Stock without assuming the risk of ownership of the shares of Common
Stock issuable upon the exercise of the warrants. The warrant holders may be
expected to exercise their warrants at a time when the Company would, in all
likelihood, be able to obtain any needed capital by an offering of Common Stock
on terms more favorable than those provided for by
    
 
                                       50

<PAGE>
the warrants. Further, the terms on which the Company could obtain additional
capital during the life of the warrants may be adversely affected.
 
    OTHER WARRANTS.  The Company has outstanding certain warrants to purchase
147,899 shares of Common Stock, of which warrants to purchase 25,000 shares are
not presently exercisable. Of these warrants, 38,001 are exercisable through the
period ending 90 days after the expiration of lock-up agreements entered into in
connection with this offering, of which 27,001 are exercisable at a price of
$0.0003 per share and 11,000 are exercisable at a price of $1.14 per share.
Warrants to purchase 14,467 shares are exercisable through July 17, 1997, at an
exercise price of $0.0003 per share. Warrants to purchase 25,000 shares are
exercisable through December 31, 1997, at an exercise price of $0.0003 per
share. Warrants to purchase 1,100 shares are exercisable through August 8, 2001,
at an exercise price of $4.56 per share. Warrants to purchase 44,334 shares are
currently exercisable and do not have a termination date; warrants to purchase
11,000 of these shares are exercisable at a price of $1.14 per share and
warrants to purchase 33,334 of these shares are exercisable at $0.0003 per
share.
 
    The Company also has outstanding a warrant to purchase 219,334 shares of
Common Stock, exercisable through the earlier of the closing of a firmly
underwritten public offering by the Company with proceeds exceeding $5,000,000,
or May 14, 2002, at an exercise price of $6.00 per share, which price is subject
to adjustment to prevent dilution. The exercise price is also subject to a fair
market value adjustment to make the price paid by the warrant holder equivalent
to the price paid by certain independent third-party purchasers. For purposes of
this adjustment, an independent third-party purchaser is any party who purchases
shares of the Company's Common Stock for not less than $250,000, who was not a
shareholder of the Company on May 1, 1992, and who is not an affiliate, officer
or director of the Company. The Company has agreed to register the shares
underlying this warrant under certain circumstances. See "Registration Rights."
 
    The Company additionally has outstanding warrants to purchase 60,201 shares
of Common Stock at an exercise price of $9.00 per share. These warrants are
exercisable through the earlier of August 30, 2001 or three years from the date
of closing by the Company of an initial public offering.
 
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
 
    The following discussion sets forth certain federal income tax consequences,
under current law, relating to the purchase and ownership of the Units and the
Common Stock and Warrants constituting the Units. The discussion is a summary
and does not purport to deal with all aspects of federal taxation that may be
applicable to an investor, nor does it consider specific facts and circumstances
that may be relevant to a particular investor's tax position. Certain holders
(such as dealers in securities, insurance companies, tax exempt organizations,
foreign persons and those holding Common Stock or Warrants as part of a straddle
or hedge transaction) may be subject to special rules that are not addressed in
this discussion. This discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, and on administrative and judicial
interpretations as of the date hereof, all of which are subject to change. ALL
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THIS OFFERING, INCLUDING THE APPLICABILITY OF FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS.
 
    ALLOCATION OF PURCHASE PRICE.  Each Unit as a whole will have a tax basis
equal to the cost of the Unit. The measure of income or loss from certain
transactions described below depends upon the tax basis in each of the Warrants
and the Common Stock comprising the Unit. The tax basis for each of the Warrants
and the Common Stock will be determined by allocating the cost of the Unit among
the securities which comprise the Unit in proportion to the relative fair market
values of those elements at the time of acquisition.
 
    U.S. HOLDERS OF COMMON STOCK OR WARRANTS. The following discussion concerns
the material U.S. federal income tax consequences of the ownership and
disposition of Common Stock or Warrants
 
                                       51

<PAGE>
applicable to a U.S. Holder of such Common Stock or Warrants. In general, a
"U.S. Holder" is (i) a citizen or resident of the U.S., (ii) a corporation or
partnership created or organized in the U.S. or under the laws of the U.S. or
any state, or (iii) an estate or trust whose income is includable in gross
income for U.S. federal income tax purposes regardless of its source.
 
    DIVIDENDS.  Dividends, if any, paid to a U.S. Holder generally will be
includable in the gross income of such U.S. Holder as ordinary income to the
extent of such U.S. Holder's share of the Company's current or accumulated
earnings and profits. See "Dividend Policy."
 
    SALE OF COMMON STOCK.  The sale of Common Stock should generally result in
the recognition of gain or loss to a U.S. Holder thereof in an amount equal to
the difference between the amount realized and such U.S. Holder's tax basis in
the Common Stock. If the Common Stock constitutes a capital asset in the hands
of a U.S. Holder, gain or loss upon the sale of the Common Stock will be
characterized as long-term or short-term capital gain or loss, depending on
whether the Common Stock has been held for more than one year.
 
    EXERCISE AND SALE OF WARRANTS.  No gain or loss will be recognized by a U.S.
Holder of a Warrant on the purchase of shares of Common Stock for cash pursuant
to an exercise of a Warrant (except that gain will be recognized to the extent
cash is received in lieu of fractional shares). The tax basis of Common Stock
received upon the exercise of a Warrant will equal the sum of the U.S. Holder's
tax basis for the exercised Warrant and the exercise price. The holding period
of the Common Stock acquired upon the exercise of the Warrant will begin on the
date the Warrant is exercised and the Common Stock is purchased (i.e., it does
not include the period during which the Warrant was held).
 
    Gain or loss from the sale or other disposition of a Warrant (or loss in the
event that the Warrant expires unexercised as discussed below), other than
pursuant to a redemption by the Company, will be capital gain or loss to its
U.S. Holder if the Common Stock to which the Warrant relates would have been a
capital asset in the hands of such holder. Such capital gain or loss will be
long-term capital gain or loss if the U.S. Holder has held the Warrant for more
than one year at the time of the sale, disposition or lapse. It is unclear
whether the redemption of a Warrant by the Company would generate ordinary or
capital income or loss.
 
    EXPIRATION OF WARRANTS WITHOUT EXERCISE.  If a holder of a Warrant allows it
to expire without exercise, the expiration will be treated as a sale or exchange
of the Warrant on the expiration date. The U.S. Holder will have a taxable loss
equal to the amount of such U.S. Holder's tax basis in the lapsed Warrant. If
the Warrant constitutes a capital asset in the hands of the U.S. Holder, such
taxable loss will be characterized as long-term or short-term capital loss
depending upon whether the Warrant was held for the required long-term holding
period.
 
    BACKUP WITHHOLDING.  A shareholder who is a U.S. Holder may be subject to
backup withholding at the rate of 31% in connection with distributions received
with respect to his or her shares, unless the shareholder (i) is a corporation
or comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer identification number, certifies
as to no loss of exemption for backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. Any amount paid as
backup withholding will be creditable against such shareholder's income tax
liability. The Company will report to the shareholders and the I.R.S. the amount
of any "reportable payments" distributed and the amount of tax withheld, if any,
with respect to the shares.
 
    NON-U.S. HOLDERS OF COMMON STOCK OR WARRANTS. The following discussion
concerns the material U.S. federal income and estate tax consequences of the
ownership and disposition of shares of Common Stock or Warrants applicable to
Non-U.S. Holders of such shares of Common Stock or Warrants. In general, a
"Non-U.S. Holder" is any holder other than a U.S. Holder, as defined in the
preceding section.
 
                                       52

<PAGE>
   
    DIVIDENDS.  Dividends, if any, paid to a Non-U.S. Holder generally will be
subject to U.S. withholding tax at a 30% rate (or a lower rate as may be
prescribed by an applicable tax treaty) unless the dividends are effectively
connected with a trade or business of the Non-U.S. Holder within the United
States. See "Dividend Policy." Dividends effectively connected with such a trade
or business will generally not be subject to withholding (if the Non-U.S. Holder
properly files an executed IRS Form 4224 with the payor of the dividend) and
generally will be subject to federal income tax on a net income basis at regular
graduated rates. In the case of a Non-U.S. Holder which is a corporation, such
effectively connected income also may be subject to the branch profits tax
(which is generally imposed on a foreign corporation on the repatriation from
the U.S. of effectively connected earnings and profits). The branch profits tax
may not apply if the recipient is a qualified resident of certain countries with
which the U.S. has an income tax treaty. To determine the applicability of a tax
treaty providing for a lower rate of withholding, dividends paid to an address
in a foreign country are presumed, under the current I.R.S. position, to be paid
to a resident of that country, unless the payor had definite knowledge that such
presumption is not warranted or an applicable tax treaty (or U.S. Treasury
Regulations thereunder) requires some other method for determining a Non-U.S.
Holder's treaty status. The Company must report annually to the I.R.S. and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides.
    
 
    SALE OF COMMON STOCK.  Generally, a Non-U.S. Holder will not be subject to
federal income tax on any gain realized upon the disposition of such holder's
shares of Common Stock unless (i) the gain is effectively connected with a trade
or business carried on by the Non-U.S. Holder within the U.S. (in which case the
branch profits tax may apply); (ii) the Non-U.S. Holder is an individual who
holds the shares of Common Stock as a capital asset and is present in the U.S.
for 183 days or more in the taxable year of the disposition and to whom such
gain is U.S. source; (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of U.S. tax law applicable to certain former U.S. citizens or
residents; or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time during the five-year period
ending on the date of disposition (or such shorter period that such shares were
held) and, subject to certain exceptions, the Non-U.S. Holder held, directly or
indirectly, more than 5% of the Common Stock.
 
    EXERCISE AND SALE OF WARRANTS.  Generally, a Non-U.S. Holder who recognizes
capital gain from the sale of a Warrant, other than pursuant to a redemption by
the Company, will not be subject to U.S. federal income tax unless (i) the gain
is effectively connected with a trade or business carried on by the Non-U.S.
Holder within the United States (in which case the branch profits tax may
apply); (ii) the Non-U.S. Holder is an individual who is present in the U.S. for
183 days or more in the taxable year of sale and to whom the gain is U.S.
source; (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of U.S. law applicable to certain former U.S. citizens or residents; or (iv) the
Company is or has been a "U.S. real property holding corporation" for federal
income tax purposes (which the Company does not believe it is or is likely to
become) at any time during the five-year period ending on the date of sale (or
such shorter period such Warrants were held) and, subject to certain exceptions,
the Non-U.S. Holder held, directly or indirectly, more than 5% of the Warrants.
 
    ESTATE TAX.  Shares of Common Stock and Warrants owned or treated as owned
by an individual who is not a citizen or resident (as specially defined for U.S.
federal estate tax purposes) of the U.S. at the time of death will be includable
in the individual's gross estate for U.S. federal estate tax purposes, unless an
applicable tax treaty provides otherwise, and may be subject to U.S. federal
estate tax.
 
    BACKUP WITHHOLDING AND INFORMATION REPORTING.  Under current U.S. federal
income tax law, backup withholding tax (which generally is a withholding tax
imposed at the rate of 31% on certain payments to
 
                                       53

<PAGE>
persons that fail to furnish certain required information) and information
reporting apply to payments of dividends (actual and constructive) made to
certain non-corporate U.S. persons. The backup withholding tax and information
reporting requirements applicable to U.S. persons will generally not apply to
dividends paid on Common Stock to a Non-U.S. Holder at an address outside the
U.S., although dividends paid to Non-U.S. Holders will be reported and taxed as
described above under "Dividends."
 
    The payment of the proceeds.from the disposition of shares of Common Stock
or Warrants through the U.S. office of a broker will be subject to information
reporting and backup withholding unless the holder, under penalties of perjury,
certifies, among other things, its status as a Non-U.S. Holder or otherwise
establishes an exemption. Generally, the payment of the proceeds from the
disposition of shares of Common Stock or Warrants to or through a non-U.S.
office of a broker will not be subject to backup withholding and will not be
subject to information reporting. In the case of the payment of proceeds from
the disposition of shares of Common Stock or Warrants through a non-U.S. office
of a broker that is a U.S. person or a "U.S.-related person," existing
regulations require information reporting (but not backup withholding) on the
payment unless the broker receives a statement from the owner, signed under
penalties of perjury, certifying, among other things, its status as a non-U.S.
Holder or the broker has documentary evidence in its files that the owner is a
Non-U.S. Holder and the broker has no actual knowledge to the contrary. For this
purpose, a "U.S.-related person" is (i) a "controlled foreign corporation" for
U.S. federal income tax purposes or (ii) a foreign person 50% or more of whose
gross income from all sources for the three-year period ending with the close of
its taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a U.S. trade or business.
 
    Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the I.R.S. Non-U.S. Holders should consult
their tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom and the procedure for
obtaining such an exemption, if available.
 
REGISTRATION RIGHTS
 
   
    REPRESENTATIVES' WARRANTS.  The Representatives' Warrants provide certain
rights with respect to the registration under the Securities Act of the 300,000
shares issuable upon exercise thereof (including shares of Common Stock issuable
upon the exercise of the Warrants included therein). The Company has agreed that
during the entire period between the first anniversary and fifth anniversary
after the date of this Prospectus it will register the issuance of such shares
upon the exercise of the Representatives' Warrants (and, if necessary, their
resale) so as to permit their public resale without restriction. These
registration rights could result in substantial future expense to the Company
and could adversely affect the Company's ability to complete future equity or
debt financings. Furthermore, the registration and sale of Common Stock of the
Company held by or issuable to the holders of registration rights, or even the
potential of such sales, could have an adverse effect on the market price of the
securities offered hereby.
    
 
    OTHER REGISTRATION RIGHTS.  Holders of 834,568 shares of Common Stock, or
their transferees, are entitled to certain rights with respect to the
registration of such shares under the Securities Act. Under the terms of an
Agreement to Purchase Limited Partnership Interests dated as of August 4, 1992
among AGDG, the Company and ORTDF, if the Company proposes to register any of
its Common Stock for sale to the public, ORTDF may require the Company to
include in such registration any shares of Common Stock issued or issuable upon
the exercise of certain warrants to purchase Common Stock of the Company held by
ORTDF subject to certain conditions and limitations. As of the date of this
Prospectus, ORTDF held 599,970 shares of Common Stock which enjoy registration
rights. ORTDF will not participate in this offering.
 
                                       54

<PAGE>
    Under the terms of a Registration Rights Agreement dated as of May 20, 1992
between the Company and Ice Bear, Inc., an Alaska corporation ("Ice Bear"), if
the Company proposes to register any of its stock or other securities under the
Act in connection with a public offering of those securities for cash, Ice Bear
may require the Company to include in such registration any shares of Common
Stock held or issued or issuable upon the exercise of certain warrants to
purchase Common Stock of the Company held by Ice Bear subject to certain
conditions and limitations. As of the date of this Prospectus, Ice Bear holds
21,930 shares of Common Stock and warrants to purchase 219,334 shares of Common
Stock, all of which enjoy registration rights. Ice Bear will not participate in
this offering.
 
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
 
    Certain provisions of the Company's Third Restated Articles of Incorporation
and Bylaws could make more difficult the acquisition of the Company by means of
a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions include authorization of the issuance
of up to 2,000,000 shares of Preferred Stock, with such characteristics, and
potential effects on the acquisition of the Company, as are described in
"Preferred Stock" above. This provision is expected to discourage certain types
of coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company to negotiate first with the
Company. The Company believes that the benefits of increased protection of the
Company's potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure the Company outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms. See
"Risk Factors--Anti-Takeover Effects of Certain Charter Provisions and Oregon
Law."
 
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
 
    Upon completion of this offering, the Company will become subject to the
Oregon Control Share Act (the "Control Share Act"). The Control Share Act
generally provides that a person (the "Acquiring Person") who acquires voting
stock of an Oregon corporation in a transaction that results in the Acquiring
Person holding more than 20%, 33 1/3% or 50% of the total voting power of the
corporation (a "Control Share Acquisition") cannot vote the shares it acquires
in the Control Share Acquisition ("control shares") unless voting rights are
accorded to the control shares by (i) a majority of each voting group entitled
to vote and (ii) the holders of a majority of the outstanding voting shares,
excluding the control shares held by the Acquiring Person and shares held by the
Company's officers and inside directors. The term "Acquiring Person" is broadly
defined to include persons acting as a group.
 
    The Acquiring Person may, but is not required to, submit to the Company a
statement setting forth certain information about the Acquiring Person and its
plans with respect to the Company. The statement may also request that the
Company call a special meeting of shareholders to determine whether voting
rights will be accorded to the control shares. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of control
shares will be considered at the next annual meeting or special meeting of
shareholders. If the Acquiring Person's control shares are accorded voting
rights and represent a majority or more of all voting power, shareholders who do
not vote in favor of voting rights for the control shares will have the right to
receive the appraised "fair value" of their shares which may not be less than
the highest price paid per share by the Acquiring Person for the control shares.
 
    Upon completion of this offering, the Company will become subject to certain
provision of the Oregon Business Corporation Act that govern business
combinations between corporations and interested shareholders (the "Business
Combination Act"). The Business Combination Act generally provides that if a
person or entity acquires 15% or more of the voting stock of an Oregon
corporation (an "Interested Shareholder"), the corporation and the Interested
Shareholder, or any affiliated entity of the Interested Shareholder, may not
engage in certain business combination transactions for three years following
the date the person became an Interested Shareholder. Business combination
transactions for this purpose
 
                                       55

<PAGE>
include (a) a merger or plan of share exchange, (b) any sales, lease, mortgage
or other disposition of 10% or more of the assets of the corporation and (c)
certain transactions that result in the issuance of capital stock of the
corporation to the Interested Shareholder. These restrictions do not apply if
(i) the Interested Shareholder, as a result of the transaction in which such
person became an Interested Shareholder, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by directors who are
also officers and certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquires 15% or more of the corporation's outstanding voting stock
or (iii) the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock. See "Risk
Factors--Anti-Takeover Effects of Certain Charter Provisions and Oregon Law."
 
TRANSFER AGENT AND REGISTRAR
 
   
    The Transfer Agent and Registrar for the Company's Common Stock and the
Warrant Agent for the Warrants is ChaseMellon Shareholder Services.
    
 
                        SHARES ELIGIBLE FOR FUTURE SALE
 
    Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants. No prediction can be made of the effect, if any, that
future market sales of shares of Common Stock or the availability of such shares
for sale will have on the prevailing market price of the Common Stock following
this offering. Nevertheless, sales of substantial amounts of such shares in the
open market following this offering could adversely affect the prevailing market
price of the Common Stock.
 
   
    Upon completion of this offering and assuming no exercise of outstanding
options and warrants to purchase Common Stock after December 31, 1996, the
Company will have 10,279,763 outstanding shares of Common Stock. See
"Description of Securities." The 1,500,000 shares of Common Stock which are
included in the Units and sold in this offering (or 1,725,000 shares if the
Overallotment Option is exercised in full) by the Company and, subject to
certain conditions, up to 1,725,000 shares of Common Stock issuable upon
exercise of the Warrants (including Warrants subject to the Overallotment
Option, and, commencing approximately 12 months after the date of this
Prospectus, up to 300,000 shares of Common Stock that are issuable upon exercise
of the Representative's Warrants (including the Warrants included therein),
will, subject to any applicable state law restrictions on secondary trading (see
"Risk Factors-- Possible Illiquidity of Trading Market"), be freely tradeable
without restriction under the Securities Act, except that any shares purchased
by an "affiliate" of the Company (as that term is defined in Rule 144 under the
Securities Act) will be subject to the resale limitations of Rule 144.
    
 
   
    The remaining 8,779,763 shares of Common Stock are "restricted" shares
within the meaning of Rule 144 under the Securities Act (the "Restricted
Shares"). Of this number, approximately 1,358,055 shares not subject to lock-up
agreements will be eligible for immediate resale without restriction under Rule
144(k) of the Securities Act. An additional 19,000 shares held for more than one
but less than two years by shareholders who are not affiliates of the Company
and who are not subject to lock-up agreements are eligible for sale under Rule
144 of the Securities Act, subject to the volume and other limitations
thereunder. Upon expiration of lock-up agreements with Paulson Investment
Company, Inc. ("Paulson") three months after the date of this Prospectus (or
earlier with the consent of Paulson), approximately 56,000 shares will be
eligible for immediate resale subject to the limitations of Rule 144 and
approximately 1,492,035 shares will be eligible for resale immediately without
restriction pursuant to Rule 144(k). Upon expiration of lock-up agreements with
Paulson six months after the date of this Prospectus (or earlier with the
consent of Paulson), approximately 952,500 shares will be eligible for immediate
resale subject to the limitations of Rule 144 and approximately 1,826,984 shares
will be eligible for resale immediately without restriction pursuant to Rule
144(k). Upon expiration of lock-up agreements with Paulson nine months
    
 
                                       56

<PAGE>
   
after the date of this Prospectus (or earlier with the consent of Paulson),
approximately 1,199,000 shares will be eligible for immediate resale subject to
the limitations of Rule 144 and approximately 2,402,933 shares will be eligible
for resale immediately without restriction pursuant to Rule 144(k). Upon
expiration of lock-up agreements with Paulson one year after the date of this
Prospectus (or earlier with the consent of Paulson), approximately 5,943,911
shares will be eligible for immediate resale subject to the limitations of Rule
144 and approximately 2,835,852 shares will be eligible for resale immediately
without restriction pursuant to Rule 144(k). As of the date of this Prospectus,
options to purchase 1,126,886 shares of Common Stock have been granted under the
Stock Incentive Plan, which shares, if acquired pursuant to the exercise of
options, are subject to lock-up agreements which expire one year after the date
of this Prospectus (or earlier with the consent of the Representative).
    
 
   
    In general, under Rule 144, as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 102,798 shares immediately after
this offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are also subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person who is not deemed to have been an
affiliate of the Company at any time during the 90 days immediately preceding
the sale and whose Restricted Shares have been fully-paid for two years since
the later of the date they were acquired from the Company or the date they were
acquired from an affiliate of the Company may sell such Restricted Shares under
Rule 144(k) without regard to the limitations and requirements described above.
Under Rule 701, shares privately issued under certain compensatory stock-based
plans, such as the Stock Incentive Plan, may be resold under Rule 144 by
non-affiliates, subject only to the manner of sale requirements, and by
affiliates without regard to the one-year holding period requirement, commencing
90 days after the Company becomes subject to certain periodic reporting
requirements.
    
 
    Shortly after this offering, the Company intends to file a registration
statement under the Securities Act covering shares of Common Stock reserved for
issuance under the Company's outstanding stock options and Stock Incentive Plan
(other than shares issued upon the exercise of options prior to the effective
date of such registration statement). Based on the number of options outstanding
and options and shares reserved for issuance, such registration statement would
cover approximately 1,333,333 shares. Such registration statement will
automatically become effective upon filing. All shares issuable under the
Company's Stock Incentive Plan are subject to a six-month lock-up period
following the date of this Prospectus.
 
    Prior to this offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144 or the availability of shares for sale will have on the
market price of the Common Stock prevailing from time to time after the
offering. The Company is unable to estimate the number of shares that may be
sold in the public market under Rule 144, because such amount will depend on the
trading volume in, and market price for, the Common Stock and other factors.
Nevertheless, sales of substantial amounts of shares in the public market, or
the perception that such sales could occur, could adversely affect the market
price of the Common Stock of the Company. See "Underwriting."
 
                                       57

<PAGE>
                                  UNDERWRITING
 
   
    The underwriters named below (the "Underwriters"), for whom Paulson
Investment Company, Inc. and Millennium Financial Group, Inc. are acting as
representatives, have severally agreed subject to the terms and conditions of
the Underwriting Agreement between the Company and the several Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the number of Units set forth in the table
below at the price set forth on the cover page of this Prospectus.
    
 
   

<TABLE>
<CAPTION>
UNDERWRITER                                                                    NUMBER OF UNITS
- -----------------------------------------------------------------------------  ---------------
<S>                                                                            <C>
Paulson Investment Company, Inc..............................................
Millennium Financial Group, Inc..............................................
 
                                                                               ---------------
    Total....................................................................      1,500,000
                                                                               ---------------
                                                                               ---------------
</TABLE>

    
 
    The Underwriting Agreement provides that the obligations of the Underwriters
to purchase such Units are subject to certain conditions. The Underwriters are
committed to purchase all the 1,500,000 Units offered by this Prospectus, but
not the 225,000 Units subject to the Overallotment Option, if any are purchased.
 
   
    The Representatives have advised the Company that the Underwriters propose
to offer the Units to the public at the initial public offering price set forth
on the cover page of this Prospectus and to selected dealers at such price less
a concession within the discretion of the Representatives, and that the
Underwriters and such dealers may reallow a concession to other dealers,
including the Underwriters, within the discretion of the Representatives. After
the initial public offering of the Units, the public offering price, the
concessions to selected dealers and the reallowance to other dealers may be
changed by the Representatives.
    
 
    The Company has granted the Underwriters the Overallotment Option, expiring
at the close of business 45 days after the date of this Prospectus, to purchase
up to 225,000 additional Units from the Company on the same terms as apply to
the sale of the Units set forth above. The Underwriters may exercise the
Overallotment Option only to cover overallotments, if any, incurred in the sale
of Units.
 
   
    The Company has agreed that if it elects to redeem the Warrants at any time
commencing one year after the date of this Prospectus, it will retain Paulson as
the Company's solicitation agent ("Warrant Solicitation Agent"). The Company has
agreed to pay the Warrant Solicitation Agent for its services a solicitation fee
equal 2% of the total amount paid by the holders of the Warrants whom the
Warrant Solicitation Agent solicited to exercise the Warrants. The exercise will
be presumed to be unsolicited unless the customer states in writing that the
transaction was solicited by the Warrant Solicitation Agent and designates in
writing the registered representative as the Warrant Solicitation Agent entitled
to receive compensation for the exercise. The fee is not payable for the
exercise of any Warrant held by a Warrant Solicitation Agent in a discretionary
account at the time of exercise, unless the Warrant Solicitation Agent receives
from the customer prior specific written approval of such exercise. No member of
the National Association of Securities Dealers, Inc. or person associated with a
member will receive a solicitation fee or any other compensation or expense
reimbursement in connection with the exercise of a Warrant if the market price
of the Common Stock received upon exercise of the Warrant is lower than the
exercise price of the Warrant.
    
 
                                       58

<PAGE>
   
    The Representatives have informed the Company that they do not expect the
Underwriters to confirm sales of Units offered by this Prospectus to any account
on a discretionary basis.
    
 
    The Underwriting Agreement provides for indemnification between the Company
and the Underwriters against certain liabilities, including liabilities under
the Securities Act, and for contribution by the Company and the Underwriters to
payments that may be required to be made in respect thereof.
 
   
    The Company has agreed to pay the Representatives a nonaccountable expense
allowance equal to 2.5% of the gross proceeds from the sale of Units offered
hereby, of which $35,000 has already been paid.
    
 
   
    The Company has agreed to issue to the Representatives the Representatives'
Warrants to purchase from the Company up to 150,000 Units at an exercise price
per Unit equal to $          (120% of the initial offering price of the Units).
The Representatives' Warrants are exercisable for a period of four years
beginning one year from the date of this Prospectus, and is not transferable for
a period of one year from the date of this Prospectus except to one of the
Underwriters or to any individual who is either a partner or an officer of an
Underwriter, or by will or by the laws of descent and distribution. The
Representatives' Warrants are not redeemable by the Company. The Company has
agreed to maintain an effective registration statement with respect to the
issuance of securities underlying the Representatives' Warrants (and, if
necessary, to allow their public resale without restriction) at all times during
the period in which the Representatives' Warrants are exercisable. Such
securities are being registered on the Registration Statement of which this
Prospectus is a part.
    
 
   
    The Company has agreed that, for a period of one year following the closing
of this offering, it will not, subject to certain exceptions, offer, sell,
contract to sell, grant any option for the sale or otherwise dispose of any
securities of the Company without Paulson's consent. The Company's officers and
directors and certain other shareholders have agreed that for a period of one
year following the closing of this offering, they will not offer, sell, contract
to sell, grant any option for the sale or otherwise dispose of any securities of
the Company (other than intra-family transfer or transfers to trusts for estate
planning purposes), without Paulson's consent. See "Shares Eligible For Future
Sale."
    
 
   
    Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants. Accordingly, the initial public offering price has
been determined by negotiations between the Company and the Representatives.
Among the factors considered in determining the initial public offering price
were the history and the prospects of the Company and the industry in which it
operates, the status and development prospects for the Company's proposed
products and the trends of such results, the experience and qualifications of
the Company's executive officers and the general condition of the securities
markets at the time of this offering.
    
 
                                 LEGAL MATTERS
 
    The validity of the Units offered hereby will be passed upon for the Company
by Ater Wynne Hewitt Dodson & Skerritt, LLP, Portland, Oregon. Certain legal
matters with respect to patents and proprietary rights of the Company, as
described in this Prospectus, are being passed upon for the Company by Peter
Dehlinger & Associates, Palo Alto, California, patent counsel to the Company.
Certain legal matters relating to this offering will be passed upon for the
Underwriters by Weiss, Jensen, Ellis & Howard, P.C., Portland, Oregon.
 
                                    EXPERTS
 
    The financial statements of the Company as of December 31, 1996 and for each
of the two years in the period ended December 31, 1996 appearing in this
Prospectus have been audited by Arthur Andersen LLP, independent auditors, as
set forth in their report thereon appearing elsewhere herein, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
 
                                       59

<PAGE>
   
    The information contained in "Risk Factors--Patents and Proprietary Rights"
and in "Business-- Patents and Proprietary Rights" has been reviewed and
approved by Peter Dehlinger & Associates, Palo Alto, California, patent counsel
to the Company, as experts in such matters, and is included in reliance upon
their review and approval.
    
 
                             ADDITIONAL INFORMATION
 
    The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the Units offered hereby, of which this Prospectus forms a part.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Units, Common Stock and
Warrants, reference is made to the Registration Statement and such exhibits and
schedules. Statements contained in this Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete and, in
each instance, if such contract or document is filed as an exhibit to the
Registration Statement, reference is made to the copy of such contract or
document filed as an exhibit, each such statement being qualified in all
respects by such reference to such exhibit. The Registration Statement and the
exhibits and schedules thereto may be inspected without charge at the
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, upon payment of certain fees
prescribed by the Commission. The Commission also maintains a site on the World
Wide Web that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such site is http://www.sec.gov.
 
                                       60

<PAGE>
                                ANTIVIRALS INC.
                         INDEX TO FINANCIAL STATEMENTS
 

<TABLE>
<S>                                                                                     <C>
Report of Independent Public Accountants..............................................        F-2
Balance Sheets as of December 31, 1995 and 1996.......................................        F-3
Statements of Operations for the two years ended December 31, 1996....................        F-4
Statements of Shareholders' Equity for the seventeen years ended December 31, 1996....        F-5
Statements of Cash Flows for the two years ended December 31, 1996....................        F-8
Notes to Financial Statements.........................................................        F-9

</TABLE>

 
                                      F-1

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To the Board of Directors and Shareholders of
ANTIVIRALS INC.
 
    We have audited the accompanying balance sheets of ANTIVIRALS INC. (an
Oregon corporation in the development stage) as of December 31, 1995 and 1996,
and the related statements of operations, shareholders' equity and cash flows
for the years ended December 31, 1995 and 1996 and for the period from inception
(July 22, 1980) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ANTIVIRALS INC. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1995 and 1996 and for the period from inception
(July 22, 1980) to December 31, 1996, in conformity with generally accepted
accounting principles.
 
   
    The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and, at December 31, 1996, has a deficit accumulated during the development
stage of $12,425,483. In addition, as more fully discussed in Note 7 to the
financial statements, the Company has filed with certain securities regulators a
registration statement pertaining to a planned rescission offering for certain
purchasers' equity securities because Company management cannot draw a
conclusion with certainty that all applicable state and federal securities laws
were complied with in all material respects in connection with the issuance of
such securities. Such factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regard to these
matters is also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
    
 
ARTHUR ANDERSEN LLP
Portland, Oregon,
March 10, 1997

 
                                      F-2

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
                                 BALANCE SHEETS
                                     ASSETS
 

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,
                                                                                    ------------------------------
                                                                                         1995            1996
                                                                                    --------------  --------------
<S>                                                                                 <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents.......................................................  $      680,892  $    3,011,229
  Short-term securities--available-for-sale.......................................         212,750          30,000
  Other current assets............................................................           7,236          28,255
                                                                                    --------------  --------------
      Total current assets........................................................         900,878       3,069,484
                                                                                    --------------  --------------
PROPERTY AND EQUIPMENT, at cost:
  Laboratory equipment............................................................         677,728         738,160
  Office equipment................................................................         181,803         187,248
  Leasehold improvements..........................................................       1,464,603       1,464,603
                                                                                    --------------  --------------
                                                                                         2,324,134       2,390,011
  Less--Accumulated depreciation and amortization.................................      (1,379,377)     (1,858,359)
                                                                                    --------------  --------------
                                                                                           944,757         531,652
                                                                                    --------------  --------------
PATENT COSTS, net.................................................................         449,254         474,806
DEFERRED OFFERING COSTS...........................................................        --               143,110
OTHER ASSETS......................................................................          29,847          29,847
                                                                                    --------------  --------------
                                                                                    $    2,324,736  $    4,248,899
                                                                                    --------------  --------------
                                                                                    --------------  --------------
 
                                       LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
  Accounts payable................................................................  $       85,298  $      153,202
  Accrued payroll.................................................................         149,715         169,609
  Deferred payments...............................................................          19,051           7,996
                                                                                    --------------  --------------
      Total current liabilities...................................................         254,064         330,807
                                                                                    --------------  --------------
COMMON STOCK SUBJECT TO RESCISSION, $.0001 par value, 1,292,973 issued and
  outstanding.....................................................................       3,121,965       3,121,965
                                                                                    --------------  --------------
SHAREHOLDERS' EQUITY:
  Preferred stock, $.0001 par value, 2,000,000 shares authorized; none issued and
    outstanding...................................................................        --              --
  Common stock, $.0001 par value, 50,000,000 shares authorized; 5,816,838 and
    7,486,790 shares issued and outstanding in 1995 and 1996, respectively........             582             749
  Additional paid-in capital......................................................       9,189,496      13,220,861
  Unrealized gain on available-for-sale securities................................          96,750        --
  Deficit accumulated during the development stage................................     (10,338,121)    (12,425,483)
                                                                                    --------------  --------------
      Total shareholders' (deficit) equity........................................      (1,051,293)        796,127
                                                                                    --------------  --------------
                                                                                    $    2,324,736  $    4,248,899
                                                                                    --------------  --------------
                                                                                    --------------  --------------
</TABLE>

 
                            See accompanying notes.
 
                                      F-3

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                            STATEMENTS OF OPERATIONS
 

<TABLE>
<CAPTION>
                                                                                                   JULY 22, 1980
                                                                       YEAR ENDED DECEMBER 31,     (INCEPTION) TO
                                                                     ----------------------------   DECEMBER 31,
                                                                         1995           1996            1996
                                                                     -------------  -------------  --------------
<S>                                                                  <C>            <C>            <C>
REVENUES, from grants and research contracts.......................  $      82,500  $      27,227  $      689,497
                                                                     -------------  -------------  --------------
 
OPERATING EXPENSES:
  Research and development.........................................      2,097,796      1,729,554       9,011,574
  General and administrative.......................................        609,723        613,811       4,549,582
                                                                     -------------  -------------  --------------
      Total operating expenses.....................................      2,707,519      2,343,365      13,561,156
                                                                     -------------  -------------  --------------
 
OTHER INCOME.......................................................         68,133        228,776         446,176
                                                                     -------------  -------------  --------------
NET LOSS...........................................................  $  (2,556,886) $  (2,087,362) $  (12,425,483)
                                                                     -------------  -------------  --------------
                                                                     -------------  -------------  --------------
 
NET LOSS PER SHARE.................................................  $       (0.37) $       (0.25)
                                                                     -------------  -------------
                                                                     -------------  -------------
SHARES USED IN PER SHARE CALCULATION...............................      6,982,459      8,233,548
                                                                     -------------  -------------
                                                                     -------------  -------------
</TABLE>

 
                                      F-4

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                       STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                                                UNREALIZED
                                                                                                                  GAIN ON
                                                                               COMMON STOCK        ADDITIONAL   AVAILABLE-
                                                            PARTNERSHIP  ------------------------    PAID-IN     FOR-SALE
                                                               UNITS       SHARES       AMOUNT       CAPITAL    SECURITIES
                                                            -----------  -----------  -----------  -----------  -----------
<S>                                                         <C>          <C>          <C>          <C>          <C>
BALANCE AT JULY 22, 1980 (inception)......................      --           --        $  --       $   --        $  --
  No activity
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1980...............................      --           --           --           --           --
  Issuance of partnership units and common stock in
    October 1981 for equipment and supplies valued at
    $3,500 and technology.................................     1,000       1,666,667         167         3,333      --
  Issuance of partnership units and common stock for cash,
    $500 per unit.........................................       150         250,000          25        75,055      --
  Issuance of partnership units for consulting services,
    $500 per unit.........................................        10         --           --             5,000      --
  Issuance of common stock in connection with financing
    agreement.............................................      --            33,333           3             7      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1981...............................     1,160       1,950,000         195        83,395      --
  Issuance of common stock for consulting services........      --            54,600           5            11      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1982...............................     1,160       2,004,600         200        83,406      --
  Issuance of partnership units and common stock for cash,
    $550 per unit.........................................        60         100,000          10        33,020      --
  Issuance of common stock for consulting services........      --            21,733           2             5      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1983...............................     1,220       2,126,333         212       116,431      --
  Issuance of partnership units and common stock for cash,
    $600 per unit.........................................        10          16,667           2         6,003      --
  Issuance of partnership units and common stock for
    consulting services and $1,000 cash, $550 to $600 per
    unit..................................................        20          16,667           2        11,503      --
  Issuance of common stock for consulting services........      --             2,533      --                 1      --
  Issuance of common stock for donation to charitable
    organizations.........................................      --           100,000          10            20      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1984...............................     1,250       2,262,200         226       133,958      --
  Issuance of partnership units and common stock in
    December 1984 for technology..........................     1,000         166,667          16           (16)     --
  Issuance of partnership units and common stock for cash,
    $50 to $100 per unit..................................       460          78,333           8        23,515      --
  Issuance of partnership units for cash, $50 to $550 per
    unit..................................................       140         --           --            17,000      --
  Issuance of common stock for consulting services........      --             6,733           1             1      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1985...............................     2,850       2,513,933         251       174,458      --
  Issuance of partnership units and common stock for cash,
    $50 to $500 per unit..................................        90         105,000          11        31,521      --
  Issuance of common stock for consulting services........      --             8,500           1             1      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1986...............................     2,940       2,627,433         263       205,980      --
  Issuance of partnership units and common stock for cash,
    $500 per unit.........................................        20          33,333           3        10,007      --
  Issuance of partnership units and warrants to purchase
    400,000 shares of common stock for cash, $500 to
    $2,500 per unit.......................................        80         --           --           100,000      --
  Issuance of common stock for consulting services........      --            28,533           3             6      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1987...............................     3,040       2,689,299         269       315,993      --
 
<CAPTION>
                                                              DEFICIT
                                                            ACCUMULATED
                                                             DURING THE       TOTAL
                                                            DEVELOPMENT   SHAREHOLDERS'
                                                               STAGE         EQUITY
                                                            ------------  -------------
<S>                                                         <C>           <C>
BALANCE AT JULY 22, 1980 (inception)......................  $    --        $   --
  No activity
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1980...............................       --            --
  Issuance of partnership units and common stock in
    October 1981 for equipment and supplies valued at
    $3,500 and technology.................................       --              3,500
  Issuance of partnership units and common stock for cash,
    $500 per unit.........................................       --             75,080
  Issuance of partnership units for consulting services,
    $500 per unit.........................................       --              5,000
  Issuance of common stock in connection with financing
    agreement.............................................       --                 10
  Net loss................................................        (9,224)       (9,224)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1981...............................        (9,224)       74,366
  Issuance of common stock for consulting services........       --                 16
  Net loss................................................       (57,962)      (57,962)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1982...............................       (67,186)       16,420
  Issuance of partnership units and common stock for cash,
    $550 per unit.........................................       --             33,030
  Issuance of common stock for consulting services........       --                  7
  Net loss................................................       (27,475)      (27,475)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1983...............................       (94,661)       21,982
  Issuance of partnership units and common stock for cash,
    $600 per unit.........................................       --              6,005
  Issuance of partnership units and common stock for
    consulting services and $1,000 cash, $550 to $600 per
    unit..................................................       --             11,505
  Issuance of common stock for consulting services........       --                  1
  Issuance of common stock for donation to charitable
    organizations.........................................       --                 30
  Net loss................................................       (21,463)      (21,463)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1984...............................      (116,124)       18,060
  Issuance of partnership units and common stock in
    December 1984 for technology..........................       --            --
  Issuance of partnership units and common stock for cash,
    $50 to $100 per unit..................................       --             23,523
  Issuance of partnership units for cash, $50 to $550 per
    unit..................................................       --             17,000
  Issuance of common stock for consulting services........       --                  2
  Net loss................................................        (8,469)       (8,469)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1985...............................      (124,593)       50,116
  Issuance of partnership units and common stock for cash,
    $50 to $500 per unit..................................       --             31,532
  Issuance of common stock for consulting services........       --                  2
  Net loss................................................       (32,353)      (32,353)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1986...............................      (156,946)       49,297
  Issuance of partnership units and common stock for cash,
    $500 per unit.........................................       --             10,010
  Issuance of partnership units and warrants to purchase
    400,000 shares of common stock for cash, $500 to
    $2,500 per unit.......................................       --            100,000
  Issuance of common stock for consulting services........       --                  9
  Net loss................................................       (71,616)      (71,616)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1987...............................      (228,562)       87,700
</TABLE>

 
                            See accompanying notes.
 
                                      F-5

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                 STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                                UNREALIZED
                                                                                                                  GAIN ON
                                                                               COMMON STOCK        ADDITIONAL   AVAILABLE-
                                                            PARTNERSHIP  ------------------------    PAID-IN     FOR-SALE
                                                               UNITS       SHARES       AMOUNT       CAPITAL    SECURITIES
                                                            -----------  -----------  -----------  -----------  -----------
<S>                                                         <C>          <C>          <C>          <C>          <C>
BALANCE AT OCTOBER 31, 1987...............................     3,040       2,689,299   $     269   $   315,993   $  --
  Issuance of partnership units and common stock for cash,
    $500 per unit.........................................       100         166,667          17        50,033      --
  Issuance of partnership units and common stock for cash,
    $1,250 per unit.......................................        20          33,333           3        25,007      --
  Issuance of partnership units for cash, $50 per unit....        20         --           --             1,000      --
  Issuance of partnership units and warrants to purchase
    400,000 shares of common for cash, $1,250 per unit....        80         --           --           100,000      --
  Compensation expense related to issuance of warrants for
    partnership units.....................................      --           --           --            10,000      --
  Issuance of common stock for consulting services and
    employee compensation.................................      --            47,014           5             9      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1988...............................     3,260       2,936,313         294       502,042      --
  Exercise of warrants for common stock...................      --           141,667          14            28      --
  Issuance of partnership units and common stock for cash,
    $1,250 per unit.......................................        10          16,667           1        12,504      --
  Issuance of partnership units and warrants to purchase
    800,000 shares of common stock for cash, $1,250 per
    unit..................................................       160         --           --           200,000      --
  Issuance of common stock for consulting services and
    employee compensation.................................      --            17,733           2             4      --
  Compensation expense related to issuance of warrants for
    partnership units.....................................      --           --           --             2,500      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1989...............................     3,430       3,112,380         311       717,078      --
  Exercise of warrants for common stock...................      --            33,333           3             7      --
  Issuance of partnership units and common stock for cash,
    $1,250 per unit.......................................        74         123,334          12        92,525      --
  Issuance of partnership unit for cash, $5,000 per
    unit..................................................         1         --           --             5,000      --
  Issuance of common stock for cash, $4.56 per share......      --             1,100      --             5,000      --
  Issuance of partnership units and warrants to purchase
    200,000 shares of common stock for cash, $1,250 per
    unit..................................................        40         --           --            50,000      --
  Issuance of common stock for consulting services and
    employee compensation.................................      --            11,400           2        51,678      --
  Compensation expense related to issuance of warrants for
    partnership units.....................................      --           --           --            40,000      --
  Exercise of warrant for partnership units...............        10         --           --            12,500      --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1990...............................     3,555       3,281,547         328       973,788      --
  Issuance of partnership units for cash, $5,000 per
    unit..................................................        23.5       --           --           117,500      --
  Exercise of warrants for partnership unit and common
    stock.................................................         1           1,100      --             1,250      --
  Issuance of common stock for cash, $4.56 per share......      --            24,750           3       112,505      --
  Compensation expense related to issuance of warrants for
    common stock..........................................      --           --           --             1,520      --
  Issuance of common stock for consulting services, $4.56
    per share.............................................      --             1,657      --             7,547      --
  Common stock subject to rescission......................      --            (7,127)         (1)      (32,499)     --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT OCTOBER 31, 1991...............................     3,579.5     3,301,927         330     1,181,611      --
 
<CAPTION>
                                                              DEFICIT
                                                            ACCUMULATED
                                                             DURING THE       TOTAL
                                                            DEVELOPMENT   SHAREHOLDERS'
                                                               STAGE         EQUITY
                                                            ------------  -------------
<S>                                                         <C>           <C>
BALANCE AT OCTOBER 31, 1987...............................  $   (228,562)  $    87,700
  Issuance of partnership units and common stock for cash,
    $500 per unit.........................................       --             50,050
  Issuance of partnership units and common stock for cash,
    $1,250 per unit.......................................       --             25,010
  Issuance of partnership units for cash, $50 per unit....       --              1,000
  Issuance of partnership units and warrants to purchase
    400,000 shares of common for cash, $1,250 per unit....       --            100,000
  Compensation expense related to issuance of warrants for
    partnership units.....................................       --             10,000
  Issuance of common stock for consulting services and
    employee compensation.................................       --                 14
  Net loss................................................      (266,194)     (266,194)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1988...............................      (494,756)        7,580
  Exercise of warrants for common stock...................       --                 42
  Issuance of partnership units and common stock for cash,
    $1,250 per unit.......................................       --             12,505
  Issuance of partnership units and warrants to purchase
    800,000 shares of common stock for cash, $1,250 per
    unit..................................................       --            200,000
  Issuance of common stock for consulting services and
    employee compensation.................................       --                  6
  Compensation expense related to issuance of warrants for
    partnership units.....................................       --              2,500
  Net loss................................................      (243,926)     (243,926)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1989...............................      (738,682)      (21,293)
  Exercise of warrants for common stock...................       --                 10
  Issuance of partnership units and common stock for cash,
    $1,250 per unit.......................................       --             92,537
  Issuance of partnership unit for cash, $5,000 per
    unit..................................................       --              5,000
  Issuance of common stock for cash, $4.56 per share......       --              5,000
  Issuance of partnership units and warrants to purchase
    200,000 shares of common stock for cash, $1,250 per
    unit..................................................       --             50,000
  Issuance of common stock for consulting services and
    employee compensation.................................       --             51,680
  Compensation expense related to issuance of warrants for
    partnership units.....................................       --             40,000
  Exercise of warrant for partnership units...............       --             12,500
  Net loss................................................      (351,772)     (351,772)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1990...............................    (1,090,454)     (116,338)
  Issuance of partnership units for cash, $5,000 per
    unit..................................................       --            117,500
  Exercise of warrants for partnership unit and common
    stock.................................................       --              1,250
  Issuance of common stock for cash, $4.56 per share......       --            112,508
  Compensation expense related to issuance of warrants for
    common stock..........................................       --              1,520
  Issuance of common stock for consulting services, $4.56
    per share.............................................       --              7,547
  Common stock subject to rescission......................       --            (32,500)
  Net loss................................................      (274,844)     (274,844)
                                                            ------------  -------------
BALANCE AT OCTOBER 31, 1991...............................    (1,365,298)     (183,357)
</TABLE>

 
                            See accompanying notes.
 
                                      F-6

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                 STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                                UNREALIZED
                                                                                                                  GAIN ON
                                                                               COMMON STOCK        ADDITIONAL   AVAILABLE-
                                                            PARTNERSHIP  ------------------------    PAID-IN     FOR-SALE
                                                               UNITS       SHARES       AMOUNT       CAPITAL    SECURITIES
                                                            -----------  -----------  -----------  -----------  -----------
<S>                                                         <C>          <C>          <C>          <C>          <C>
BALANCE AT OCTOBER 31, 1991...............................      3,579.5    3,301,927   $     330   $ 1,181,611   $  --
  Issuance of partnership units for cash, $5,000 per
    unit..................................................         15.5      --           --            77,500      --
  Issuance of common stock for cash, $4.56 per share......      --            17,050           2        77,498      --
  Compensation expense related to issuance of warrants for
    common stock..........................................      --           --           --             7,500      --
  Common stock subject to rescission......................      --           (32,486)         (3)     (148,135)     --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT DECEMBER 31, 1991..............................      3,595      3,286,491         329     1,195,974      --
  Issuance of partnership units for cash, $5,000 per
    unit..................................................         30.5      --           --           152,500      --
  Exercise of warrants for partnership units and common
    stock.................................................         22          2,200      --            28,750      --
  Conversion of debt into common stock and partnership
    units.................................................          9          9,634           1        87,859      --
  Issuance of common stock for cash, $4.56 per share......      --           868,906          87     3,954,625      --
  Issuance of common stock for consulting services, $4.56
    per share.............................................      --            22,872           2       104,167      --
  Compensation expense related to issuance of warrants for
    common stock and partnership units....................      --           --           --           262,833      --
  Common stock subject to rescission......................      --          (410,099)        (41)   (1,870,008)     --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT DECEMBER 31, 1992..............................      3,656.5    3,780,004         378     3,916,700      --
  Exercise of warrants for partnership units..............          9        --           --             4,500      --
  Issuance of common stock in exchange for partnership
    units.................................................     (1,809.5)   1,632,950         163          (163)     --
  Withdrawal of partnership net assets upon conveyance of
    technology............................................    (1,856)        --           --          (176,642)     --
  Issuance of common stock for cash and short-term
    investments, $4.95 per share..........................      --           507,084          50     2,510,014      --
  Exercise of warrants for common stock...................      --             3,844           1         9,999      --
  Common stock subject to rescission......................      --          (808,902)        (81)     (901,119)     --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT DECEMBER 31, 1993..............................      --         5,114,980         511     5,363,289      --
  Issuance of common stock for cash, $4.95 per share......      --           565,216          57     2,797,761      --
  Exercise of warrants for common stock...................      --            24,667           2       122,098      --
  Issuance of common stock for consulting services, $4.95
    per share.............................................      --               151      --               749      --
  Unrealized gain on available-for-sale securities........      --           --           --           --           61,000
  Common stock subject to rescission......................      --           (34,359)         (3)     (170,075)     --
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT DECEMBER 31, 1994..............................      --         5,670,655         567     8,113,822      61,000
  Issuance of common stock for cash, $6.00 per share......      --           146,183          15       862,674      --
  Compensation expense related to issuance of warrants for
    common stock..........................................      --           --           --           213,000      --
  Unrealized gain on available-for-sale securities........      --           --           --           --           35,750
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT DECEMBER 31, 1995..............................      --         5,816,838         582     9,189,496      96,750
  Exercise of warrants for common stock...................      --           957,452          96           (96)     --
  Issuance of common stock for cash, $6.00 per share......      --           712,500          71     4,031,461      --
  Liquidation of available-for-sale securities............      --           --           --           --          (96,750)
  Net loss................................................      --           --           --           --           --
                                                            -----------  -----------       -----   -----------  -----------
BALANCE AT DECEMBER 31, 1996..............................      --         7,486,790   $     749   $13,220,861   $  --
                                                            -----------  -----------       -----   -----------  -----------
                                                            -----------  -----------       -----   -----------  -----------
 
<CAPTION>
                                                              DEFICIT
                                                            ACCUMULATED
                                                             DURING THE       TOTAL
                                                            DEVELOPMENT   SHAREHOLDERS'
                                                               STAGE         EQUITY
                                                            ------------  -------------
<S>                                                         <C>           <C>
BALANCE AT OCTOBER 31, 1991...............................  $ (1,365,298)  $  (183,357)
  Issuance of partnership units for cash, $5,000 per
    unit..................................................       --             77,500
  Issuance of common stock for cash, $4.56 per share......       --             77,500
  Compensation expense related to issuance of warrants for
    common stock..........................................       --              7,500
  Common stock subject to rescission......................       --           (148,138)
  Net loss................................................       (91,588)      (91,588)
                                                            ------------  -------------
BALANCE AT DECEMBER 31, 1991..............................    (1,456,886)     (260,583)
  Issuance of partnership units for cash, $5,000 per
    unit..................................................       --            152,500
  Exercise of warrants for partnership units and common
    stock.................................................       --             28,750
  Conversion of debt into common stock and partnership
    units.................................................       --             87,860
  Issuance of common stock for cash, $4.56 per share......       --          3,954,712
  Issuance of common stock for consulting services, $4.56
    per share.............................................       --            104,169
  Compensation expense related to issuance of warrants for
    common stock and partnership units....................       --            262,833
  Common stock subject to rescission......................       --         (1,870,049)
  Net loss................................................    (1,731,138)   (1,731,138)
                                                            ------------  -------------
BALANCE AT DECEMBER 31, 1992..............................    (3,188,024)      729,054
  Exercise of warrants for partnership units..............       --              4,500
  Issuance of common stock in exchange for partnership
    units.................................................       --            --
  Withdrawal of partnership net assets upon conveyance of
    technology............................................       --           (176,642)
  Issuance of common stock for cash and short-term
    investments, $4.95 per share..........................       --          2,510,064
  Exercise of warrants for common stock...................       --             10,000
  Common stock subject to rescission......................       --           (901,200)
  Net loss................................................    (2,346,939)   (2,346,939)
                                                            ------------  -------------
BALANCE AT DECEMBER 31, 1993..............................    (5,534,963)     (171,163)
  Issuance of common stock for cash, $4.95 per share......       --          2,797,818
  Exercise of warrants for common stock...................       --            122,100
  Issuance of common stock for consulting services, $4.95
    per share.............................................       --                749
  Unrealized gain on available-for-sale securities........       --             61,000
  Common stock subject to rescission......................       --           (170,078)
  Net loss................................................    (2,246,272)   (2,246,272)
                                                            ------------  -------------
BALANCE AT DECEMBER 31, 1994..............................    (7,781,235)      394,154
  Issuance of common stock for cash, $6.00 per share......       --            862,689
  Compensation expense related to issuance of warrants for
    common stock..........................................       --            213,000
  Unrealized gain on available-for-sale securities........       --             35,750
  Net loss................................................    (2,556,886)   (2,556,886)
                                                            ------------  -------------
BALANCE AT DECEMBER 31, 1995..............................   (10,338,121)   (1,051,293)
  Exercise of warrants for common stock...................       --            --
  Issuance of common stock for cash, $6.00 per share......       --          4,031,532
  Liquidation of available-for-sale securities............       --            (96,750)
  Net loss................................................    (2,087,362)   (2,087,362)
                                                            ------------  -------------
BALANCE AT DECEMBER 31, 1996..............................  $(12,425,483)  $   796,127
                                                            ------------  -------------
                                                            ------------  -------------
</TABLE>

 
                            See accompanying notes.
 
                                      F-7

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                            STATEMENTS OF CASH FLOWS
 

<TABLE>
<CAPTION>
                                                                                                               FOR THE PERIOD
                                                                                 YEAR ENDED DECEMBER 31,        JULY 22, 1980
                                                                              ------------------------------   (INCEPTION) TO
                                                                                   1995            1996       DECEMBER 31, 1996
                                                                              --------------  --------------  -----------------
<S>                                                                           <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss..................................................................  $   (2,556,886) $   (2,087,362)  $   (12,425,483)
  Adjustments to reconcile net loss to net cash used in operating
    activities--
    Depreciation and amortization...........................................         503,340         520,300         2,061,438
    Realized gain on sale of short-term investments available for sale......        --               (96,750)          (96,750)
    Compensation expense on issuance of common stock and partnership
      units.................................................................        --              --                 182,392
    Compensation expense on issuance of warrants to purchase common stock or
      partnership units.....................................................         213,000        --                 562,353
    Conversion of interest accrued to common stock..........................        --              --                   7,860
  Changes in operating assets and liabilities:
    Decrease (increase) in other current assets.............................           8,645         (21,019)          (28,255)
    Increase in other assets................................................        --              --                 (45,191)
    Net increase in accounts payable, accrued payroll and deferred
      payments..............................................................          53,318          76,743           334,570
                                                                              --------------  --------------  -----------------
      Net cash used in operating activities.................................      (1,778,583)     (1,608,088)       (9,447,066)
                                                                              --------------  --------------  -----------------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale or redemption of short-term investments................          15,000         182,750           217,750
  Purchase of property and equipment........................................         (90,594)        (65,877)       (2,413,356)
  Patent costs..............................................................        (177,989)        (66,870)         (642,959)
                                                                              --------------  --------------  -----------------
      Net cash (used in) provided by investing activities...................        (253,583)         50,003        (2,838,565)
                                                                              --------------  --------------  -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from sale of common stock and partnership units..................         862,689       4,031,532        15,536,612
  Withdrawal of partnership net assets......................................        --              --                (176,642)
  Issuance of convertible debt..............................................        --              --                  80,000
  Deferred offering costs...................................................        --              (143,110)         (143,110)
                                                                              --------------  --------------  -----------------
      Net cash provided by financing activities.............................         862,689       3,888,422        15,296,860
                                                                              --------------  --------------  -----------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............................      (1,169,477)      2,330,337         3,011,229
 
CASH AND CASH EQUIVALENTS:
  Beginning of period.......................................................       1,850,369         680,892         --
                                                                              --------------  --------------  -----------------
  End of period.............................................................  $      680,892  $    3,011,229   $     3,011,229
                                                                              --------------  --------------  -----------------
                                                                              --------------  --------------  -----------------
</TABLE>

 
                            See accompanying notes.
 
                                      F-8

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                         NOTES TO FINANCIAL STATEMENTS
 
1. ORGANIZATION AND NATURE OF BUSINESS:
 
    ANTIVIRALS INC. (the Company) was incorporated in the State of Oregon on
July 22, 1980. The mission of the Company is to develop and commercialize
improved therapeutic products based upon antisense and drug delivery technology.
 
    Through May 1993, the financial statements include the combined accounts of
the Company and ANTI-GENE DEVELOPMENT GROUP, a limited partnership (AGDG or the
Partnership) founded in 1981 and registered in the State of Oregon.
Substantially all income generated and proceeds from the Partnership unit sales
have been paid to the Company under the terms of research and development
contracts entered into by the Partnership and the Company. Significant
transactions between the Company and the Partnership have been eliminated.
 
    In March 1993, the Company offered to all partners in the Partnership the
opportunity to exchange their partnership units or warrants to purchase
partnership units (unit warrants) for common stock or warrants to purchase
common stock. Under the terms of the offer, which was completed May 1, 1993,
each partner could elect to exchange each unit held or unit warrant held for
1,100 shares of common stock or warrants to purchase 1,100 shares of common
stock of the Company, respectively. One partner exchanged 325 partnership units
for warrants to purchase 357,500 shares of common stock. Total shares and
warrants to purchase shares issued in the exchange offer were 1,632,950 and
381,700, respectively.
 
    Effective May 19, 1993, the Company and the Partnership entered into a
Technology Transfer Agreement wherein the Partnership conveyed all intellectual
property in its control to the Company. As part of the conveyance, the Company
tendered to the Partnership for liquidation all partnership units received
pursuant to the exchange offer and received a 49.37 percent undivided interest
in the intellectual property. The Company then purchased the remaining undivided
interest in the intellectual property for rights to payments of 4.05 percent of
gross revenues in excess of $200 million, from sales of products which would, in
the absence of the Technology Transfer Agreement, infringe a valid claim under
any patent transferred to the Company.
 
    The remaining net assets of the Partnership, $176,642 of cash, were no
longer combined with those of the Company in May 1993. Under the terms of the
Technology Transfer Agreement, the Partnership ceased active sales of
partnership units and income generating activities and no longer will enter into
research and development contracts with the Company. The Partnership currently
exists primarily for the purpose of collecting potential future payments from
the Company as called for in the Technology Transfer Agreement.
 
    Beginning in 1991, the Company changed its fiscal year from a fiscal year
ending on October 31, to a calendar year. The new fiscal year was adopted
prospectively.
 
    In March 1996, the Company commenced a private offering wherein 712,500
shares of common stock were sold for net proceeds of $4,031,532, which included
warrants to purchase 60,201 shares of common stock at $9.00 per share. These
warrants are exercisable through the earlier of five years from issuance or
three years from the filing for an initial public offering.
 
    On October 3, 1996, the Board of Directors authorized management of the
Company to file a registration statement with the SEC offering to the public
1,500,000 units (the Units), each unit consisting of one share of the Company's
common stock, and one warrant to purchase one share of common stock.
 
                                      F-9

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
1. ORGANIZATION AND NATURE OF BUSINESS: (CONTINUED)
The Units will separate immediately following issuance and thereafter the common
stock and warrants that make up the Units will trade only as separate
securities.
 
    In November 1996, the shareholders approved a reverse split of the Company's
outstanding Common Stock on the basis of one share for each three shares of the
then-outstanding common stock. The share information in the accompanying
financial statements has been retroactively restated to reflect the reverse
split. The Common Stock will continue to have $.0001 par value. The shareholders
approved the authorization of a new class of preferred stock which includes
2,000,000 shares at $.0001 par value.
 
    The Company is in the development stage. Since its inception in 1980 through
December 31, 1996, the Company has incurred losses of approximately $12.4
million, substantially all of which resulted from expenditures related to
research and development and general and administrative expenses. The Company
has not generated any material revenue from product sales to date, and there can
be no assurance that revenues from product sales will be achieved. Moreover,
even if the Company does achieve revenues from product sales, the Company
nevertheless expects to incur operating losses over the next several years. The
financial statements have been prepared assuming that the Company will continue
as a going concern. The Company's ability to achieve a profitable level of
operations in the future will depend in large part on its completing product
development of its antisense and/or drug delivery products, obtaining regulatory
approvals for such products and bringing these products to market. During the
period required to develop these products, the Company will require substantial
financing. There is no assurance that such financing will be available when
needed or that the Company's planned products will be commercially successful.
If necessary, the Company's management will curtail expenditures in an effort to
conserve operating funds. The likelihood of the long-term success of the Company
must be considered in light of the expenses, difficulties and delays frequently
encountered in the development and commercialization of new pharmaceutical
products, competitive factors in the marketplace as well as the burdensome
regulatory environment in which the Company operates. There can be no assurance
that the Company will ever achieve significant revenues or profitable
operations.
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
USE OF ESTIMATES
 
    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
 
CASH AND CASH EQUIVALENTS
 
    The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
 
SHORT-TERM SECURITIES--AVAILABLE-FOR-SALE
 
    In January 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). In accordance with
 
                                      F-10

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
SFAS 115, the Company has classified its investment securities as
available-for-sale and, accordingly, such investment securities are stated on
the balance sheet at their fair market value, which approximated cost at
December 31, 1996 and exceeded cost by $96,750 at December 31, 1995. The
unrealized difference between the cost and the fair market value of these
securities has been reflected as a separate component of shareholders' equity.
These short-term securities included state government obligations with a cost,
which approximated fair market value, of $30,000 at December 31, 1995 and 1996
and common stock with a fair value of $182,750 at December 31, 1995.
 
PROPERTY AND EQUIPMENT
 
    Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets, generally five years, using the straight-line
method. Leasehold improvements are amortized over the shorter of the lease term
or the estimated useful life of the asset.
 
PATENT COSTS
 
    Patent costs consist primarily of legal and filing fees incurred to file
patents on proprietary technology developed by the Company. Patent costs are
amortized on a straight-line basis over the shorter of the estimated economic
lives or the legal lives of the patents, generally 17 years. Total accumulated
amortization at December 31, 1995 and 1996 was $127,000 and $168,000,
respectively.
 
RESEARCH AND DEVELOPMENT
 
    Research and development costs are expensed as incurred.
 
INCOME TAXES
 
    The Company accounts for income taxes, in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under SFAS 109, deferred tax assets and liabilities are recorded based on
the tax effected difference between the tax bases of assets and liabilities and
their carrying amount for financial reporting purposes, referred to as temporary
differences, using enacted marginal income tax rates.
 
NET LOSS PER SHARE
 
    Net loss per share is calculated using the weighted average number of shares
outstanding. Common equivalent shares (stock options and warrants) are excluded
from the computation as their effect is antidilutive, except that, pursuant to
the Securities and Exchange Commission ("SEC") Staff Accounting Bulletins,
common and common equivalent shares issued during the period commencing 12
months prior to the initial filing of a proposed public offering at prices below
the public offering price have been considered in the calculation as if they
were outstanding for all periods presented (using the treasury stock method for
stock options and warrants at the estimated initial public offering price).
 
3. SHAREHOLDERS' EQUITY:
 
    At December 31, 1996, the Company had one stock option plan, the 1992 Stock
Incentive Plan (the Plan) which provides for the issuance of incentive stock
options to its employees and nonqualified stock
 
                                      F-11

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
3. SHAREHOLDERS' EQUITY: (CONTINUED)
options, stock appreciation rights and bonus rights to employees, directors of
the Company and consultants. The Company has reserved 1,333,333 shares of common
stock for issuance under the Plan. Options issued under the Plan generally vest
ratably over four years and expire five to ten years from the date of grant.
 
    During 1995, the Financial Accounting Standards Board issued SFAS 123, which
defines a fair value based method of accounting for an employee stock option and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by Accounting Principles Board Opinion No.
25 (APB 25). Entities electing to remain with the accounting in APB 25 must make
pro forma disclosures of net income and, if presented, earnings per share, as if
the fair value based method of accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1995 and 1996 using the Black-Scholes
options pricing model as prescribed by SFAS 123 using the following weighted
average assumptions for grants:
 
   

<TABLE>
<S>                                               <C>
Risk-free interest rate.........................      6%
Expected dividend yield.........................      0%
                                                    4 - 5
Expected lives..................................    Years
Expected volatility.............................     70%
</TABLE>

    
 
    Using the Black-Scholes methodology, the total value of options granted
during 1995 and 1996 was $431,582 and $148,866, respectively, which would be
amortized on a pro forma basis over the vesting period of the options (typically
four years). The weighted average fair value of options granted during 1995 and
1996 was $3.14 and $3.72, respectively. The value of warrants granted in 1995
and 1996 have not been considered as such warrant grants related to the raising
of additional equity.
 
    If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net income and net income per share
would approximate the pro forma disclosures below:
 

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED DECEMBER 31,
                                              ----------------------------------------------------------
                                                          1995                          1996
                                              ----------------------------  ----------------------------
                                               AS REPORTED     PRO FORMA     AS REPORTED     PRO FORMA
                                              -------------  -------------  -------------  -------------
<S>                                           <C>            <C>            <C>            <C>
Net loss....................................  $  (2,556,886) $  (2,810,494) $  (2,087,362) $  (2,185,676)
Net loss per share..........................          (0.37)         (0.40)         (0.25)         (0.27)
</TABLE>

 
    The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to January
1, 1995, and additional awards are anticipated in future years.
 
                                      F-12

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
3. SHAREHOLDERS' EQUITY: (CONTINUED)
    A summary of the status of the Company's stock option plans and changes are
presented in the following table:
 

<TABLE>
<CAPTION>
                                                         FOR THE YEAR ENDED DECEMBER 31,
                                         ----------------------------------------------------------------
                                                      1995                             1996
                                         -------------------------------  -------------------------------
                                                       WEIGHTED AVERAGE                 WEIGHTED AVERAGE
                                            SHARES      EXERCISE PRICE       SHARES      EXERCISE PRICE
                                         ------------  -----------------  ------------  -----------------
<S>                                      <C>           <C>                <C>           <C>
Options outstanding at beginning of
  year.................................       977,148      $    4.65         1,109,828      $    4.71
Granted................................       137,400           5.01            40,000           6.00
Exercised..............................       --              --               --              --
Canceled...............................         4,720           4.95            26,001           4.98
                                         ------------          -----      ------------          -----
Options outstanding at end of year.....     1,109,828           4.71         1,123,827           4.75
                                         ------------          -----      ------------          -----
                                         ------------          -----      ------------          -----
Exercisable at end of year.............       804,181      $    4.67           960,495      $    4.61
                                         ------------          -----      ------------          -----
                                         ------------          -----      ------------          -----
</TABLE>

 
    The following table sets forth the exercise price range, number of shares
outstanding at December 31, 1996, weighted average remaining contractual life,
weighted average exercise price, number of exercisable shares and weighted
average exercise price of exercisable options by groups of similar price and
grant date:
 

<TABLE>
<CAPTION>
                         OPTIONS OUTSTANDING
- ---------------------------------------------------------------------
               OUTSTANDING    WEIGHTED AVERAGE                              OPTIONS EXERCISABLE
                SHARES AT         REMAINING                            ------------------------------
  EXERCISE     DECEMBER 31,   CONTRACTUAL LIFE     WEIGHTED AVERAGE    EXERCISABLE  WEIGHTED AVERAGE
    PRICE          1996            (YEARS)          EXERCISE PRICE       OPTIONS     EXERCISE PRISE
- -------------  ------------  -------------------  -------------------  -----------  -----------------
<S>            <C>           <C>                  <C>                  <C>          <C>
    $4.56          790,901             5.45            $    4.56          724,236       $    4.56
     4.95          183,679             7.46                 4.95          127,012            4.95
     5.01           99,800             0.42                 5.01           99,800            5.01
     6.00           49,447             7.61                 6.00            9,447            6.00
</TABLE>

 
    The Company has also issued warrants for the purchase of common stock in
conjunction with financing and compensation arrangements. A summary of the
status of the Company's warrants and changes are presented in the following
table:
 

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                         ---------------------------------------------------------------
                                                      1995                             1996
                                         -------------------------------  ------------------------------
                                                       WEIGHTED AVERAGE                 WEIGHTED AVERAGE
                                            SHARES      EXERCISE PRICE       SHARES      EXERCISE PRICE
                                         ------------  -----------------  ------------  ----------------
<S>                                      <C>           <C>                <C>           <C>
Warrants outstanding at beginning of
  year.................................     1,324,733      $    1.02         1,324,733     $  1.02
Granted................................        38,000           0.33            60,201        9.00
Exercised..............................       --              --               957,500        0.0003
Canceled...............................        38,000           0.33           --              --
                                         ------------          -----      ------------  -------
Warrants outstanding at end of year....     1,324,733           1.02           427,434        4.43
                                         ------------          -----      ------------  -------
                                         ------------          -----      ------------  -------
Exercisable at end of year.............     1,299,736      $    1.04           402,437     $  4.69
                                         ------------          -----      ------------  -------
                                         ------------          -----      ------------  -------
</TABLE>

 
                                      F-13

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
3. SHAREHOLDERS' EQUITY: (CONTINUED)
    The following table sets forth the exercise price range, number of shares
outstanding at December 31, 1996, weighted average remaining contractual life,
weighted average exercise price, number of exercisable shares and weighted
average exercise price of exercisable warrants by groups of similar price and
grant date:
 

<TABLE>
<CAPTION>
                      WARRANTS OUTSTANDING
- ----------------------------------------------------------------
               OUTSTANDING   WEIGHTED AVERAGE                         WARRANTS EXERCISABLE
                SHARES AT        REMAINING                        -----------------------------
  EXERCISE     DECEMBER 31,     CONTRACTUAL     WEIGHTED AVERAGE  EXERCISABLE  WEIGHTED AVERAGE
    PRICE          1996        LIFE (YEARS)      EXERCISE PRICE    WARRANTS     EXERCISE PRISE
- -------------  ------------  -----------------  ----------------  -----------  ----------------
<S>            <C>           <C>                <C>               <C>          <C>
   $0.0003         124,799        Varies           $  0.0003          99,802      $  0.0003
     1.14           22,000        Varies              1.14            22,000         1.14
     4.56            1,100         5.75               4.56             1,100         4.56
     6.00          219,334        Varies              6.00           219,334         6.00
     9.00           60,201        Varies              9.00            60,201         9.00
</TABLE>

 
4. INCOME TAXES:
 
    At December 31, 1995 and 1996, the Company had federal and state tax net
operating loss carryforwards of approximately $7,731,000 and $9,410,000,
respectively. The difference between the operating loss carryforwards on a tax
basis and a book basis is due principally to differences in depreciation,
amortization, and treatment of research and development costs. The federal and
state carryforwards will begin to expire in 1997 and 2008, respectively, if not
otherwise used. The Internal Revenue Code rules under Section 382 could limit
the future use of these losses based on ownership changes in the value of the
Company's stock.
 
    The Company had a net deferred tax asset of $3,808,000 and $4,660,000 at
December 31, 1995 and 1996, primarily from net operating loss carryforwards. A
valuation allowance was recorded to reduce the net deferred tax asset to zero.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $1,195,000 and $852,000 for the years ended December
31, 1995 and 1996, respectively, mainly due to the increase in the net operating
loss carryforwards.
 
    An analysis of the deferred tax assets and liabilities as of December 31,
1995, is as follows:
 

<TABLE>
<CAPTION>
                                                               DEFERRED TAX  DEFERRED TAX
                                                                  ASSET       LIABILITY        TOTAL
                                                               ------------  ------------  -------------
<S>                                                            <C>           <C>           <C>
Net operating loss carryforwards.............................   $3,092,000    $   --       $   3,092,000
Accrued expenses.............................................      108,000        --             108,000
Depreciation.................................................      298,000        --             298,000
Research and development tax credit..........................      490,000        --             490,000
                                                               ------------  ------------  -------------
Patent costs.................................................       --          (180,000)       (180,000)
                                                               ------------  ------------  -------------
                                                                $3,988,000    $ (180,000)      3,808,000
                                                               ------------  ------------
                                                               ------------  ------------
Valuation allowance..........................................                                 (3,808,000)
                                                                                           -------------
                                                                                           $    --
                                                                                           -------------
                                                                                           -------------
</TABLE>

 
                                      F-14

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
4. INCOME TAXES: (CONTINUED)
    An analysis of the deferred tax assets and liabilities as of December 31,
1996, is as follows:
 

<TABLE>
<CAPTION>
                                                               DEFERRED TAX  DEFERRED TAX
                                                                  ASSET       LIABILITY        TOTAL
                                                               ------------  ------------  -------------
<S>                                                            <C>           <C>           <C>
Net operating loss carryforwards.............................   $3,764,000    $   --       $   3,764,000
Accrued expenses.............................................       23,000        --              23,000
Depreciation.................................................      403,000        --             403,000
Research and development tax credit..........................      660,000        --             660,000
Patent costs.................................................       --          (190,000)       (190,000)
                                                               ------------  ------------  -------------
                                                                $4,850,000    $ (190,000)      4,660,000
                                                               ------------  ------------
                                                               ------------  ------------
Valuation allowance..........................................                                 (4,660,000)
                                                                                           -------------
                                                                                           $    --
                                                                                           -------------
                                                                                           -------------
</TABLE>

 
5. LEASE OBLIGATIONS:
 
    The Company leases office and laboratory facilities under various
noncancelable operating leases through December 1997. Rent expense under these
leases was $168,000 and $193,000 for the years ended December 31, 1995 and 1996,
respectively, and $835,000 for the period from July 22, 1980 through December
31, 1996.
 
    In September 1996, the Company leased additional laboratory facilities and
extended the lease on its existing laboratory facilities through 2004. At
December 31, 1996, the aggregate noncancelable future minimum payments under
these leases were $288,000, $273,000, $258,000, $266,000 and $274,000 for the
years ended December 31, 1997, 1998, 1999, 2000 and 2001, respectively, and
$871,000 thereafter.
 
6. RELATED PARTY TRANSACTIONS:
 
    The Company paid $8,000, $12,000 and $233,000 to certain nonemployee
directors for financial consulting, scientific research services and
reimbursement for out-of-pocket costs of attending Board of Director meetings
during the years ended December 31, 1995 and 1996, and the period from July 22,
1980 through December 31, 1996, respectively.
 
7. SUBSEQUENT EVENTS:
 
    On January 20, 1997, AGDG and the Company amended the Technology Transfer
Agreement to reduce the Technology Fees arising from the sale of diagnostic
products from 4.05% to 2% and to remove the $200 million exemption with respect
to sales of such diagnostic products. The Company also granted to AGDG a
royalty-bearing license to make, use and sell small quantities of product
derived from the Intellectual Property for research purposes only.
 
    In 1997, as a condition to its planned initial public offering, the Company
intends to offer to holders of 1,292,973 shares of its common stock, the right
to rescind their purchase of shares of the Company's common stock. If all such
offerees elect to rescind their purchases, the Company will be required to pay
these shareholders $3,121,965 and 568.67 units of limited partnership interests
in AGDG, plus statutory interest. To the extent these shareholders accept the
rescission offer, the Company will use up to $1,500,000 of its cash resources to
repurchase the shares. If any additional consideration is required to
 
                                      F-15

<PAGE>
                                ANTIVIRALS INC.
                         (A DEVELOPMENT STAGE COMPANY)
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
7. SUBSEQUENT EVENTS: (CONTINUED)
repurchase the shares, the Company will issue unsecured promissory notes to the
shareholders on a pro rata basis. Such notes will bear interest at 9% per annum
and mature between 18 and 36 months. If additional Partnership units are issued,
the fees arising from the sale of therapeutic products will be adjusted on a pro
rata basis, such that if all Partnership unit holders accept the rescission
offer, the fees for sales of therapeutic products will increase to approximately
5.25%. Fees related to diagnostic products under such a scenario would remain at
2%. The Company believes that its potential exposure to litigation for possible
past violations of securities laws will be effectively eliminated by this
rescission offer. All periods presented have been restated to reflect the amount
of common stock subject to the rescission offer outside of shareholders' equity.
 
    The Company estimates that the total amount of its obligation for interest
to rescinding shareholders could aggregate approximately $2,129,000 if all
eligible shareholders accepted the rescission offer. Because of the contingent
nature of such liability and because the ultimate amount to be refunded is not
presently known, the potential interest liability has not been accrued but will
be recorded as an expense of the Company if and when the amount becomes an
actual liability.
 
    The rescission offer will not be made to holders of 22,021 shares of common
stock in Florida as state securities laws do not permit such offerings. The
rescission offer will also not be made to holders of 192,603 shares of common
stock who reside in California and Nevada because the Company believes its
potential liability to these holders has been eliminated by the running of
applicable statute of limitations. If all the shareholders in Florida, Nevada
and California were to successfully assert claims against the Company, the
Company would be required to pay these holders approximately $319,000 and 55
units of limited partnership interests in AGDG, plus $237,000 in statutory
interest. Since no rescission offer has been made to these shareholders and
because of the contingent nature of such obligations, the potential liability
has not been reflected in the accompanying financial statements.
 
    The Company's cash flow and its financial position could be materially
affected by the results of the rescission offer. The financial statements do not
include any adjustments that might result from the outcome of the rescission
offer.
 
                                      F-16

<PAGE>
- -------------------------------------------
                                     -------------------------------------------
- -------------------------------------------
                                     -------------------------------------------
 
    NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, UNITS IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. SUBJECT TO ANY DUTIES AND OBLIGATIONS UNDER APPLICABLE SECURITIES
LAWS TO UPDATE INFORMATION CONTAINED HEREIN OR INCORPORATED BY REFERENCE HEREIN,
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
 
                            ------------------------
 
 
                              TABLE OF CONTENTS
 
   

<TABLE>
<CAPTION>
                                                    PAGE
                                                    -----
<S>                                              <C>
Prospectus Summary.............................           3
The Company....................................           3
Risk Factors...................................           7
Use of Proceeds................................          16
Dividend Policy................................          16
Capitalization.................................          17
Dilution.......................................          18
Selected Financial Data........................          19
Management's Discussion and Analysis of
 Financial Condition and Results of Operations
 of the Company................................          20
Business.......................................          22
Management.....................................          37
Certain Transactions...........................          44
Principal Shareholders.........................          46
Description of Securities......................          49
Shares Eligible for Future Sale................          56
Underwriting...................................          58
Legal Matters..................................          59
Experts........................................          59
Additional Information.........................          60
Financial Statements...........................         F-1
</TABLE>

    
 
                         ------------------------------
 
    UNTIL                   , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS, COMMON STOCK OR THE WARRANTS,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
 
                                1,500,000 UNITS
 
   
                                     [LOGO]
    
 
                             ---------------------
 
                                   PROSPECTUS
 
                             ---------------------
 
   
                               PAULSON INVESTMENT
                                 COMPANY, INC.
    
 
   
                              MILLENNIUM FINANCIAL
                                  GROUP, INC.
    
 
                                           , 1997
 
- -------------------------------------------
                                     -------------------------------------------
- -------------------------------------------
                                     -------------------------------------------

<PAGE>

                                    PART II
 
                     INFORMATION NOT REQUIRED IN PROSPECTUS
 
ITEM 24.  INDEMNIFICATION OF DIRECTORS AND OFFICERS.
 
    As an Oregon corporation the Company is subject to the Oregon Business
Corporation Act ("OBCA") and the exculpation from liability and indemnification
provisions contained therein. Pursuant to Section 60.047(2)(d) of the OBCA,
Article VI of the Company's Third Restated Articles of Incorporation (the
"Articles") eliminates the liability of the Company's directors to the Company
or its stockholders, except for any liability related to breach of the duty of
loyalty, actions not in good faith and certain other liabilities.
 
    Section 60.387 et seq. of the OBCA allows corporations to indemnify their
directors and officers against liability where the director or officer has acted
in good faith and with a reasonable belief that actions taken were in the best
interests of the corporation or at least not adverse to the corporation's best
interests and, if in a criminal proceeding, the individual had no reasonable
cause to believe the conduct in question was unlawful. Under the OBCA,
corporations may not indemnify against liability in connection with a claim by
or in the right of the corporation but may indemnify against the reasonable
expenses associated with such claims unless the party is adjusted liable to the
corporation. Corporations may not indemnify if the party is adjudged liable for
receiving improper personal benefit. The OBCA provides for mandatory
indemnification of directors against all reasonable expenses incurred in the
successful defense of any claim made or threatened whether or not such claim was
by or in the right of the corporation. Finally, a court may order
indemnification if it determines that the director or officer is fairly and
reasonably entitled to indemnification in view of all the relevant circumstances
whether or not the director or officer met the good faith and reasonable belief
standards of conduct set out in the statute.
 
    The OBCA also provides that the statutory indemnification provisions are not
deemed exclusive of any other rights to which directors or officers may be
entitled under a corporation's articles of incorporation or bylaws, any
agreement, general or specific action of the board of directors, vote of
stockholders or otherwise.
 
    Article VII of the Articles requires the Company to indemnify its directors
and officers to the fullest extent not prohibited by law. The Bylaws of the
Company also permit the Company to indemnify its directors and officers to the
fullest extent permitted by the OBCA.
 
ITEM 25.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
 
   
    The following table sets forth the costs and expenses, other than
underwriting discounts and the Representatives' non-accountable expense
allowance, expected to be incurred by the Registrant in connection with the
offering described in this Registration Statement. All amounts, except the SEC
registration fee, the NASD filing fee and the NASDAQ National Market System
listing fee, are estimates.
    
 

<TABLE>
<S>                                                                 <C>
SEC Registration Fee..............................................  $  16,267
NASD Filing Fee...................................................      5,218
NASDAQ Listing Fee................................................     50,000
Printing and Engraving Expenses...................................     65,000
Accounting Fees and Expenses......................................     40,000
Legal Fees and Expenses...........................................    200,000
Blue Sky Fees and Expenses (including fees of Counsel)............     50,000
Transfer Agent and Registrar Fees.................................     13,500
Miscellaneous Expenses............................................     35,015
                                                                    ---------
    Total.........................................................  $ 475,000
                                                                    ---------
                                                                    ---------
</TABLE>

 
                                      II-1

<PAGE>
ITEM 26.  RECENT SALES OF UNREGISTERED SECURITIES.
 
    Within the last three years, the Company has sold securities without
registration under the Securities Act in the transactions and in reliance on the
exemptions from registration described below.
 
        1.  Between November 1995 and October 1996, the Company sold an
    aggregate of 866,172 shares of its Common Stock at $6.00 per share to 208
    purchasers. The sale of these shares was exempt from registration pursuant
    to Section 4(2) of the Securities Act and Regulation D Rule 506, a notice of
    which was filed with the SEC on October 10, 1995, and subsequently amended
    on June 14, 1996, and July 22, 1996. The Company obtained detailed
    information from each investor which provided the Company with a reasonable
    belief that all investors were "accredited investors" as defined in the
    Securities Act.
 
        2.  On March 15, 1996, the Company issued 957,500 shares of its Common
    Stock pursuant to the exercise of warrants that were issued to Oregon
    Resource and Technology Development Corporation (ORTDC). The issuance of the
    Common Stock upon the exercise of the warrants was exempt from registration
    pursuant to Section 4(2) of the Securities Act. The Company reasonably
    believed that ORTDC was an "accredited investor" at the time of both the
    warrant issuance and exercise. Further, ORTDC was granted a seat on the
    Company's Board of Directors during the time the warrants were outstanding.
 
        3.  Between January 1994 and April 1995, the Company sold an aggregate
    of 752,972 shares of its Common Stock at $4.95 per share to 145 purchasers.
    The sale of these shares was exempt from registration pursuant to Regulation
    D, Rule 505 and Section 4(2) of the Securities Act. The Company obtained
    detailed information from each investor which provided the Company with a
    reasonable belief that there were no more than 35 "unaccredited investors"
    who purchased shares in the offering. The Company also provided investors
    with an offering document containing all necessary disclosures.
 
ITEM 27.  EXHIBITS.
 
(a) Exhibits
 

<TABLE>
<CAPTION>
  NUMBER     DESCRIPTION
- -----------  --------------------------------------------------------------------------------------------------
<C>          <S>
       1.0   Form of Underwriting Agreement+
 
       3.1   Third Restated Articles of Incorporation of AntiVirals, Inc.+
 
       3.2   Bylaws of AntiVirals, Inc.+
 
       4.1   Form of Specimen Certificate for Common Stock*
 
       4.2   Form of Warrant for Purchase of Common Stock+
 
       4.3   Form of Warrant Agreement+
 
       4.4   Form of Representative's Warrant+
 
       4.5   Registration Rights Agreement between AntiVirals Inc. and Ice Bear, Inc., dated May 20, 1992.+
 
       4.6   Purchase Warrants between AntiVirals Inc. and ORTDF, dated August 4, 1992.+
 
       5.0   Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality of the securities being
               registered*
 
      10.1   1992 Stock Incentive Plan+
 
      10.2   Employment Agreement with Denis R. Burger, Ph.D. dated November 4, 1996+
 
      10.3   Employment Agreement with James Summerton, Ph.D. dated November 4, 1996+
 
      10.4   Employment Agreement with Alan P. Timmins dated November 4, 1996+
</TABLE>

 
                                      II-2

<PAGE>

<TABLE>
<CAPTION>
  NUMBER     DESCRIPTION
- -----------  --------------------------------------------------------------------------------------------------
<C>          <S>
      10.5   Employment Agreement with Dwight Weller, Ph.D. dated November 4, 1996+
 
      10.6   Technology Transfer Agreement between Anti-Gene Development Group and AntiVirals Inc., dated
               February 9, 1992.
 
      10.7   Amendment to Technology Transfer Agreement between Anti-Gene Development Group and AntiVirals Inc.
               dated January 20, 1996.+
 
      10.8   License and Option Agreement between Anti-Gene Development Group and AntiVirals Inc., dated
               February 9, 1993.+
 
      10.9   Commercial Lease between Research Way Investments, Landlord, and AntiVirals Inc., Tenant, dated
               June 15, 1992.+
 
      10.10  Lease between Benjamin Franklin Plaza, Inc., Landlord, and AntiVirals Inc., Tenant, dated June 17,
               1992.+
 
      10.11  First Amendment to Lease between Benjamin Franklin Plaza, Inc., Landlord, and AntiVirals Inc.,
               Tenant, dated July 24, 1995.+
 
      23.1   Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal opinion filed as Exhibit
               5.0)*
 
      23.2   Consent of Arthur Andersen LLP
 
      23.3   Consent of Peter Dehlinger & Associates.*
 
      25.0   Powers of Attorney (included in signature page in Part II of the Registration Statement)
</TABLE>

 
- ------------------------
 
* To be filed by amendment.
 
+ Previously filed as Exhibit to this Registration Statement.
 
(b) Financial Statement Schedules
 
ITEM 28.  UNDERTAKINGS.
 
    Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 24, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
 
    The undersigned registrant hereby undertakes:
 
    1.  To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
 
        (i) include any prospectus required by section 10(a)(3) of the
    Securities Act;
 
        (ii) reflect in the prospectus any facts or events which, individually
    or together, represent a fundamental change in the information set forth in
    the registration statement; and
 
       (iii) include any additional or changed material information on the plan
    of distribution.
 
                                      II-3

<PAGE>
    2.  That, for determining liability under the Securities Act, it will treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
 
    3.  To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
 
    4.  That, for determining any liability under the Securities Act, it will
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
 
    5.  That, for determining any liability under the Securities Act, it will
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered therein, and the offering of
the securities at that time as the initial bona fide offering thereof.
 
                                      II-4

<PAGE>

                                   SIGNATURES
 
    In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the city of Portland,
state of Oregon, on January 22, 1997.
 

<TABLE>
<S>                             <C>  <C>
                                ANTIVIRALS INC.
 
                                By:             /s/ DENIS R. BURGER
                                     -----------------------------------------
                                                  Denis R. Burger,
                                              CHIEF EXECUTIVE OFFICER
</TABLE>

 
                               POWER OF ATTORNEY
 
    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Denis R. Burger and Alan P. Timmins and each of
them singly, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all amendments to said Registration Statement (including post-effective
amendments), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents and full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as full to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.
 
    Witness our hands on the date set forth below.
 
    In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the capacity
stated on January 22, 1997.
 

<TABLE>
<CAPTION>
          SIGNATURE                       TITLE
- ------------------------------  --------------------------
 
<C>                             <S>
     /s/ DENIS R. BURGER        Chief Executive Officer
- ------------------------------    and Director (Principal
       Denis R. Burger            Executive Officer)
 
    /s/ JAMES E. SUMMERTON      President, Chief
- ------------------------------    Scientific Officer and
      James E. Summerton          Director
 
                                Chief Operating Officer
     /s/ ALAN P. TIMMINS          and Chief Financial
- ------------------------------    Officer (Principal
       Alan P. Timmins            Financial and Accounting
                                  Officer)
</TABLE>

 
                                      II-5

<PAGE>

<TABLE>
<CAPTION>
          SIGNATURE                       TITLE
- ------------------------------  --------------------------
 
<C>                             <S>
     /s/ DWIGHT D. WELLER       Vice President of Research
- ------------------------------    and Development and
       Dwight D. Weller           Director
 
     /s/ JOHN A. BEAULIEU
- ------------------------------  Chairman of the Board
       John A. Beaulieu
 
       /s/ NICK BUNICK
- ------------------------------  Director
         Nick Bunick
 
      /s/ JAMES B. HICKS
- ------------------------------  Director
        James B. Hicks
 
    /s/ DONALD R. JOHNSON
- ------------------------------  Director
      Donald R. Johnson
 
    /s/ JAMES E. REINMUTH
- ------------------------------  Director
      James E. Reinmuth
 
     /s/ JOSEPH RUBINFELD
- ------------------------------  Director
       Joseph Rubinfeld
</TABLE>

 
                                      II-6

<PAGE>
                                ANTIVIRALS INC.
 

                               INDEX TO EXHIBITS
 

<TABLE>
<CAPTION>
  NUMBER                                             DESCRIPTION                                             PAGE
- -----------  -------------------------------------------------------------------------------------------  -----------
<C>          <S>                                                                                          <C>
       1.0   Form of Underwriting Agreement+............................................................
 
       3.1   Third Restated Articles of Incorporation of AntiVirals, Inc.+..............................
 
       3.2   Bylaws of AntiVirals, Inc.+................................................................
 
       4.1   Form of Specimen Certificate for Common Stock*.............................................
 
       4.2   Form of Warrant for Purchase of Common Stock+..............................................
 
       4.3   Form of Warrant Agreement+.................................................................
 
       4.4   Form of Representative's Warrant+..........................................................
 
       4.5   Registration Rights Agreement between AntiVirals Inc. and Ice Bear, Inc., dated May 20,
               1992.+...................................................................................
 
       4.6   Purchase Warrants between AntiVirals Inc. and ORTDF, dated August 4, 1992.+................
 
       5.0   Opinion of Ater Wynne Hewitt Dodson & Skerritt, LLP as to the legality of the securities
               being registered*........................................................................
 
      10.1   1992 Stock Incentive Plan+.................................................................
 
      10.2   Employment Agreement with Denis R. Burger, Ph.D. dated November 4, 1996+...................
 
      10.3   Employment Agreement with James Summerton, Ph.D. dated November 4, 1996+
 
      10.4   Employment Agreement with Alan P. Timmins dated November 4, 1996+..........................
 
      10.5   Employment Agreement with Dwight Weller, Ph.D. dated November 4, 1996+.....................
 
      10.6   Technology Transfer Agreement between Anti-Gene Development Group and AntiVirals Inc.,
               dated February 9, 1992.+.................................................................
 
      10.7   Amendment to Technology Transfer Agreement between Anti-Gene Development Group and
               AntiVirals Inc. dated January 20, 1996.+.................................................
 
      10.8   License and Option Agreement between Anti-Gene Development Group and AntiVirals Inc., dated
               February 9, 1993.+.......................................................................
 
      10.9   Commercial Lease between Research Way Investments, Landlord, and AntiVirals Inc., Tenant,
               dated June 15, 1992.+....................................................................
 
      10.10  Lease between Benjamin Franklin Plaza, Inc., Landlord, and AntiVirals Inc., Tenant, dated
               June 17, 1992.+..........................................................................
 
      10.11  First Amendment to Lease between Benjamin Franklin Plaza, Inc., Landlord, and AntiVirals
               Inc., Tenant, dated July 24, 1995.+......................................................
 
      23.1   Consent of Ater Wynne Hewitt Dodson & Skerritt, LLP (included in legal opinion filed as
               Exhibit 5.0)*............................................................................
 
      23.2   Consent of Arthur Andersen LLP.............................................................
 
      23.3   Consent of Peter Dehlinger & Associates.*..................................................
 
      25.0   Powers of Attorney (included in signature page in Part II of the Registration Statement)...
</TABLE>

 
- ------------------------
 
* To be filed by amendment.
 
+ Previously filed as an Exhibit to this Registration Statement.





<PAGE>

                                                                    Exhibit 23.2





                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


As independent public accountants, we hereby consent to the use of our reports 
dated March 10, 1997, relating to the financial statements of AntiVirals Inc. 
and to all references to our firm included in Amendment No. 2 to 
Registration Statement (No. 333-20513) of AntiVirals Inc.


                                                  ARTHUR ANDERSEN LLP


Portland, Oregon,
  April 15, 1997