LA JOLLA PHARMACEUTICAL COMPANY

6455 Nancy Ridge Drive

San Diego, California 92121

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on Friday, December 2, 2005

       A special meeting of stockholders of La Jolla Pharmaceutical Company, a Delaware corporation, will be held at our offices at 6455 Nancy Ridge Drive, San Diego, California 92121 on Friday, December 2, 2005, at 10:00 a.m. (local time) for the following purposes:

      Our board of directors unanimously recommends that you vote FOR Proposals 1 through 4 above.

San Diego, California

October      , 2005

LA JOLLA PHARMACEUTICAL COMPANY

6455 Nancy Ridge Drive

San Diego, California 92121

NOTICE OF A SPECIAL MEETING OF STOCKHOLDERS

To Be Held on Friday, December 2, 2005

INFORMATION CONCERNING THE SOLICITATION

       This proxy statement is furnished in connection with the solicitation of proxies by the board of directors of La Jolla Pharmaceutical Company, a Delaware corporation, to be used at a special meeting of stockholders to be held on Friday, December 2, 2005 at 10:00 a.m. (local time) and at any and all postponements and adjournments of the meeting. The meeting will be held at our offices at 6455 Nancy Ridge Drive, San Diego, California 92121. This proxy statement and the accompanying proxy card will be first mailed to stockholders on or about October      , 2005.

      We will pay for the cost of preparing, assembling and mailing the proxy materials and the cost of soliciting proxies. We will pay brokers and other persons holding stock in their names or the names of their nominees for the reasonable expenses of forwarding soliciting material to their principals. We and our employees may solicit proxies in person or by telephone, facsimile or other electronic means. Our employees will not receive any additional compensation for such solicitation. In addition, we have engaged MacKenzie Partners, Inc. to assist us in soliciting proxies. We will pay the proxy solicitor a fee of approximately $35,000 for such solicitation and will reimburse it for reasonable out-of-pocket expenses.

VOTING

      Our board of directors has fixed October 14, 2005 as the record date for determining the stockholders entitled to notice of, and to vote at, the special meeting. As of October 14, 2005, we had 74,152,686 shares of common stock outstanding held by 510 record holders. There are approximately 13,300 beneficial owners of our common stock. Each share is entitled to one vote on any matter that may be presented for consideration and action by the stockholders at the meeting. The holders of a majority of the outstanding shares of our common stock on the record date and entitled to be voted at the meeting, present in person or represented by proxy, will constitute a quorum for the transaction of business at the meeting and any adjournments and postponements thereof. Shares abstained or subject to a broker non-vote are counted as present for the purpose of determining the presence or absence of a quorum for the transaction of business.

      With regard to Proposals 1 and 3, the affirmative vote of a majority of the votes cast at the meeting is required for approval. With regard to these proposals, abstentions will be counted in tabulations of the votes cast on a proposal and will have the same effect as a vote against the proposal, whereas broker non-votes will be entirely excluded from the vote and will have no effect on its outcome.

      With regard to Proposals 2 and 4, the affirmative vote of a majority of the shares outstanding is required for approval. With regard to these proposals, abstentions and broker non-votes will be counted in tabulations of the votes cast on a proposal and both will have the same effect as a vote against the proposal.

      Each proxy submitted by a stockholder will, unless otherwise directed by such stockholder, be voted FOR:

      In addition, the persons acting as proxies will cast their votes in their discretion for any additional matters that are properly raised for consideration at the meeting. If you submit a proxy, your shares will be voted according to your direction. You have the power to revoke your proxy at any time before it is voted at the special meeting by submitting a written notice of revocation to our corporate secretary or by timely providing us with a valid proxy bearing a later date. Your proxy will not be voted if you attend the special meeting and elect to vote your shares in person (although attendance at the special meeting will not, in and of itself, revoke a proxy). Our board of directors reserves the right to withhold any proposal described in this proxy statement from a vote at the special meeting if it deems that a vote on such proposal would be contrary to our and our stockholders’ best interests. In that event, the proposal withheld will be neither adopted nor defeated.

PROPOSAL 1

APPROVAL OF THE EQUITY ISSUANCE

      We are seeking stockholder approval of Proposal 1 for the purpose of complying with Nasdaq Rule 4350(i)(1)(D)(ii). This rule is applicable because the number of shares of common stock we are proposing to issue and sell is more than 20% of our common stock currently outstanding, such shares represent more than 20% of the voting power of our currently outstanding shares, and the price of the shares to be issued is lower than the market value of our common stock as of the date we entered into the related purchase agreement. We are also seeking stockholder approval for the purpose of complying with Nasdaq Rule 4350(i)(1)(B) because the proposed issuance of common stock and warrants may be deemed to result in a “change of control.”

Our board of directors unanimously recommends that you vote FOR Proposal 1.

SUMMARY

      The following is a summary of the proposed transactions. Each summary below is qualified in its entirety by reference to, and should be read in conjunction with, the agreements to which such summary relates. We have attached copies or forms of such agreements as annexes to this proxy statement. WE URGE ALL STOCKHOLDERS TO READ ALL OF THESE DOCUMENTS CAREFULLY AND IN THEIR ENTIRETY.

      The Purchase Agreement. The Securities Purchase Agreement, dated as of October 6, 2005 (referred to in this proxy statement as the “purchase agreement”), a copy of which we have attached to this proxy statement as Annex A for your reference, is subject to stockholder approval and various conditions described in more detail below. Pursuant to the purchase agreement, we have agreed to issue and sell to Essex Woodlands Health Ventures Fund VI, L.P. (referred to in this proxy statement as “Essex Woodlands”), Frazier Healthcare V, LP (referred to in this proxy statement as “Frazier”), Alejandro Gonzalez Cimadevilla, Domain Public Equity Partners, L.P., Special Situations Fund III, L.P., Special Situations Cayman Fund, L.P., Special Situations Private Equity Fund, L.P., Special Situations Life Sciences Fund, L.P., Sutter Hill Ventures, and other signatories to the purchase agreement (collectively referred to in this proxy statement as the “Investors”), and the Investors have agreed to purchase from us, (i) an aggregate of 88,000,000 shares of our common stock and (ii) warrants to purchase an additional 22,000,000 shares of our common stock, for the aggregate purchase price of $66 million. If the proposed increase in the number of authorized shares of our common stock (referred to in this proxy statement as the “authorized share increase”) is approved at the special meeting pursuant to Proposal 2, the warrants to purchase up to an additional 22,000,000 shares of our common stock will be issued to the Investors at the closing (referred to in

this proxy statement as the “closing warrants”). These closing warrants will be exercisable immediately after the closing at a warrant exercise price of $1.00 per share. See “— Terms of the Securities Purchase Agreement.”

      The number of shares of common stock we are currently authorized to issue under our certificate of incorporation will only be approximately 1,000,000 additional shares following the sale and issuance of the 88,000,000 shares to the Investors pursuant to the purchase agreement. As a result, we have agreed under the purchase agreement that, if the authorized share increase is not approved at the special meeting pursuant to Proposal 2, we will issue to the Investors at the closing, in lieu of one set of fully exercisable closing warrants, (i) warrants to purchase the remaining number of authorized shares under our certificate of incorporation following the closing (expected to be approximately 1,000,000) (referred to in this proxy statement as the “first closing warrants”), which will be exercisable immediately following the closing, and (ii) warrants to purchase the number of shares equal to 22,000,000 less the number of shares covered by the first closing warrants (referred to in this proxy statement as the “second closing warrants”), which will be exercisable only after the effective date of a future authorized share increase (referred to in this proxy statement as the “common stock authorization date”). The warrant exercise price under both the first closing warrants and the second closing warrants is $1.00 per share of our common stock. See “— Terms of the Securities Purchase Agreement.”

      Upon execution of the purchase agreement, we issued to certain of the Investors contingent warrants to purchase, upon the occurrence of any of certain events, including the failure of our stockholders to approve Proposal 1 (each such event referred to in this proxy statement as a “contingent warrant trigger”), up to an additional 589,851 shares of our common stock (referred to in this proxy statement as the “contingent warrants” and, together with the closing warrants, or as applicable, the first closing warrants and the second closing warrants, the “warrants”). Pursuant to the purchase agreement, we will issue contingent warrants to purchase up to an additional 3,117,783 shares of our common stock upon the occurrence of any contingent warrant trigger to the Investors who did not receive contingent warrants upon the execution of the purchase agreement. The warrant exercise price for all contingent warrants is $0.10 per share. See “— Terms of the Securities Purchase Agreement.”

      The Closing Warrants. Pursuant to the closing warrants, a form of which we have attached to this proxy statement as Annex B for your reference, the Investors have the right, subject to certain limitations, to purchase up to 22,000,000 shares of our common stock at the exercise price of $1.00 per share at any time after the closing date and prior to the earlier of (i) the fifth anniversary of the common stock authorization date and (ii) the date of consummation of any of certain extraordinary transactions with respect to our corporate structure. See “— Terms of the Closing Warrants.”

      If the authorized share increase is not approved at the special meeting pursuant to Proposal 2, the first closing warrants and the second closing warrants will be issued to the Investors at the closing in lieu of the closing warrants. The first closing warrants have the same terms as the closing warrants, except that they will represent the right to purchase the remaining number of authorized shares under our certificate of incorporation following the closing (expected to be approximately 1,000,000) at the exercise price of $1.00 per share. Pursuant to the second closing warrants, a form of which we have attached to this proxy statement as Annex C for your reference, the Investors have the right, subject to certain limitations, to purchase the number of shares equal to 22,000,000 less the number of shares covered by the first closing warrants at the exercise price of $1.00 per share. The second closing warrants will be exercisable at any time after the common stock authorization date and prior to the earlier of (i) the fifth anniversary of the common stock authorization date and (ii) the date of consummation of any of certain extraordinary transactions with respect to our corporate structure. See “— Terms of the Closing Warrants.”

      The Contingent Warrants. Pursuant to the contingent warrants, a form of which we have attached to this proxy statement as Annex D for your reference, the Investors have the right, upon the occurrence of a contingent warrant trigger, to purchase up to 3,707,634 shares of our common stock at the exercise price of $0.10 per share at any time during the period from the date of any contingent warrant trigger and until the earliest of (i) December 31, 2008, (ii) the date of closing of the transactions contemplated by the purchase

agreement and (iii) the consummation of any of certain extraordinary transactions with respect to our corporate structure. The contingent warrants will cease to be exercisable if the closing under the purchase agreement occurs, regardless of when the closing occurs. If the closing occurs prior to any contingent warrant trigger, the contingent warrants will never be exercisable. If the closing occurs after a contingent warrant trigger, the contingent warrants will be exercisable only for the period from such contingent warrant trigger until the date of closing under the purchase agreement. See “— Terms of the Contingent Warrants.”

      The Registration Rights Agreement. Pursuant to the Registration Rights Agreement (referred to in this proxy statement as the “registration rights agreement”), a copy of which we have attached to this proxy statement as Annex E for your reference, we have agreed (i) to file a registration statement with the Securities and Exchange Commission (the “SEC”) to register the shares of common stock sold to the Investors and the shares of common stock issuable upon exercise of the warrants (excluding those shares issuable upon exercise of the second closing warrants, if the authorized share increase is not approved at the special meeting pursuant to Proposal 2) within 45 days after the earlier of the date of closing under the purchase agreement and the date of any contingent warrant trigger (referred to in this proxy statement as the “filing deadline”) and (ii) to cause such registration statement to become effective within 135 days after the closing under the purchase agreement (referred to in this proxy statement as the “effectiveness deadline”). We have also agreed, if the authorized share increase is not approved at the special meeting pursuant to Proposal 2, to file another registration statement with the SEC to register the shares issuable upon exercise of the second closing warrants before the later of (x) the filing deadline and (y) 15 days after the authorized share increase is approved, and to cause such registration statement to become effective within 90 days after the authorized share increase is approved. See “— Terms of the Registration Rights Agreement.”

      The Retention Agreements. In connection with the execution of the purchase agreement, in an effort to retain key employees whom we believe are important for the continuation of our business operations, we entered into retention agreements with certain members of our management team (referred to in this proxy statement as the “retention agreements”), including with the following executive officers: Steven B. Engle, Matthew D. Linnik, Ph.D., Bruce K. Bennett, Josefina T. Elchico, Paul C. Jenn, Ph.D., Theodora Reilly, Gail A. Sloan and Andrew Wiseman, Ph.D (referred to in this proxy statement as the “key employees”). We have attached copies of the retention agreements to this proxy statement as Annex F for your reference. Pursuant to the terms of the retention agreements, subject to the closing under the purchase agreement, each of the key employees is entitled to receive an incentive bonus equal to 50% of his or her annual salary in the form of cash, shares of restricted stock or a combination of both. In addition, if a key employee elects to receive shares of restricted stock, he or she will also, subject to certain limitations, be entitled to receive an additional “gross-up” payment based on the taxes payable with respect to his or her receipt of such shares of restricted stock. If the closing under the purchase agreement does not occur, the key employees will not be entitled to any payment under the retention agreements. The execution of the retention agreements was not a specific condition to the execution of the purchase agreement, but the Investors had an active and important role in establishing the terms of the retention agreements. See “— Terms of the Retention Agreements.”

      The consummation of the transactions contemplated by the purchase agreement is subject to the approval of our stockholders as required by Nasdaq rules and certain other conditions described below. Upon receiving stockholder approval of Proposal 1 and satisfaction of the other conditions to closing, we intend to close the transactions contemplated by the purchase agreement as soon as practicable.

BACKGROUND OF THE TRANSACTION

      On February 16, 2004, we announced that our New Drug Application for Riquent® (abetimus sodium), our clinical drug candidate for the treatment of lupus renal disease, had been accepted for review by the United States Food and Drug Administration (the “FDA”). On October 14, 2004, we announced that we had received a letter from the FDA indicating that Riquent® is approvable, but that an additional, randomized, double-blind study demonstrating the clinical benefit of Riquent® would need to be completed prior to an approval decision. The FDA letter indicated that the successful completion of the clinical trial that we initiated in August 2004 would appear to satisfy this requirement.

      After submitting a substantial amount of additional information and completing numerous meetings with the FDA, on March 14, 2005, we announced that, based on the outcome of the meetings with the FDA, Riquent® was unlikely to receive accelerated approval under the FDA’s Subpart H regulation. As a result, we determined that we would need to successfully complete the ongoing clinical benefit study of Riquent® prior to an FDA approval decision. We estimated that the trial would involve approximately 500 patients, would cost at least $60 million and take several years to complete.

      Because we critically needed, and continue to need, capital to conduct the trial of Riquent® and to continue our operations, we retained the investment banking firm of Pacific Growth Equities LLC to assist us to identify potential investors and collaborative partners. In an effort to secure a partnership, management had discussions with more than 20 different prospective partners. In an effort to secure funding, we had discussions with more than 15 different prospective investors.

      As a result of our efforts, we were able to establish a non-binding term sheet for the proposed investment with Essex Woodlands. Pursuant to the term sheet, we were required to identify additional investors who would also be willing to invest in us. After discussions with several additional investors, we negotiated the terms of the purchase agreement, the registration rights agreement and the warrants. On October 5, 2005, our board of directors approved the terms of the agreements and, on October 6, 2005, we executed the purchase agreement and the registration rights agreement.

IMPACT ON EXISTING STOCKHOLDERS

      If Proposal 1 is approved, the 88,000,000 shares of our common stock to be issued to the Investors at the closing and the 22,000,000 shares of our common stock to be issued upon the exercise of the closing warrants (or, if applicable, the first closing warrants and the second closing warrants) will represent approximately (i) 54.3% and 13.6%, respectively, of the total shares of our common stock issued and outstanding immediately after the closing and (ii) 47.8% and 11.9%, respectively, of total shares of our common stock that are currently expected to be issued and outstanding after the closing assuming the exercise of the closing warrants in full. In addition, the Investors currently beneficially own an aggregate of 7,157,951 shares of our common stock, and when aggregated with the shares and warrants to be issued to them under the purchase agreement, the Investors are expected to collectively beneficially own approximately 63.6% of our outstanding common stock (including shares issuable upon exercise of warrants). If Proposal 1 is not approved, the 3,707,634 shares of common stock issuable upon the exercise of the contingent warrants will represent approximately 5.0% of the total shares of our common stock currently issued and outstanding. As noted above, the Investors currently beneficially own an aggregate total of 7,157,951 shares of our common stock, and when aggregated with the shares to be issued to them upon exercise of the contingent warrants, the Investors would collectively beneficially own approximately 14.0% of the total shares of our common stock issued and outstanding after exercise of the contingent warrants in full. If Proposal 1 is approved, the 88,000,000 shares of our common stock to be issued at the closing and the 22,000,000 shares of our common stock to be issued upon exercise of the closing warrants (or, if applicable, the first closing warrants and the second closing warrants) will substantially dilute our current stockholders’ percentage ownership in our common stock. If Proposal 1 is not approved, the 3,707,634 shares of our common stock issuable upon exercise of the contingent warrants will also dilute our current stockholders’ percentage ownership in our common stock.

      If Proposal 1 is approved, at the closing, (i) Essex Woodlands will purchase 33,333,334 shares and receive warrants to purchase an additional 8,333,334 shares of our common stock, which would represent approximately 20.6% and 5.1% of our common stock outstanding immediately after the closing, respectively, and (ii) Frazier will purchase 20,000,000 shares and receive warrants to purchase an additional 5,000,000 shares of our common stock, which would represent approximately 12.3% and 3.1% of our common stock outstanding immediately after the closing, respectively. In addition to acquiring shares of our common stock, Essex Woodlands will be entitled to nominate two new directors (Martin P. Sutter and Frank E. Young), Frazier will be entitled to nominate one new director (James N. Topper) and Essex Woodlands and Frazier will be entitled to jointly nominate one new director (Nader J. Naini) to our board of directors. Information regarding each of these individuals is provided below. We have also agreed to comply with certain covenants, and to grant to the Investors preemptive rights to purchase new issuances of shares of our capital

stock and debt securities convertible into shares of our capital stock. See “— Terms of the Securities Purchase Agreement — Covenants.”

      Martin Sutter, age 50, is one of the two founding managing directors of Essex Woodlands Health Ventures. Educated in chemical engineering and finance, he has more than 25 years of management experience in operations, marketing, finance and venture capital. He began his career in management consulting with Peat Marwick, Mitchell & Co. in 1977 and moved to Mitchell Energy & Development Corp. (“MEDC”), now Devon Energy Corporation, a public company traded on the New York Stock Exchange, where he held management positions overseeing various operating units. In 1984, he founded and managed The Woodlands Venture Capital Company, a wholly-owned subsidiary of MEDC, and The Woodlands Venture Partners, an independent venture capital partnership formed in 1988. During his tenure with both organizations, he founded a number of successful healthcare companies originating from various institutions of the Texas Medical Center. In 1994, Mr. Sutter merged his venture practice with Essex Venture Partners to form Essex Woodlands. Essex Woodlands manages six venture capital limited partnerships with capital in excess of $1 billion. He currently serves on the board of directors of BioForm Medical, Confluent Surgical, Elusys Therapeutics, LifeCell, a public company traded on Nasdaq, MicroMed Cardiovascular, and Rinat Neuroscience. Mr. Sutter holds a Bachelor of Science from Louisiana State University and a Masters in Business Administration from the University of Houston.

      Frank E. Young, M.D., Ph.D., age 74, is a former commissioner of the FDA and has had over a 40-year career in medicine, academia and government. After numerous academic appointments, Dr. Young served as Chairman of the Department of Microbiology and Professor of Microbiology, Pathology, Radiation Biology and Biophysics at the University of Rochester, New York. Subsequently, he became Dean of the School of Medicine and Dentistry, Director of the Medical Center and Vice President for Health Affairs at the University of Rochester. Dr. Young joined the Department of Health and Human Services as Assistant Surgeon General in 1984. Under Presidents Ronald Reagan and George H.W. Bush, Dr. Young served as commissioner of the FDA, Deputy Assistant Secretary and Director of the Office of Emergency Preparedness, and Director of the National Disaster Medical System. Dr. Young attended Union College, and holds a Doctor of Medicine from the University of New York, where he graduated cum laude, and a Ph.D. from Case Western Reserve University.

      James N. Topper, M.D., Ph.D., age 43, is a general partner with Frazier Healthcare Ventures, having joined the firm in August 2003. Prior to joining Frazier Healthcare, he served as head of the cardiovascular research and development division of Millennium Pharmaceuticals and ran Millennium San Francisco (formerly COR Therapeutics). Prior to the merger of COR and Millennium in 2002, Dr. Topper served as the Vice President of Biology at COR and was responsible for managing all of its research activities beginning in 1999. Prior to joining COR, he served on the faculties of Harvard Medical School in 1997 and subsequently became an Assistant Professor of Medicine (cardiovascular) at Stanford University in July 1998. He continues to hold an appointment as a Clinical Assistant Professor of Medicine at Stanford University and as a Cardiology Consultant to the Palo Alto Veterans Administration Hospital. Dr. Topper currently serves on the boards of Amicus Therapeutics, Arête Therapeutics, MacuSight Inc. and Zelos Therapeutics, Inc., all of which are privately held companies. Dr. Topper holds a Doctor of Medicine and a Ph.D. in Biophysics from Stanford University School of Medicine.

      Nader J. Naini, age 39, has been a general partner with Frazier Healthcare Ventures since 1995, having joined the firm in 1992. Prior to joining Frazier Healthcare, Mr. Naini was with Goldman, Sachs & Co. Mr. Naini serves as the chairman of the board of Aspen Education Group and serves on the boards of CompHealth Group, Inc., Elder Health, Priority Air Express, ppoNEXT, and ZONARE Medical Systems, Inc., all of which are privately held companies. Mr. Naini holds a Masters in Business Administration from New York University and a Bachelor of Arts in molecular biology from the University of Pennsylvania.

      Pursuant to the terms of the purchase agreement, if Proposal 1 is approved, we are required to use the proceeds from the transactions contemplated by the purchase agreement primarily to pursue the registration and approval of Riquent®, our clinical drug candidate for the treatment of lupus renal disease, by the FDA.

INTERESTS OF CERTAIN PERSONS

      Alejandro Gonzalez Cimadevilla currently beneficially owns approximately 9.7% of our outstanding common stock. If our stockholders approve Proposal 1 and the related transactions are completed, Mr. Cimadevilla will purchase an additional 14,666,666 shares of our common stock and receive closing warrants (or if the authorized share increase is not approved at the special meeting pursuant to Proposal 2, the first closing warrants and the second closing warrants) to purchase an additional 3,666,666 shares of our common stock. As a result, we expect that Mr. Cimadevilla would beneficially own approximately 13.8% of our outstanding common stock following the closing under the purchase agreement and exercise of the closing warrants in full.

      In connection with the execution of the purchase agreement, we entered into retention agreements with a number of key employees, including with our executive officers. Pursuant to the terms of the retention agreements, subject to the closing under the purchase agreement, each of the key employees is entitled to receive an incentive bonus equal to 50% of his or her annual salary in the form of cash, shares of restricted stock or a combination of both. In addition, if a key employee elects to receive shares of restricted stock, he or she will also, subject to certain limitations, be entitled to receive an additional “gross-up” payment based on the taxes payable with respect to his or her receipt of such shares of restricted stock. If the closing does not occur, the key employees will not be entitled to any payments or other benefits under the retention agreements. The execution of the retention agreements was not a specific condition to the execution of the purchase agreement, but the Investors had an active and important role in establishing the terms of the retention agreements. See “— Terms of the Retention Agreements.”

REASON FOR REQUEST FOR STOCKHOLDER APPROVAL

      As of the date of this proxy statement, our common stock is listed on the Nasdaq National Market. Nasdaq Rule 4350(i)(1)(D)(ii) requires stockholder approval prior to the issuance of securities under certain circumstances, including in connection with a transaction, other than a public offering, that involves the sale or issuance of common stock, or securities convertible into or exercisable for common stock, equal to 20% or more of our common stock or 20% or more of the voting power outstanding before the issuance at a price (or in the case of convertible securities, a conversion price) less than the greater of the book or market value of our common stock. Because we are proposing to sell shares and warrants convertible into shares representing more than 20% of our outstanding common stock and the purchase price of the shares is less than the market value of our common stock as of the date we entered into the purchase agreement, we are seeking stockholder approval.

      Additionally, Nasdaq Rule 4350(i)(1)(B) requires stockholder approval of our issuance of securities that would result in a change of control. Because the Investors, in the aggregate, will be purchasing securities (including shares of our common stock issuable upon exercise of the closing warrants, or the first closing warrants and the second closing warrants, if applicable) representing approximately 59.7% of the voting power outstanding after completion of the transaction (and the exercise of such warrants in full) and, when aggregated with securities currently held by the Investors, the Investors will control approximately 63.6% of the voting power outstanding after the completion of the transaction (and the exercise of such warrants in full), Nasdaq may determine that our sale of stock and closing warrants results in a change of control. Thus, we are also seeking stockholder approval of the issuance of the common stock and warrants pursuant to the purchase agreement in order to ensure compliance with Nasdaq’s change of control rule.

SUMMARY OF TERMS OF AGREEMENTS

      Set forth below are summaries of the provisions of the following agreements: the Securities Purchase Agreement, dated as of October 6, 2005, among us and the several Investors, the Closing Warrants to

purchase shares of our common stock (including the first closing warrants and the second closing warrants), which we would issue at the closing, the Contingent Warrants to purchase shares of our common stock, a portion of which we issued on October 6, 2005 and the remainder of which we will issue upon the occurrence of a contingent warrant trigger, if any, the Registration Rights Agreement, dated as of October 6, 2005, among us and the several Investors and the Retention Agreements, between us and each of our key employees. Each summary below is qualified in its entirety by reference to, and should be read in conjunction with, the agreements. We have attached a copy of the purchase agreement, the forms of the closing warrants, the second closing warrants and the contingent warrants and copies of the registration rights agreement and the retention agreements to this proxy statement as Annexes A, B, C, D, E and F, respectively, which are incorporated herein by reference. WE URGE ALL STOCKHOLDERS TO READ ALL OF THESE DOCUMENTS CAREFULLY AND IN THEIR ENTIRETY.

TERMS OF THE SECURITIES PURCHASE AGREEMENT

      General. At the closing, under the purchase agreement:

      Representations and Warranties. In the purchase agreement, we make customary representations and warranties to the Investors relating to, among other matters: our organization; the authorization, binding effect and enforceability of the agreements; our capitalization; our compliance with laws; no conflict with our governing documents, material agreements and applicable law; governmental consents; the validity of the common stock sold and warrants to be issued; the exemption of this transaction from registration under applicable securities laws; the accuracy and timeliness of our publicly filed reports; litigation matters; tax matters; property and intellectual property matters; our material contracts; our compliance with Nasdaq continued listing requirements; and transactions with affiliates.

      In the purchase agreement, each Investor makes customary representations and warranties to us that generally relate to its organization; the authorization, binding effect and enforceability of the agreements; and its status as an accredited investor under applicable securities laws.

      Covenants. In the purchase agreement, we and the Investors have agreed to take a number of actions, including the following:

      Conditions to Closing. The obligation of each Investor to purchase the shares of our common stock and the closing warrants (or, if applicable, the first closing warrants and the second closing warrants) at the closing under the purchase agreement is subject to the fulfillment, on or before the closing date, of the following conditions:

      Our obligation to sell shares of our common stock to an Investor under the purchase agreement is subject to the fulfillment, on or before the closing date, of the following conditions:

      Transfer of Securities. The shares of our common stock purchased pursuant to the purchase agreement and issuable upon conversion of the warrants, and the warrants themselves, are restricted securities that may not be transferred except in compliance with federal and state securities laws.

      Fees and Expenses. Each party to the purchase agreement will pay its own expenses in connection with the transaction contemplated by the purchase agreement, regardless of whether such transactions are consummated. However, we have agreed to pay, upon the earlier of the closing or the occurrence of a contingent warrant trigger, up to $400,000 of the fees and disbursements of Essex Woodlands, Frazier and their counsel in connection with the due diligence, negotiation, drafting of and closing of the transactions contemplated by the purchase agreement and the related agreements. In addition, we have agreed to pay, after the closing, the reasonable fees and disbursements of a single counsel to the Investors in connection with any subsequent amendment, waiver or consent under the purchase agreement and any Investor’s counsel in connection with the successful enforcement of the purchase agreement or any related agreement.

      Termination of the Purchase Agreement. The purchase agreement may be terminated (i) with our written consent and the written consent of the holders of at least a majority of the shares then held by all Investors (or, if prior to closing, by the Investors who have agreed to purchase a majority of the shares to be

purchased at the closing) or (ii) by the Investors if our representations and warranties under the purchase agreement are not true, correct and complete in all material respects or we have not complied with or satisfied in all material respects all of our agreements and conditions under the purchase agreement, and we fail to cure any such failure within 10 days after we receive notice of such failure.

TERMS OF THE CLOSING WARRANTS

      General. Pursuant to the purchase agreement, we agreed to issue to the Investors on the closing date closing warrants to purchase an aggregate of up to 22,000,000 shares of our common stock at an exercise price of $1.00 per share. The closing warrants are exercisable in whole or in part at any time after the closing date until the earlier of (i) the fifth anniversary of the common stock authorization date and (ii) the date of consummation of any of certain extraordinary transactions, including certain mergers, exchanges with respect to our common stock and the sale or transfer of all or substantially all of our assets. The closing warrants contain customary representations by us regarding the shares of our common stock that are to be issued upon the exercise of the closing warrants.

      Exercise of Closing Warrants. In order to receive shares of our common stock, the holder of a closing warrant must deliver to us (i) an exercise notice, (ii) payment in an amount equal to the exercise price multiplied by the number of shares as to which the closing warrant is being exercised or notification that the closing warrant is being exercised pursuant to a cashless exercise (as described below) and (iii) the closing warrant. If a closing warrant is partially exercised, we will issue a new closing warrant to the holder representing the balance of the shares available under the closing warrant. No fractional shares will be issued. If, upon exercise of a closing warrant, a fraction of a share results, we will pay the holder an amount in cash equal to the same fraction of the then current market value of a share of our common stock.

      Each closing warrant also contains a cashless exercise provision that permits the holder, at its election, to exercise all or a portion of its closing warrant without paying the exercise price therefor and obtain a “net number” of shares of our common stock, provided that the fair market value per share of our common stock is greater than the exercise price then in effect under the closing warrant.

      Issuance of Shares. Upon the delivery of the exercise notice, the aggregate exercise price (or notice of cashless exercise) and the closing warrant, the holder of the closing warrant is deemed for all corporate purposes to have become the holder of record of the shares with respect to which the closing warrant is being exercised. If we fail to deliver the shares to the holder within five business days (the “share delivery date”) of our receipt of the exercise notice, the aggregate exercise price (or notice of cashless exercise) and the closing warrant (except in the case of a dispute being resolved in accordance with the procedures under the closing warrant), we will be obligated to pay in cash to such holder for each day after the share delivery date an amount equal to 0.5% per month multiplied by the product of (i) the number of shares not delivered to such holder and to which such holder is entitled and (ii) the closing price per share of our common stock on the share delivery date.

      Adjustment Provisions. The exercise price of each closing warrant is subject to adjustment from time to time upon the occurrence of certain events (provided that no adjustment is required unless and until any such adjustment would require an increase or decrease of at least 1% in the exercise price), as follows:

      Each closing warrant will, upon each adjustment of the exercise price as described above, evidence the right to purchase the number of shares of our common stock obtained by (i) multiplying the number of shares purchasable immediately prior to such adjustment upon exercise of the closing warrant by (ii) the exercise price in effect immediately prior to such adjustment, and dividing such product by (iii) the exercise price in effect immediately after such adjustment.

      No Rights as Stockholder. The closing warrant does not, by itself, entitle the holder to any voting rights or other rights that our stockholders have.

      Transfer. A closing warrant and all rights thereunder are assignable and transferable by the holder without our consent upon surrender at our principal offices of the closing warrant with a properly executed assignment if (i) we are furnished with a copy of the written assignment agreement, (ii) we are furnished with written notice of the name and address of the assignee or transferee and the securities being assigned or transferred and (iii) such assignment or transfer was conducted in accordance with all applicable federal and state securities laws.

      The First Closing Warrants. The first closing warrants have the same terms as the closing warrants, except that the first closing warrants represent rights to purchase the remaining number of authorized shares under our certificate of incorporation following the closing (expected to be approximately 1,000,000).

      The Second Closing Warrants. The second closing warrants have the same terms as the closing warrants and the first closing warrants, except that the second closing warrants represent rights to purchase the number of shares equal to 22,000,000 less the number of shares covered by the first closing warrants, and that they first become exercisable in whole or in part after the common stock authorization date.

TERMS OF THE CONTINGENT WARRANTS

      General. Upon the execution of the purchase agreement, we issued to certain of the Investors, and we agreed to issue to each of the other Investors upon a contingent warrant trigger, contingent warrants to purchase an aggregate of up to 3,707,634 shares of our common stock, which equaled approximately 5% of the number of shares of our common stock outstanding as of October 6, 2005. The exercise price of the contingent warrants is $0.10 per share. Each of the following events constitutes a contingent warrant trigger, and the contingent warrants become exercisable upon the earliest to occur of the dates set forth below:

      In the event the warrants become exercisable, they will remain exercisable until the earlier of (i) December 31, 2008, (ii) the date of closing under the purchase agreement and (iii) the time immediately following the consummation of any of certain extraordinary transactions, including certain mergers, exchanges with respect to our common stock and the sale or transfer of all or substantially all of our assets. The contingent warrants contain customary representations by us regarding the shares of our common stock that are to be issued upon the exercise of the contingent warrants. The contingent warrants will cease to be exercisable if the closing under the purchase agreement occurs, regardless of when the closing occurs.

      Exercise of Contingent Warrants. If a contingent warrant becomes exercisable, in order to receive shares of our common stock, the holder of a contingent warrant must deliver to us (i) an exercise notice, (ii) payment in an amount equal to the exercise price multiplied by the number of shares as to which the contingent warrant is being exercised or notification that the contingent warrant is being exercised pursuant to

a cashless exercise (as described below) and (iii) the contingent warrant. If a contingent warrant is partially exercised, we will issue a new contingent warrant to the holder representing the balance of the shares available under the contingent warrant. No fractional shares will be issued. If, upon exercise of a contingent warrant, a fraction of a share results, we will pay the holder an amount in cash equal to the same fraction of the then current market value of a share of our common stock.

      Each contingent warrant also contains a cashless exercise provision that permits the holder, at its election, to exercise all or a portion of its contingent warrant without paying the exercise price therefor and obtain a “net number” of shares of our common stock, provided that the fair market value per share of our common stock is greater than the exercise price then in effect under the contingent warrant.

      Issuance of Shares. Upon the delivery of the exercise notice, the aggregate exercise price (or notice of cashless exercise) and the contingent warrant, the holder of the contingent warrant is deemed for all corporate purposes to have become the holder of record of the shares with respect to which the contingent warrant is being exercised. If we fail to deliver the shares to the holder within five business days of our receipt of the exercise notice, the aggregate exercise price (or notice of cashless exercise) and the contingent warrant (except in the case of a dispute being resolved in accordance with the procedures under the contingent warrant), we will be obligated to pay in cash to such holder for each day after such share delivery date an amount equal to 0.5% per month multiplied by the product of (i) the number of shares not delivered to such holder and to which such holder is entitled and (ii) the closing price per share of our common stock on such share delivery date.

      Adjustment Provisions. The exercise price of each contingent warrant is subject to adjustment from time to time upon the occurrence of certain events (provided that no adjustment is required unless and until any such adjustment would require an increase or decrease of at least 1% in the exercise price), as follows:

      Each contingent warrant will, upon each adjustment of the exercise price as described above, evidence the right to purchase the number of shares of our common stock obtained by (i) multiplying the number of shares purchasable immediately prior to such adjustment upon exercise of the contingent warrant by (ii) the exercise price in effect immediately prior to such adjustment, and dividing such product by (iii) the exercise price in effect immediately after such adjustment.

      No Rights as Stockholder. The contingent warrant does not, by itself, entitle the holder to any voting rights or other rights that our stockholders have.

      Transfer. A contingent warrant and all rights thereunder are assignable and transferable by the holder without our consent upon surrender at our principal offices of the contingent warrant with a properly executed assignment if (i) we are furnished with a copy of the written assignment agreement, (ii) we are furnished with written notice of the name and address of the assignee or transferee and the securities being assigned or transferred and (iii) such assignment or transfer was conducted in accordance with all applicable federal and state securities laws.

TERMS OF THE REGISTRATION RIGHTS AGREEMENT

      Registrable Securities. The securities covered by the registration rights agreement (referred to in this proxy statement as the “registrable securities”) are:

      Mandatory Registration. The registration rights agreement provides that we will prepare and, within 45 days after the earlier of the closing date and the date of any contingent warrant trigger, file a registration statement on Form S-3 with the SEC for the purpose of registering under the Securities Act all of the registrable securities (excluding the shares issuable upon exercise of the second closing warrants, if the authorized share increase is not approved at the special meeting pursuant to Proposal 2) for resale by the holders of the registrable securities. We have also agreed to use our best efforts to cause such registration statement to be declared effective as soon as practicable after we file it with the SEC, but in no event later than 135 days after the closing date under the purchase agreement. The registration rights agreement further provides that if the authorized share increase is not approved at the special meeting pursuant to Proposal 2, we will prepare and file another registration statement with the SEC to register the shares issuable upon exercise of the second closing warrants before the later of the filing deadline and 15 days after the authorized share increase is approved, and to cause such registration statement to become effective within 90 days after the authorized share increase is approved.

      Demand Registration. If for any reason prior to the earlier of the date on which all of the registrable securities are sold and the date after which all of the registrable securities may be sold without restriction in compliance with Rule 144(k) under the Securities Act (the period on and after the closing date and up to such earlier date is referred to in this proxy statement as the “registration period”), or a registration statement filed pursuant to a mandatory registration described above ceases to be effective or fails to cover all of the registrable securities required to be covered, any Investor may subsequently demand that we register such securities. We have agreed to file any registration statement required under a demand registration, and to cause such registration statement to become effective, within 45 days and 135 days, respectively, after the date that we receive notice of the demand registration.

      Piggy-Back Registration. Piggy-back registration means the right of the holders to include their shares in a registration statement we file for our own account or upon the request of other stockholders. We have granted the holders unlimited piggy-back registration rights, subject to a number of conditions, including:

      Ineligibility for Form S-3. In the event that Form S-3 is not available for any registration of registrable securities, we are required to (i) register the sale of the registrable securities on another appropriate form reasonably acceptable to the holders of a majority of the registrable securities and (ii) undertake to register the registrable securities on Form S-3 as soon as such form is available, provided that we must maintain the effectiveness of the registration statement then in effect until a registration statement on Form S-3 has been declared effective.

      Registration Delay Payments. Upon a registration delay (as further described below), we are required to pay to each holder of registrable securities, with respect to each share of registrable securities required to be registered under our mandatory registration obligations, from the first day of such registration delay through the date such delay is cured, an accruing amount per week ranging from $0.00375 to $0.015 per share. The occurrence of any of the following events constitutes a registration delay:

      Our Other Related Obligations. At such time as we are obligated to file a registration statement pursuant to a mandatory registration, we must use our best efforts to effect the registration of the registrable securities and pursuant to such registration, we are required to, among other matters:

      Expenses. In general, we will bear all the expenses of the registration except for underwriting discounts and commissions. We will also reimburse the holders for the reasonable and documented fees and disbursements of one designated legal counsel in connection with such registration. In addition, we will pay all of the holders’ reasonable costs incurred in connection with the successful enforcement of their rights under the registration rights agreement. Each seller of registrable securities will pay all fees and disbursements of counsel other than the holders’ designated legal counsel and all selling expenses, including all underwriting discounts, selling commissions, transfer taxes, etc.

      Indemnification. We have agreed to indemnify the holders against any losses, including fees and expenses, that may arise out of (i) any untrue statement or an omission of a material fact in any registration statement required under the agreement (other than untrue statements that were provided in writing to us by the holders or omissions of material facts from statements provided in writing to us by the holders for inclusion in such registration statement, among other things), (ii) any violation of the securities laws by us or (iii) any violation of the terms of the registration rights agreement by us. Each holder, severally and not jointly, has agreed to indemnify us against, among other matters, any losses that may arise out of an untrue statement that was provided in writing by the holder or omissions of material facts from statements provided in writing by the holder for inclusion in a registration statement required under the agreement. The amounts owed by the holders under this indemnification obligation are limited to the net proceeds that the holders received from the sale of securities under such registration statement.

      Assignment of Registration Rights. The rights contained in the registration rights agreement are automatically assignable by the holders to any transferee of all or any portion of the registrable securities if:

TERMS OF THE RETENTION AGREEMENTS

      In connection with the execution of the purchase agreement, we entered into retention agreements with a number of key employees, including with our executive officers. Pursuant to the terms of the retention agreements, subject to the closing under the purchase agreement, each of the key employees is entitled to receive an incentive bonus equal to 50% of his or her annual salary in the form of cash, shares of restricted stock or a combination of both. If the closing does not occur, the key employees will not be entitled to any payments or other benefits under the retention agreements. The execution of the retention agreements was not a specific condition to the execution of the purchase agreement, but the Investors had an active and important role in establishing the terms of the retention agreements.

      Pursuant to the retention agreements, if a key employee makes the “all cash” election, a portion of the incentive payment will be paid shortly after the closing, and, subject to the employee remaining employed by us, the balance of the incentive payment will be made six months following the closing. If the key employee makes the “all stock” election under his or her retention agreement, shares of restricted stock will be granted shortly after the closing under the purchase agreement. If the key employee makes the “combination cash and restricted stock” election under his or her retention agreement, a portion of the incentive payment will be paid in cash and the remainder will be paid in shares of restricted stock shortly following the closing under the purchase agreement. Our repurchase right with respect to all shares of restricted stock granted under the retention agreements will lapse on the one year anniversary of the closing.

      In the event that a key employee elects to receive shares of restricted stock, he or she will also, subject to certain limitations, be entitled to receive an additional “gross-up” payment based on the taxes payable with respect of such shares of the restricted stock. If all of the key employees make the all cash election under all of the retention agreements, we would be required to make cash payments from an aggregate (for both the first and second payments) of $1,013,770. If all of the key employees make the all stock election under all of the retention agreements, we would be required to issue up to an aggregate of approximately 1,351,693 shares of restricted stock. The grants of the shares of restricted stock are expected to be made under the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (referred to in this proxy statement as the “2004 Plan”), subject to (i) the completion of the transactions under the purchase agreement, (ii) there being a sufficient number of shares for issuance under our certificate of incorporation and (iii) the approval of the proposed amendments to the 2004 Plan pursuant to Proposal 3. If Proposal 2 and/or Proposal 3 is not approved, to the extent that there will be an insufficient number of shares available for issuance under our certificate of incorporation or the 2004 Plan, each of the key employees will be deemed to have made the all-cash election and 100% of the retention payments to be made under the retention agreements will be made in cash. These retention agreements replace the amended retention agreements that we originally entered into with the key employees on April 19, 2005.

NO APPRAISAL RIGHTS

      Under Delaware law, stockholders are not entitled to appraisal rights with respect to the proposed issuance and sale to the Investors of our common stock and warrants to purchase our common stock.

RECOMMENDATION OF THE BOARD OF DIRECTORS

      Our board of directors has determined that the issuance and sale of the common stock and the closing warrants and the completion of the other transactions as contemplated more fully in the purchase agreement and the registration rights agreement are advisable and in the best interests of our stockholders, and recommends that all stockholders vote “FOR” the approval of Proposal 1 at the special meeting.

      If our stockholders do not approve Proposal 1, we will not be able to close the transactions contemplated by the purchase agreement, the contingent warrants will become exercisable and our ability to continue as a going concern will be in serious jeopardy because we may not have sufficient financial resources to continue our operations.

VOTE REQUIRED

      The affirmative vote of the holders of a majority of the votes cast on Proposal 1 at the special meeting is required to approve the sale of the common stock and issuance of the warrants. Executed proxies with no instructions indicated thereon with respect to Proposal 1 will be voted for Proposal 1. If Proposal 1 is not approved, the issuance and sale of shares of our common stock and the closing warrants will not be consummated.

      OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1.

PROPOSAL 2

APPROVAL TO INCREASE THE NUMBER OF

AUTHORIZED SHARES OF OUR COMMON STOCK

GENERAL

      We are seeking approval to amend our certificate of incorporation to increase the number of authorized shares of our common stock by 50,000,000. Our certificate of incorporation currently provides that we are authorized to issue two classes of stock, consisting of 175,000,000 shares of common stock and 8,000,000 shares of preferred stock. Our board of directors is authorized to establish and designate the rights, terms, and preferences of any series of preferred stock. Our board of directors has approved and adopted an amendment to the certificate of incorporation, subject to stockholder approval, to increase the authorized number of shares of common stock to 225,000,000 shares. The proposed amendment to our certificate of incorporation does not change the authorized number of shares of our preferred stock. The text of the proposed amendment to our certificate of incorporation is attached to this proxy statement as Annex G and is incorporated herein by reference. Our board of directors recommends that stockholders approve the proposed amendment to our certificate of incorporation.

PURPOSE AND EFFECT OF AMENDMENT

      As of October 14, 2005:

      Accordingly, as of October 14, 2005, there were an aggregate of 89,692,110 shares outstanding or reserved for issuance. Pursuant to Proposal 1, we are seeking approval to issue and sell to the Investors 88,000,000 shares of our common stock and issue to the Investors closing warrants to purchase an additional 22,000,000 shares of our common stock, as described in Proposal 1. Pursuant to Proposal 3, we are seeking approval to amend our 2004 Equity Incentive Plan to increase the number of shares of common stock available for issuance under the plan by 16,000,000, among other matters, as further described in Proposal 3. If both of these proposals are approved and assuming the closing occurs (upon which we will no longer need to reserve any shares for the exercise of outstanding contingent warrants because they would have ceased to be exercisable), we will not have a sufficient number of authorized shares of common stock available to

accommodate (i) the issuance of 22,000,000 shares of our common stock upon the exercise of the closing warrants and (ii) the proposed increase of the additional 16,000,000 shares of our common stock issuable under our 2004 Equity Incentive Plan. As such, of the 50,000,000 authorized shares by which our common stock is proposed to be increased under this Proposal 2, 38,000,000 will enable us to implement the transactions to be approved under Proposal 1 and Proposal 3. The balance of 12,000,000 shares in the proposed increase in authorized shares is intended to provide us with an additional number of shares for use in the event the board of directors determines that it is necessary or appropriate to raise additional capital through the sale of securities, to establish strategic relationships with corporate partners, to provide equity incentives to employees, officers or directors, or to pursue other matters.

      As of the date of this proxy statement, other than the sale and issuance of shares and warrants pursuant to the purchase agreement, upon the exercise of outstanding options, the issuance of shares or restricted stock pursuant to the retention agreements with our key employees, and other issuances under our current equity incentive and stock purchase plans, our board of directors has no agreement, arrangement or intention to issue any of the shares for which approval is sought. If the proposed amendment to the certificate of incorporation is approved by the stockholders, our board of directors does not intend to solicit further stockholder approval prior to the issuance of any additional shares of common stock, except as may be required by applicable law, rules of the Nasdaq Stock Market, Inc. or other applicable stock exchange requirements.

POTENTIAL EFFECT OF THE PROPOSED AMENDMENT ON THE HOLDERS OF COMMON STOCK

      Although the increase in the authorized number of shares of common stock will not, in and of itself, have any immediate effect on the rights of our stockholders, any future issuance of additional shares of common stock, including pursuant to the purchase agreement, could affect our stockholders in a number of respects, including by diluting the voting power of the current holders of our common stock at such time and diluting the earnings per share and book value per share of outstanding shares of our common stock at such time. See “Proposal 1 — Impact on Existing Stockholders.”

      In addition, the proposed amendment could, under certain circumstances, have an anti-takeover effect, although this is not the intention of this proposal. In December 1998, we distributed rights to the holders of our outstanding shares of common stock pursuant to an arrangement designed to protect stockholders from proposed takeovers which the board of directors believes are not in the best interests of the stockholders, by providing stockholders with certain rights to acquire our capital stock upon the occurrence of certain events. Although the rights provide for the issuance of our Series A Junior Participating Preferred Stock in the event rights become exercisable, we may, under certain circumstances, be required to issue a substantial number of shares of common stock with respect to the rights. An increase in the number of authorized shares of common stock could, therefore, make a change in control more difficult by facilitating the issuance of additional shares of common stock pursuant to the rights. We may also issue shares of preferred stock without further stockholder approval and upon terms that our board of directors may determine in the future. The issuance of preferred stock that is convertible into a significant number of shares of common stock could have the effect of making it more difficult for a third party to acquire a majority of our outstanding stock.

      Accordingly, the proposed amendment may have the effect of permitting our current management, including our current board of directors, to retain its position, and place it in a better position to resist changes that stockholders may wish to make if they are dissatisfied with the conduct of our business. However, other than pursuant to the issuance of the shares of our common stock and the closing warrants to the Investors pursuant to the purchase agreement, our board of directors is not aware of any attempt to take control of us, and the board of directors has not presented this proposal with the intent that it be utilized as a type of anti-takeover device.

IMPLEMENTING THE PROPOSED AMENDMENT

      If approved by the stockholders at the special meeting, the proposed amendment to our certificate of incorporation will become effective upon the filing of a certificate of amendment with the Secretary of State of

the State of Delaware. Although our board of directors intends to file the certificate of amendment as soon as practicable after the special meeting, if, in the judgment of our board of directors, any circumstances exist that would make consummation of the proposed amendment inadvisable, then, in accordance with Delaware law, and notwithstanding approval of the proposed amendment to the certificate of incorporation by the stockholders, our board of directors may abandon the proposed amendment, either before or after approval and authorization thereof by the stockholders, at any time prior to the effectiveness of the filing of the certificate of amendment.

VOTE REQUIRED

      The affirmative vote of the holders of a majority of the voting power of all outstanding shares of our capital stock entitled to vote at the special meeting is required to approve the amendment to the certificate of incorporation to increase our authorized shares of common stock. Executed proxies with no instructions indicated thereon with respect to Proposal 2 will be voted for Proposal 2. If Proposal 2 is not approved, the increase in the number of authorized shares of our common stock will not be implemented.

      If Proposal 1 is approved and Proposal 2 is not approved, we are obligated under the purchase agreement to hold another stockholders’ meeting after the closing to seek approval of Proposal 2. We have been advised by the Investors that they currently intend to vote the shares they will acquire at the closing for the approval of Proposal 2 at such subsequent stockholders’ meeting. Based on the total number of shares currently outstanding, the aggregate number of shares the Investors currently hold and the aggregate number of shares the Investors would acquire at the closing, the Investors are expected to have a sufficient number of shares following the closing to approve Proposal 2 by their votes alone.

      OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2.

PROPOSAL 3

AMENDMENT OF THE LA JOLLA PHARMACEUTICAL COMPANY 2004 EQUITY

INCENTIVE PLAN

GENERAL

      We are seeking approval with respect to the 2004 Plan to (i) increase the number of shares of our common stock that may be issued pursuant to awards granted under the 2004 Plan by 16,000,000 to 20,800,000 shares, (ii) increase the aggregate number of shares of our common stock that may be issued to any eligible person in any calendar year under the 2004 Plan by 6,000,000 to 7,000,000 shares and (iii) eliminate the requirement of certain minimum restriction periods with respect to restricted stock granted under the 2004 Plan. Each of these proposed amendments to the 2004 Plan is described in greater detail below.

PROPOSED AMENDMENTS TO THE 2004 PLAN

      Increase in Shares Issuable. The current number of shares of our common stock that may be issued pursuant to awards under the 2004 Plan is 4,800,000. As of October 14, 2005, options covering a total of 4,314,149 shares are outstanding under the 2004 Plan and 336 shares have been previously issued upon the exercise of options under the 2004 Plan. Accordingly, 485,515 shares remain available for new grants. We rely heavily on the 2004 Plan to recruit, retain and reward qualified employees and directors. If the transactions contemplated by the purchase agreement are approved and consummated in accordance with the terms described in Proposal 1, we will need the proposed increase in the number of shares issuable pursuant to awards under the 2004 Plan in order to provide meaningful equity incentives to recruit, retain and reward qualified employees and directors. In addition, under the purchase agreement, we have agreed to seek stockholder approval to effect the proposed amendment of the 2004 Plan. Our board of directors has unanimously approved, subject to approval by our stockholders, an amendment of the 2004 Plan to increase

the number of shares of our common stock issuable pursuant to awards under the 2004 Plan from 4,800,000 to 20,800,000 shares.

      Increase in Shares Issuable to Any Eligible Person in Any Calendar Year. Under Section 162(m) of the Internal Revenue Code if 1986, as amended (the “Internal Revenue Code”), the allowable deduction for compensation paid to each of the five most highly paid executive officers of public companies is limited to $1 million per year. Performance-based compensation is exempted from the limitation on deductibility so long as certain requirements are met. To meet these requirements, the 2004 Plan established a limitation that awards with respect to no more than 1,000,000 shares may be granted in the aggregate to any eligible person under the 2004 Plan in any calendar year. If the transactions contemplated by the purchase agreement are approved and consummated in accordance with the terms described in Proposal 1, the compensation committee of our board of directors may, in its discretion, determine that it is necessary to make significant grants under the 2004 Plan to provide meaningful equity incentives to recruit, retain and reward qualified employees and directors. Accordingly, in order to provide the compensation committee with the flexibility it may need, our board of directors has recommended this amendment. In addition, under the purchase agreement, we have agreed to seek stockholder approval to effect the proposed amendment of the 2004 Plan. Our board of directors has unanimously approved, subject to approval by our stockholders, an amendment to the 2004 Plan to increase the limitation on the aggregate number of shares of our common stock issuable to any eligible person under the 2004 Plan per calendar year from 1,000,000 to 7,000,000 shares.

      Amendment Relating to the Restriction Period with Respect to Restricted Stock. The 2004 Plan currently provides that our board of directors (or a committee of our board that has been delegated the authority to administer the 2004 Plan) will determine the restrictions upon any restricted stock issued under the 2004 Plan and when such restrictions will lapse. However, the 2004 Plan currently provides that these restriction periods must run for at least one year, with respect to performance-based grants, and three years, with respect to non-performance-based grants (referred to in this proxy statement as the “minimum restriction periods”). The 2004 Plan also provides that, upon termination of service of any recipient of restricted stock, we have a right to repurchase all of such recipient’s restricted stock with respect to which the applicable restriction periods have not lapsed as of the date of such termination of service. Under the retention agreements we entered into with our key employees in connection with the purchase agreement, the key employees have the option to receive their retention bonuses payable under such agreements in cash, shares of restricted stock or a combination of both cash and restricted stock. These retention agreements provide that our repurchase right with respect to the restricted stock issuable to these key employees will lapse on the one-year anniversary of the closing under the purchase agreement. Because the restricted stock to be granted under the retention agreements cannot be characterized as performance-based grants, the terms in the retention agreements relating to the lapse of our repurchase right are not currently permissible under the minimum restriction periods currently in place in the 2004 Plan. As such, we are seeking stockholder approval to eliminate the minimum restriction periods from the 2004 Plan and, instead, to allow the administrator of the 2004 Plan to determine the restriction periods in its sole discretion. If Proposal 3 is not approved, each of the key employees will be deemed to have made the all-cash election and 100% of the retention bonuses under the retention agreements will be made in cash. Our board of directors has unanimously approved, subject to approval by our stockholders, an amendment to the 2004 Plan to eliminate the minimum restriction periods.

      The following is a summary of the principal features of the 2004 Plan. The summary below is qualified in its entirety by the terms of the 2004 Plan, a copy of which (as proposed to be amended) is attached hereto as Annex H and is incorporated by reference herein.

SUMMARY OF THE 2004 PLAN

      Purpose. The purpose of the 2004 Plan is to advance our and our stockholders’ interests by providing eligible persons with financial incentives to promote the success of our business objectives, by increasing eligible persons’ proprietary interest in us and by giving us a means to attract and retain employees and directors of appropriate experience and stature.

      Administration, Amendment and Termination. The 2004 Plan is administered by the compensation committee of our board of directors. The compensation committee has the authority: to interpret the 2004 Plan and any agreements defining the rights and obligations of recipients of awards granted under the 2004 Plan; to determine the terms and conditions of awards; to prescribe, amend and rescind the rules and regulations under the 2004 Plan; and to make all other determinations necessary or advisable for the administration of the 2004 Plan.

      The compensation committee, in its discretion, selects from the class of eligible persons those individuals to whom awards will be granted and determines the nature, dates, amounts, exercise prices, vesting periods and other relevant terms of such awards. The compensation committee may, with the consent of the recipient of an award, modify the terms and conditions of such award. However, outstanding options may not be repriced without stockholder approval. In addition, the compensation committee has no authority or discretion with respect to the recipients, timing, vesting, underlying shares or exercise price of Nonemployee Director’s Options (as defined below) because these matters are specifically governed by the provisions of the 2004 Plan. Awards may be granted under the 2004 Plan until the earlier of the tenth anniversary of the adoption of the 2004 Plan or its termination.

      Eligibility. Our directors, employees and consultants, and the directors, employees and consultants of any affiliated company, if any, are eligible to receive grants of stock options, restricted stock, stock appreciation rights, stock payments, performance awards of cash and/or stock and dividend equivalents under the 2004 Plan (“Incentive Awards”). As of October 14, 2005, 88 people were eligible for selection to receive awards under the 2004 Plan, consisting of 76 employees other than executive officers, eight executive officers (one of whom is also a director), and four nonemployee directors. In addition to being eligible to receive Incentive Awards, each of our non-employee directors is entitled to receive an automatic, one-time grant of an option upon becoming a director and an annual grant of an additional option upon each re-election as a director or upon continuing as a director after an annual meeting without being re-elected as a result of the classification of the board of directors (all of such options are referred to as “Nonemployee Director’s Options”).

      Securities Subject to the 2004 Plan. Currently, no more than 4,800,000 shares of our common stock may be issued and outstanding or subject to outstanding awards granted under the 2004 Plan. If Proposal 3 is approved, the number of shares of our common stock that may be issued and outstanding or subject to outstanding awards granted under the 2004 Plan will increase by 16,000,000 to 20,800,000 shares. Shares of common stock subject to unexercised portions of any award that expire, terminate or are canceled, and shares of common stock issued pursuant to an award that we reacquire pursuant to the terms of the award under which the shares were issued, will again become eligible for the grant of further awards under the 2004 Plan. The shares to be issued under the 2004 Plan are made available either from authorized but unissued shares of our common stock or from previously issued shares of our common stock that we reacquire, including shares purchased on the open market.

      Adjustments. The number and kind of shares of common stock or other securities available under the 2004 Plan in general, as well as the number and kind of shares of common stock or other securities subject to outstanding awards and the price per share of such awards, may be proportionately adjusted to reflect stock splits, stock dividends and other capital stock transactions. If we are the surviving corporation in any merger or consolidation, each outstanding and vested option will entitle the optionee to receive the same consideration received by holders of the same number of shares of our common stock in such merger or consolidation.

      Section 162(m) of the Internal Revenue Code Limitations. In general, Section 162(m) of Internal Revenue Code, imposes a $1 million limit on the amount of compensation that we may deduct in any tax year with respect to our Chief Executive Officer and each of our other four most highly compensated officers, including any compensation relating to an award granted under the 2004 Plan. The 2004 Plan is designed to allow us to grant awards that are not subject to the $1 million limit imposed by Section 162(m). Currently, no single employee may be granted any awards with respect to more than 1,000,000 shares of common stock or, in the case of a performance award, in excess of $1 million in any one calendar year; provided, however, that this limitation does not apply if it is not required in order for the compensation attributable to such awards to

qualify as performance-based compensation as described in Section 162(m) and the regulations issued thereunder. If Proposal 3 is approved, the aggregate number of shares of our common stock that may be issued to any eligible person under the 2004 Plan per calendar year will increase to 7,000,000 shares. Furthermore, if Section 162(m) would otherwise apply and if the amount of compensation a person would receive under an award is not based solely upon an increase in the value of the underlying shares of our common stock after the date of grant or award, the compensation committee is authorized to condition the grant, vesting or exercisability of such an award on the attainment of a pre-established objective performance goal. The 2004 Plan defines a pre-established objective performance goal to include one or more of the following performance criteria: cash flow; earnings per share (including earnings before interest, taxes and amortization); return on equity; total stockholder return; return on capital; return on assets or net assets; income or net income; operating margin; return on operating revenue; attainment of stated goals related to our research and development or clinical trial programs; attainment of stated goals related to our capitalization, costs, financial condition or results of operations; and any other similar performance criteria.

      Change in Control. Unless the compensation committee provides otherwise in a written agreement, in the event of a change in control (as defined in the 2004 Plan), the compensation committee will provide that all options (other than Nonemployee Director’s Options) either: vest in full immediately preceding the change in control and terminate upon the change in control; be assumed or continued in effect in connection with the change in control transaction; be cashed out for an amount equal to the consideration per share offered in connection with the change in control transaction less the exercise price; or be substituted for similar awards of the surviving corporation. The compensation committee will determine the effect that a change in control has on an award (other than an option) outstanding at the time such a change in control occurs. Immediately prior to a change in control, all outstanding Nonemployee Director’s Options will vest in full.

      Non-Assignability of Awards. Awards are generally not transferable by a recipient during the life of the recipient, except that (i) incentive stock options are transferable by will or the laws of descent and distribution and (ii) all other awards are transferable by will or the laws of descent and distribution, to immediate family members and upon dissolution of marriage. Awards are generally exercisable during the life of a recipient only by the recipient.

      Stockholder Rights. No recipient or permitted transferee of an award under the 2004 Plan has any rights as a stockholder with respect to any shares issuable or issued in connection with the award until we receive all amounts payable in connection with exercise of the award and performance by the recipient of all obligations under such award.

      Stock Options. Stock options granted under the 2004 Plan may be incentive stock options (“Incentive Stock Options”), which are intended to qualify under the provisions of Section 422 of the Internal Revenue Code, or nonqualified stock options (“Nonqualified Stock Options”), which do not so qualify.

      The exercise price for each option (other than Nonemployee Director’s Options) is determined by the compensation committee at the date of grant and may not be set below the fair market value of the underlying common stock on the date of grant, subject to permissible discounts of up to 15% from fair market value on the date of grant for Nonqualified Stock Options in lieu of salary or bonus. Notwithstanding the foregoing, in no event may the exercise price be less than the par value of the shares of common stock subject to the option, and the exercise price of an Incentive Stock Option may not be less than 100% of the fair market value on the date of grant. Fair market value is equal to the closing price of our common stock on the date of grant. On October 14, 2005, the fair market value of our common stock was $0.66 per share.

      The exercise price of any option may be paid in cash or by other consideration deemed by the compensation committee to be acceptable, including delivery of our capital stock (surrendered by or on behalf of the optionee) or surrender of other awards previously granted to the recipient exercising the option. Subject to applicable law, the compensation committee may allow exercise in a broker-assisted transaction in which the exercise price will not be received until after exercise if the exercise of the option is followed by an

immediate sale of all or a portion of the underlying shares and a portion of the sales proceeds is dedicated to full payment of the exercise price.

      Options (other than Nonemployee Director’s Options) granted under the 2004 Plan vest, become exercisable and terminate as determined by the compensation committee. All options granted under the 2004 Plan may be exercised at any time after they vest and before their expiration date or earlier termination; provided that no option may be exercised more than 10 years after the date of its grant; and provided further that the exercise period may be less than 10 years if required by the Internal Revenue Code. In the absence of a specific written agreement to the contrary, and in each case subject to earlier termination on the option’s original expiration date, options will generally terminate: immediately upon termination of the recipient’s employment with us for just cause; 12 months after death or permanent disability; 24 months after normal retirement; and, with respect to termination of employment for any reason other than just cause, disability or retirement, three months in the case of Incentive Stock Options and six months in the case of Nonqualified Stock Options. Notwithstanding the foregoing, however, the compensation committee may designate shorter or longer periods after termination of employment to exercise any option (other than a Nonemployee Director’s Option) if provided for in the instrument evidencing the grant of the options or if agreed upon in writing by the recipient. Options cease to vest upon termination of employment, but the compensation committee may accelerate the vesting of any or all options that had not become exercisable on or prior to the date of such termination. In the event that a nonemployee director ceases to be a director, an option granted to such director (other than a Nonemployee Director’s Option) is exercisable, to the extent exercisable at that date, for a period of five years after that date or longer if permitted by the compensation committee.

      Other Awards. In addition to options, the compensation committee may also grant performance awards, restricted stock, stock appreciation rights (“SARs”), stock payments and dividend equivalents. Performance awards entitle the recipient to a payment in cash or shares of our common stock upon the satisfaction of certain performance criteria. Shares of restricted stock may be granted by the compensation committee to recipients who may not transfer the restricted shares until the restrictions are removed or expire. These restrictions will be for a period of at least one year for performance-based grants and three years for non-performance-based grants, unless the amendment to eliminate such minimum restriction periods with respect to restricted stock pursuant to Proposal 3 is approved. SARs, either related or unrelated to options, entitle the recipient to payment (in the form of cash, stock or a combination thereof) of the difference between the fair market value of a share of common stock as of a specified date and the exercise price of the related option or initial base amount, multiplied by the number of shares as to which such SAR is exercised. The compensation committee may also approve stock payments of our common stock to any eligible person and may also grant dividend equivalents payable in cash, common stock or other awards to recipients of options, SARs or other awards denominated in shares of common stock. For all such awards, the compensation committee will generally determine the relevant criteria, terms and restrictions.

      Nonemployee Director’s Options. Under the 2004 Plan, each of our nonemployee directors automatically receives, upon becoming a nonemployee director, a one-time grant of a Nonqualified Stock Option to purchase up to 40,000 shares of our common stock at an exercise price equal to the fair market value of a share of the common stock on the date of grant. These Nonemployee Director’s Options have a term of 10 years and vest with respect to 25% of the underlying shares on the grant date and with respect to an additional 25% of the underlying shares on the date of each of the first three anniversaries of such grant, but only if the director has remained a nonemployee director for the entire period from the date of grant to such date.

      In addition, each nonemployee director, upon re-election to our board of directors or upon continuing as a director after an annual meeting without being re-elected due to the classification of the board of directors, automatically receives a grant of an additional Nonqualified Stock Option to purchase up to 10,000 shares of our common stock. These additional Nonemployee Director’s Options have a term of 10 years and vest and become exercisable upon the earlier to occur of the first anniversary of the grant date or immediately prior to the annual meeting of stockholders next following the grant date; provided that the director has remained a director for the entire period from the grant date to such earlier date. The exercise price for these additional Nonemployee Director’s Options is the fair market value of our common stock on the date of their grant.

Finally, all outstanding Nonemployee Director’s Options vest in full immediately prior to any change in control.

FEDERAL INCOME TAX CONSEQUENCES

      The following summary of certain federal income tax consequences of the receipt and exercise of awards granted by us is based upon the laws and regulations in effect as of the date of this proxy statement and does not purport to be a complete statement of the law in this area. Furthermore, the discussion below does not address the tax consequences of the receipt and exercise of awards under foreign, state and local tax laws, and such tax laws may not correspond to the federal income tax treatment described herein. The exact federal income tax treatment of transactions under the 2004 Plan will vary depending upon the specific facts and circumstances involved and participants are advised to consult their personal tax advisors with regard to all consequences arising from the grant or exercise of awards and the disposition of any acquired shares.

      Incentive Stock Options. Except as discussed below, a recipient of an Incentive Stock Option generally will not owe tax on the grant or the exercise of the option if the recipient exercises the option while the recipient is our employee (or an employee of any parent or subsidiary corporation) or within three months following termination of the recipient’s employment (or within one year, if termination was due to a permanent and total disability).

      If the recipient of the Incentive Stock Option sells the shares acquired upon the exercise of the option at any time within one year after the date we issue such shares to the recipient or within two years after the date we grant the Incentive Stock Option to the recipient, then:

      If the recipient sells shares acquired upon exercise of an Incentive Stock Option at any time after the recipient has held the shares for at least one year after the date we issue such shares to the recipient pursuant to the recipient’s exercise of the Incentive Stock Option and at least two years after the date we grant the recipient the Incentive Stock Option, then the recipient will recognize capital gain or loss equal to the difference between the sales price and the purchase price paid for the shares upon exercise of the Incentive Stock Option.

      The amount by which the fair market value of shares the recipient acquires upon exercise of an Incentive Stock Option (determined as of the date of exercise) exceeds the purchase price paid for the shares upon exercise of the Incentive Stock Option will be included as a positive adjustment in the calculation of the recipient’s “alternative minimum taxable income” in the year of exercise.

      In the case of an early disposition of shares by a recipient that results in the recognition of ordinary income, we will be entitled to a deduction equal to the amount of such ordinary income. If the recipient holds the shares for the requisite period described above, and therefore solely recognizes capital gain upon the sale of such shares, we will not be entitled to any deduction.

      Nonqualified Stock Options. The grant of a Nonqualified Stock Option to a recipient is generally not a taxable event for the recipient. Upon the exercise of a Nonqualified Stock Option, the recipient will generally recognize ordinary income equal to the excess of the fair market value of the shares the recipient acquires upon exercise (determined as of the date of exercise) over the purchase price paid for the shares upon exercise of the Nonqualified Stock Option. We generally will be entitled to deduct as a compensation expense the

amount of such ordinary income. Provided the shares are held as a capital asset, the recipient’s subsequent sale of the shares generally will give rise to capital gain or loss equal to the difference between the sale price and the sum of the purchase price paid for the shares plus the ordinary income recognized with respect to the shares, and such capital gain or loss will be taxable as long term or short term capital gain or loss depending upon the recipient’s holding period after exercise.

      Stock Appreciation Rights (SARs). Generally, the holder of a SAR will recognize ordinary income equal to the value we pay (whether in cash, stock or a combination thereof) pursuant to the SAR on the date the holder receives payment. If we place a limit on the amount that will be payable under a SAR, the holder may recognize ordinary income equal to the value of the holder’s right under the SAR at the time the value of such right equals such limit and the SAR is exercisable. We will generally be entitled to a deduction in an amount equal to the ordinary income recognized by the holder.

      Stock Purchase Rights — Restricted Stock. Under the 2004 Plan, we are authorized to grant rights to purchase shares of restricted common stock subject to a right to repurchase such stock at the price paid by the participant if the participant’s employment relationship with us terminates prior to the lapse of such repurchase right. In general, there will be no tax consequences to a participant upon the grant of a right to purchase such restricted stock or upon purchase of such restricted stock. Instead, the participant will be taxed at ordinary income rates at the time our repurchase rights expire or are removed on an amount equal to the excess of the fair market value of the stock at that time over the amount the participant paid to acquire such stock. A participant who acquires restricted stock, however, may make an election under Section 83(b) of the Internal Revenue Code with respect to such stock. If such an election is made within 30 calendar days after the participant’s acquisition of the stock, the participant is taxed at ordinary income rates in the year in which the participant acquires the restricted stock. The ordinary income the participant must recognize is equal to the excess of the fair market value of the stock at the time of the participant’s acquisition of the stock (determined without regard to the restrictions) over the amount that the participant paid to acquire such stock. If a participant makes a timely election under Section 83(b) of the Internal Revenue Code with respect to restricted stock, the participant generally will not be required to report any additional income with respect to such restricted stock until he or she disposes of such stock, at which time he or she will generally recognize capital gain or loss (provided the shares are held as a capital asset) equal to the difference between the sales price and the fair market value of the stock at the time of the participant’s acquisition of the stock (determined without regard to the restrictions). In the event that a participant forfeits (as a result of a repurchase) restricted stock with respect to which an election under Section 83(b) of the Internal Revenue Code has been made, the participant ordinarily will not be entitled to recognize any loss for federal income tax purposes (except to the extent the amount realized by the participant at the time of such forfeiture is less than the participant’s purchase price for such stock). We generally will be entitled to a deduction equal to the amount of ordinary income, if any, recognized by a participant.

      Other Awards. In addition to the awards described above, the 2004 Plan authorizes certain other types of awards that may include payments in cash, our common stock or a combination of cash and our common stock. The tax consequences of such awards will depend upon the specific terms of such awards. Generally, however, a participant who receives an award payable in cash will recognize ordinary income, and we will be entitled to a deduction, with respect to such award at the earliest time at which the participant has an unrestricted right to receive the amount of the cash payment. In general, the sale or grant of stock to a participant under the 2004 Plan will be a taxable event at the time of the sale or grant if such stock at that time is not subject to a substantial risk of forfeiture or is transferable within the meaning of Section 83 of the Internal Revenue Code in the hands of the participant. For such purposes, stock is ordinarily considered to be transferable if it can be transferred to another person who takes the stock free of any substantial risk of forfeiture. In such case, the participant will recognize ordinary income, and we will be entitled to a deduction, equal to the excess of the fair market value of such stock on the date of the sale or grant over the amount, if any, that the participant paid for such stock. Stock that, at the time of receipt by a participant, is subject to restrictions that constitute a substantial risk of forfeiture and that is not transferable within the meaning of Section 83 of the Internal Revenue Code generally will be taxed under the rules applicable to restricted stock as described above.

      Withholding. In the event that an optionee or other recipient of an award under the 2004 Plan is our employee, we generally will be required to withhold applicable federal income taxes with respect to any ordinary income recognized by such optionee or other award recipient in connection with stock options or other awards under the 2004 Plan.

      Certain Additional Rules Applicable to Awards. The terms of awards granted under the 2004 Plan may provide for accelerated vesting in connection with a change in control. In that event, and depending upon the individual circumstances of the recipient, certain amounts with respect to such awards may constitute “excess parachute payments” under the “golden parachute” provisions of the Internal Revenue Code. Under these provisions, a participant will be subject to a 20% excise tax on any “excess parachute payments” and we will be denied any deduction with respect to such payment.

      We generally are entitled to a deduction equal to the ordinary income recognized by a recipient in connection with an award. However, our deduction (including the deduction related to ordinary income recognized by a recipient) for compensation paid to our Chief Executive Officer and each our other four most highly compensated officers may be limited to $1 million per person annually. Depending on the nature of the award, all or a portion of the ordinary income attributable to certain awards granted under the 2004 Plan may be included in the compensation subject to such deduction limitation.

INTEREST OF CERTAIN PERSONS IN MATERS TO BE ACTED UPON

      Each of our current directors, executive officers and employees is eligible to receive Incentive Awards under the 2004 Plan. Other than automatic option awards to nonemployee directors, the compensation committee has the discretion to determine which eligible persons will receive Incentive Awards under the 2004 Plan. On the dates of future annual meetings, each continuing and re-elected nonemployee director will automatically receive an additional Nonemployee Director’s Option to purchase up to 10,000 shares of our common stock.

      Up to a maximum of approximately 1,351,693 shares of restricted stock, representing an aggregate value of approximately $892,117 (based on the closing price per share of our common stock of $0.66 on the Nasdaq National Market on October 14, 2005), may be granted or allocated to all of our current executive officers as a group pursuant to the retention agreements we entered into in connection with the purchase agreement. See “Proposal 1 — Terms of the Retention Agreements.” Any additional benefits or amounts that will be granted or allocated to (i) any of our named executive officers, (ii) all of our current executive officers as a group, (iii) all of our current directors who are not executive officers as a group and (iv) all of our employees, including all current officers who are not executive officers, as a group, are not determinable as of the date of this proxy statement.

VOTE REQUIRED

      The affirmative vote of a majority of the votes cast on Proposal 3 is required to approve the proposed amendments to the 2004 Plan. Executed proxies with no instructions indicated thereon with respect to Proposal 3 will be voted for Proposal 3. If Proposal 2 is not approved, Proposal 3 will not be implemented.

      If Proposal 1 is approved and Proposal 3 is not approved, we are obligated under the purchase agreement to hold another stockholders’ meeting after the closing to seek approval of Proposal 3. We have been advised by the Investors that they currently intend to vote the shares they will acquire at the closing for the approval of Proposal 3 at such subsequent stockholders’ meeting. Based on the total number of shares currently outstanding, the aggregate number of shares the Investors currently hold and the aggregate number of shares the Investors would acquire at the closing, the Investors are expected to have a sufficient number of shares following the closing to approve Proposal 3 by their votes alone.

      OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 3.

PROPOSAL 4

APPROVAL OF ONE-FOR-FIVE REVERSE STOCK SPLIT

GENERAL

      We are seeking approval to effect a decrease in the number of issued and outstanding shares of our common stock by means of a reverse stock split at a ratio of 1:5, that is, one (1) share for five (5) shares.

      If the stockholders approve Proposal 4, the board of directors will cause a certificate of amendment to our certificate of incorporation to be filed with the Secretary of State of the State of Delaware after the amendment described in Proposal 2 is filed and the transactions described in Proposal 1 have closed (assuming that our stockholders have approved Proposals 1 and 2 at the special meeting). The one-for-five reverse stock split will become effective upon the filing of the certificate of amendment with the Secretary of State of the State of Delaware without further action by us or our stockholders. A form of the certificate of amendment to our certificate of incorporation is attached to the proxy statement at Annex I.

REASONS FOR THE REVERSE STOCK SPLIT

      Under the purchase agreement, we have agreed to seek stockholder approval to effect the one-for-five reverse stock split. In addition, the reverse stock split is being proposed to help maintain the eligibility of our common stock for listing on the Nasdaq National Market and to increase the common stock’s attractiveness to potential investors. In order to maintain our listing on the Nasdaq National Market, the minimum daily closing bid price per share of our common stock must be $1.00 or greater. On April 26, 2005, Nasdaq notified us that our common stock had failed to maintain a minimum closing bid price greater than or equal to $1.00 for 30 consecutive trading days. The failure to comply with this requirement for continued listing on the Nasdaq National Market subjects our common stock to possible delisting. Based on recent trading prices, and the consideration we expect to receive under the purchase agreement from the pending issuance and sale of shares of our common stock and warrants to the Investors, we anticipate that if we effect the reverse stock split, our common stock may trade higher than $1.00 per share. Although our common stock may already have been delisted from the Nasdaq National Market and our common stock may be trading on the Nasdaq Capital Market by the time of the special meeting, if Proposal 4 is not approved, our common stock may cease to be listed and traded on the Nasdaq Capital Market. Such delisting would significantly and adversely affect the trading in and liquidity of our common stock. If Proposal 4 is approved and our common stock trades higher than $1.00 per share for the requisite period of time, we may qualify to apply for reinstatement of our listing on the Nasdaq National Market.

      The board of directors is also seeking the authority to effect the reverse stock split because it hopes that the reverse stock split will broaden the market for our common stock and that the resulting anticipated increased price level will encourage interest in the common stock and possibly promote greater liquidity for our stockholders. Various brokerage house policies and practices tend to discourage individual brokers within those firms from dealing with low-priced stocks. In addition, the current price per share of our common stock may result in individual stockholders paying higher per-share transaction costs because fixed-price brokers’ commissions represent a higher percentage of the stock price on lower priced stock than fixed-price commissions on a higher priced stock.

      While our board of directors believes that our common stock would trade at higher prices after the consummation of the reverse stock split, there can be no assurance that the increase in the trading price will occur, or, if it does occur, that it will equal or exceed the price that is five times the market price of the common stock prior to the reverse stock split. In some cases, the total market capitalization of a company following a reverse stock split is lower, and may be substantially lower, than the total market capitalization before the reverse stock split. We cannot offer any assurance that our common stock will continue to meet the Nasdaq National Market’s or the Nasdaq Capital Market’s continued listing requirements following the reverse stock split. The market price of our common stock is based on our performance and other factors, some of which may be unrelated to the number of our shares outstanding.

EFFECTS OF THE PROPOSED AMENDMENT

      The principal effect of the reverse stock split would be to decrease the number of issued and outstanding shares of common stock from 162,152,686 shares (based on outstanding share information as of October 14, 2005 and including the shares to be issued to the Investors as described in Proposal 1) to approximately 32,430,537 shares. The reverse stock split will not be dilutive to our earnings per share or book value per share. Upon effectiveness of the amendment, every five (5) issued and outstanding shares of common stock will, simultaneous with the effectiveness of the amendment and automatically and without any action on the part of the stockholders, be converted into and reconstituted as one (1) share of common stock. The amendment will not decrease the number of authorized shares of preferred stock or common stock authorized at the effective time of the reverse stock split. The amendment will not affect a stockholder’s proportionate equity interest or the relative rights, preferences or priorities a stockholder is currently entitled to, except for minor differences resulting from adjustments for fractional shares as described below.

      As of October 14, 2005, we had 510 holders of record of our common stock (as determined in accordance with Rule 12g5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). If Proposal 4 is approved and the one-for-five reverse stock split is implemented, the Company expects to have more than 300 holders of record of its common stock (and a significantly greater number of beneficial owners). The reverse stock split is not being effected as the first step in a going private transaction under Rule 13e-3 of the Exchange Act and the Company expects to continue to be subject to the reporting requirements under the Exchange Act after completing the reverse stock split.

      Under Delaware law, our certificate of incorporation and our bylaws, dissenting stockholders have no appraisal rights in connection with the reverse stock split. Our board of directors may make any and all changes to the form of certificate of amendment that it deems necessary in order to file the certificate of amendment with the Secretary of State of the State of Delaware and to give effect to the reverse split under Delaware law.

      If Proposal 4 is approved and the amendment becomes effective, the number of shares of common stock subject to outstanding stock options and the per share exercise price of these options will automatically be proportionately adjusted for the reverse stock split so that the aggregate exercise prices thereunder remain unchanged. Accordingly, the number of shares of common stock authorized for future issuances under the 2004 Plan will also be proportionately adjusted after the amendment is effective, if ever, pursuant to the terms of the plan.

      In addition, if Proposal 1 and Proposal 2 are approved, we expect to issue the closing warrants to the Investors upon closing under the purchase agreement. If Proposal 1 is approved and Proposal 2 is not approved, we expect to issue the first closing warrants and the second closing warrants to the Investors upon closing under the purchase agreement. If Proposal 4 is approved and the amendment becomes effective, the exercise price of the closing warrants (or, as applicable, the first closing warrants and the second closing warrants) and, accordingly, the number of shares of our common stock issuable upon exercise of the closing warrants (or the first closing warrants and the second closing warrants) will be proportionately adjusted, as specified in the documents governing such warrants and described in Proposal 1.

      The reverse stock split is likely to result in some stockholders owning “odd-lots” of less than 100 shares of common stock. Brokerage commissions and other costs of transactions in odd-lots are generally somewhat higher than the costs of transactions on “round-lots” of even multiples of 100 shares.

EFFECTIVE DATE

      The amendment will be effective as of the date and time that is stated in the certificate of amendment that is filed with the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation Law. If the amendment is approved by the stockholders and the board of directors elects to effect the reverse stock split as described above, the reverse stock split will be effective simultaneously with the amendment becoming effective.

EXCHANGE OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES

      If Proposal 4 is approved by the requisite vote of our stockholders, the combination of our shares of common stock will occur on the date that we file the amendment with the Secretary of State of the State of Delaware without any further action on the part of our stockholders and without regard to the date that any stockholder physically surrenders the stockholder’s certificates representing pre-reverse split shares of common stock for certificates representing post-reverse split shares. As soon as practicable after the effective date of the amendment, our transfer agent will mail transmittal forms to each holder of record of certificates formerly representing shares of our common stock that will be used in forwarding such certificates for surrender and exchange for new certificates representing the number of shares of our common stock the holder is entitled to receive as a consequence of the reverse split. STOCKHOLDERS SHOULD NOT SEND IN CERTIFICATES REPRESENTING SHARES OF OUR COMMON STOCK UNTIL THEY RECEIVE A TRANSMITTAL FORM FROM OUR TRANSFER AGENT.

      After receipt of a transmittal form, each holder should surrender the certificates formerly representing shares of our common stock and will receive in exchange therefor certificates representing the number of shares of our common stock to which the holder is entitled as a result of the reverse stock split. The transmittal form will be accompanied by instructions specifying other details of the exchange. No stockholder will be required to pay a transfer or other fee to exchange his, her or its certificates. In connection with the reverse stock split, the CUSIP number on our common will be changed. The new CUSIP number will appear on all newly issued stock certificates representing shares of our post-reverse split common stock.

      In the event that the number of shares of post-reverse split common stock for any stockholder includes a fraction, we will pay that stockholder, in lieu of the issuance of fractional shares, a cash amount (without interest) equal to the fair market value of such fraction of a share, based upon (i) the closing price per share of our common stock as reported on the Nasdaq National Market or the Nasdaq Capital Market, as applicable, on the day preceding the effective date of the amendment or (ii) if our common stock is not then listed on the Nasdaq National Market or the Nasdaq Capital Market, the determination of fair market value by our board of directors. This cash payment represents merely a mechanical rounding off of the fractions in the exchange pursuant to the reverse stock split, and is not a separately bargained-for consideration. Similarly, no fractional shares will be issued on the exercise of our warrants and options, as specified in the documents governing our warrants and options.

      As of the effective date of the amendment, each certificate representing pre-reverse split shares of common stock will be deemed cancelled and, for all corporate purposes, will be deemed to represent only the number of post-reverse split shares of common stock and the right to receive the amount of cash for any fractional shares as a result of the reverse stock split. However, a stockholder will not be entitled to receive any dividends or other distributions payable by us after the amendment is effective until that stockholder surrenders and exchanges its certificates. If there are any dividends or distributions, they will be withheld, accumulated and be paid to each stockholder, without interest, once that stockholder surrenders and exchange its certificates.

FEDERAL INCOME TAX CONSEQUENCES

      The following is a summary of the material anticipated federal income tax consequences of a one-for-five reverse stock split of our issued and outstanding shares of common stock. This summary is based upon the Internal Revenue Code existing and proposed regulations thereunder, judicial decisions and current administrative rulings, authorities and practices, all as amended and in effect on the date of this proxy statement. Any of these authorities could be repealed, overruled or modified at any time. Any such change could be retroactive and, accordingly, could cause the tax consequences to vary substantially from the consequences described below. No ruling from the Internal Revenue Service (the “IRS”) with respect to the matters discussed herein has been requested or will be requested, and there is no assurance that the IRS would agree with the conclusions set forth in this summary.

      This summary is provided for general information only and does not purport to address all aspects of the possible federal income tax consequences of the reverse stock split and is not intended as tax advice to any

person. In particular, and without limiting the foregoing, this summary does not consider the federal income tax consequences to our stockholders in light of their individual investment circumstances or to holders who may be subject to special treatment under the federal income tax laws (such as dealers in securities, insurance companies, foreign individuals and entities, financial institutions and tax exempt entities). In addition, this summary does not address any consequences of the reverse stock split under any state, local or foreign tax laws. As a result, it is the responsibility of each stockholder to obtain and rely on advice from his, her or its tax advisor as to, but not limited to, the following (i) the effect on his, her or its tax situation of the reverse stock split, including, but not limited to, the application and effect of state, local and foreign income and other tax laws; (ii) the effect of possible future legislation or regulations; and (iii) the reporting of information required in connection with the reverse stock split on his, her or its own tax returns. It will be the responsibility of each stockholder to prepare and file all appropriate federal, state and local tax returns.

      We believe that the reverse stock split will constitute a tax-free recapitalization under the Internal Revenue Code and that we should not recognize any gain or loss as a result of the reverse stock split. In addition, our stockholders should not recognize any gain or loss if they receive only common stock upon the reverse stock split. If a stockholder receives cash in lieu of a fractional share of common stock that otherwise would be held as a capital asset, the stockholder generally will recognize capital gain or loss equal to the difference, if any, between the cash received and the stockholder’s basis in the fractional share. For this purpose, a stockholder’s basis in the fractional share of common stock will be determined in the manner described below as if the stockholder actually received the fractional share. However, under unusual circumstances, cash received in lieu of a fractional share might possibly be deemed a dividend. The stockholder should consult a tax advisor to determine which of these treatments will apply upon the receipt of cash in lieu of a fractional share of common stock.

      We further believe that a stockholder’s aggregate basis of his, her or its post-reverse split shares of common stock will equal his, her or its aggregate basis in the pre-reverse split shares of common stock owned by that stockholder that are exchanged for the post-reverse split shares of common stock. Generally, the aggregate basis will be allocated among the post-reverse split shares on a pro rata basis. However, if a stockholder has used the specific identification method to identify his, her or its basis in pre-reverse split shares of common stock surrendered in the reverse stock split, the stockholder should consult a tax advisor to determine his, her or its basis in the post-reverse split shares. The holding period of the post-reverse split shares of common stock received by a stockholder will generally include the stockholder’s holding period for the pre-reverse split shares of common stock with respect to which post-reverse split shares of common stock are issued, provided that the pre-reverse split shares of common stock were held as a capital asset on the date of the exchange.

ACCOUNTING EFFECTS OF THE REVERSE STOCK SPLIT

      Following the effective date of the reverse stock split, the par value of our common stock will remain at $0.01 per share. The number of outstanding shares of common stock will be reduced by approximately 80%, taking into account such additional decrease resulting from our repurchase of fractional shares that otherwise would result from the reverse stock split. Accordingly, the aggregate par value of the issued and outstanding shares of our common stock, and therefore the stated capital associated with our common stock, will be reduced, and the additional paid-in capital (capital paid in excess of the par value) will be increased in a corresponding amount for statutory and accounting purposes. If the reverse stock split is effected, all share and per share information in our financial statements will be restated to reflect the reverse stock split for all periods presented in our future filings, after the effective date of the amendment, with the SEC and the Nasdaq National Market or the Nasdaq Capital Market, as applicable. Stockholders’ equity will remain unchanged.

VOTE REQUIRED

      The affirmative vote of the holders of a majority of the voting power of all outstanding shares of our capital stock entitled to vote at the special meeting is required to approve the reverse stock split. Executed proxies with no instructions indicated thereon with respect to Proposal 4 will be voted for Proposal 4. If Proposal 4 is not approved, the reverse stock split will not be implemented.

      If Proposal 1 is approved and Proposal 4 is not approved, we are obligated under the purchase agreement to hold another stockholders’ meeting after the closing to seek approval of Proposal 4. We have been advised by the Investors that they currently intend to vote the shares they will acquire at the closing for the approval of Proposal 4 at such subsequent stockholders’ meeting. Based on the total number of shares currently outstanding, the aggregate number of shares the Investors currently hold and the aggregate number of shares the Investors would acquire at the closing, the Investors are expected to have a sufficient number of shares following the closing to approve Proposal 4 by their votes alone.

      OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 4.

EQUITY COMPENSATION PLAN INFORMATION

      The following table provides information as of December 31, 2004 with respect to shares of our common stock that may be issued under our equity compensation plans, and does not include option grants after December 31, 2004 or the potential issuances of restricted stock pursuant to the retention agreements entered into on October 6, 2005 with our key employees in connection with the purchase agreement.

EXECUTIVE COMPENSATION AND OTHER INFORMATION

Summary Compensation Table

      The following table sets forth the compensation paid for the last three fiscal years to our Chief Executive Officer and our four most highly compensated executive officers other than the Chief Executive Officer who were serving as executive officers at the end of our fiscal year ended December 31, 2004 and whose total annual salary and bonus for that fiscal year exceeded $100,000 (collectively, the “named executive officers”), and does not include any compensation paid to date in our current fiscal year or the potential payments to be made pursuant to the retention agreements entered into with our key employees in connection with the purchase agreement.

Option Grants in Last Fiscal Year

      The following table sets forth information regarding stock options granted to the named executive officers during the fiscal year ended December 31, 2004, and does not include option grants after December 31, 2004.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

      The following table sets forth the number of shares acquired on exercise of stock options and the aggregate gains realized on exercise during the fiscal year ended December 31, 2004 by the named executive officers, and does not include any exercise of options after December 31, 2004. The table also sets forth the number of shares covered by exercisable and unexercisable options held by such executives on December 31, 2004, and the aggregate gains that would have been realized had these options been exercised on that date, even though the exercisable options were not exercised and the unexercisable options could not have been exercised.

Employment Agreements

      Steven B. Engle. Mr. Engle’s employment agreement provides for a minimum annual salary of $273,000 and entitles him to receive a severance payment in the event of his involuntary termination without cause or if his employment is terminated in connection with a change in control. The severance amount is equal to 24 months of pay at his then current base salary and up to 24 months of medical, dental and life insurance coverage for Mr. Engle and his family. His employment will be deemed to be terminated in connection with a change in control if his employment is terminated or if he resigns following: (i) any change in his title to any position other than President and Chief Executive Officer of the surviving company; (ii) any change in his reporting responsibility such that he does not report directly to the board of directors of the surviving company on all matters; (iii) any material reduction by us or any successor in his responsibilities; (iv) any requirement that his place of employment be in other than the San Diego area; or (v) any material breach by us or any successor of his employment agreement. Also, all employee stock options and other performance awards granted to Mr. Engle before the termination of his employment without cause or in connection with a change in control will automatically vest and become fully exercisable as of his termination date and will remain exercisable for a period equal to the remaining term of the employee stock option or other performance award as provided by the applicable plan or grant pursuant to which the options or awards were granted. If, within one year from the termination of Mr. Engle’s employment, employee stock options granted to any of our executive officers or nonemployee directors or those of any successor are repriced, we are required to provide similar repricing for all outstanding employee stock options granted to Mr. Engle before his termination date. If Mr. Engle is terminated for any reason other than the above described circumstances, and other than for cause, all employee stock options granted to him before the termination of his employment will remain exercisable for a period of one year from his termination date or such longer period as provided by the applicable plan or grant pursuant to which the options were granted. Finally, if we experience an acquisition, merger, reorganization or similar transaction within 30 days of Mr. Engle’s termination of employment,

Mr. Engle may be eligible to receive a cash bonus of $100,000. Mr. Engle’s current annual base salary is $436,800.

      Matthew D. Linnik. Dr. Linnik’s employment agreement entitles him to receive a severance payment in the event of his involuntary termination without cause or if his employment is terminated in connection with a change in control. The severance amount is equal to nine months of pay at his then current base salary and up to nine months of medical and dental coverage for Dr. Linnik and/or his dependants. His employment will be deemed to be terminated in connection with a change in control if, within 180 days of the date of the change in control: (i) his employment is terminated; (ii) his position is eliminated as a result of a reduction in force made to reduce over-capacity or unnecessary duplication of personnel and he is not offered a replacement position with us or our successor as a vice president with compensation and functional duties substantially similar to the compensation and duties in effect immediately before the change in control; or (iii) he resigns because he is required to be employed more than 50 miles from our current headquarters. Also, all employee stock options granted to Dr. Linnik as of the date of the employment agreement will automatically vest and become fully exercisable as of his termination date if his termination of employment is without cause or is in connection with a change in control, and will remain exercisable for a period of one year from his termination date or such longer period as provided by the applicable plan or grant pursuant to which the options were granted. Dr. Linnik’s current annual base salary is $305,482.

      Bruce K. Bennett, Jr. Mr. Bennett’s employment agreement entitles him to receive a severance payment in the event of his involuntary termination without cause or if his employment is terminated in connection with a change in control. The severance amount is equal to up to nine months of pay at his then current base salary and up to nine months of medical and dental coverage for Mr. Bennett and/or his dependents. His employment will be deemed to be terminated in connection with a change in control if, within 180 days of the date of the change in control: (i) his employment is terminated; (ii) his position is eliminated as a result of a reduction in force made to reduce over-capacity or unnecessary duplication of personnel and he is not offered a replacement position with the Company or its successor as a vice president with compensation and functional duties substantially similar to the compensation and duties in effect immediately before the change in control; or (iii) he resigns because he is required to be employed more than 50 miles from our current headquarters. Also, all employee stock options granted to Mr. Bennett as of the date of the employment agreement will automatically vest and become fully exercisable as of his termination date if his termination of employment is without cause or is in connection with a change in control, and will remain exercisable for a period of one year from his termination date or such longer period as provided by the applicable plan or grant pursuant to which the options were granted. Mr. Bennett’s current annual base salary is $209,847.

Retention Agreements

      On October 6, 2005, in connection with the execution of the purchase agreement, we entered into retention agreements with a number of our key employees, including with the following named executive officers: Steven B. Engle, Matthew D. Linnik and Bruce K. Bennett, Jr. Pursuant to the terms of the retention agreements, subject to the closing under the purchase agreement, each of the key employees is entitled to receive an incentive bonus equal to 50% of his annual salary in the form of cash, shares of restricted stock or a combination of both. In addition, if a key employee elects to receive shares of restricted stock, he will also, subject to certain limitations, be entitled to receive an additional “gross-up” payment based on the taxes payable with respect to his or her receipt of such shares of restricted stock. If the closing under the purchase agreement does not occur, the key employees will not be entitled to any payment under the retention agreements. The execution of the retention agreements was not a specific condition to the execution of the purchase agreement, but the Investors had an active and important role in establishing the terms of the retention agreements. See “Proposal 1 — Summary of Terms of Agreements — Terms of the Retention Agreements.”

Employment Agreements of Former Employees

      Kenneth R. Heilbrunn. Dr. Heilbrunn’s employment was terminated effective as of April 1, 2005. Prior to the termination of his employment, Dr. Heilbrunn’s employment agreement entitled him to receive a

severance payment in the event of his involuntary termination without cause or if his employment was terminated in connection with a change in control. The severance amount was equal to up to nine months of pay at his then current base salary and up to nine months of medical and dental coverage for Dr. Heilbrunn and/or his dependants. His employment would have been deemed terminated in connection with a change in control if, within 180 days of the date of the change in control: (i) his employment was terminated; (ii) his position was eliminated as a result of a reduction in force made to reduce over-capacity or unnecessary duplication of personnel and he was not offered a replacement position with the Company or its successor as a vice president with compensation and functional duties substantially similar to the compensation and duties in effect immediately before the change in control; or (iii) he resigned because he was required to be employed more than 50 miles from our current headquarters. Also, all employee stock options granted to Dr. Heilbrunn as of the date of the employment agreement would have automatically vested and become fully exercisable as of his termination date if his termination of employment was without cause or was in connection with a change in control, and would have remained exercisable for a period of one year from his termination date or such longer period as provided by the applicable plan or grant pursuant to which the options were granted.

      Pursuant to the terms of Dr. Heilbrunn’s employment agreement and a letter agreement we entered into with him in connection with the termination of his employment, we continued to pay Dr. Heilbrunn at the rate of his base salary as of April 1, 2005, and provided him with medical and dental coverage, for a period of six months from such date (until October 1, 2005). All of Dr. Heilbrunn’s employee stock options initially granted to him upon hire vested and became fully exercisable as of April 1, 2005 for a period of one year. All other employee stock options granted to Dr. Heilbrunn during the course of his employment have expired.

      William J. Welch. Mr. Welch resigned effective as of July 29, 2005. Prior to the termination of his employment, Mr. Welch’s employment agreement entitled him to receive a severance payment in the event of his involuntary termination without cause or if his employment was terminated in connection with a change in control. The severance amount was equal to nine months of pay at his then current base salary. His employment would have been deemed terminated in connection with a change in control if, within 180 days of the date of the change in control: (i) his employment was terminated; (ii) his position was eliminated as a result of a reduction in force made to reduce over-capacity or unnecessary duplication of personnel and he was not offered a replacement position with us or our successor as a vice president with compensation and functional duties substantially similar to the compensation and duties in effect immediately before the change in control; or (iii) he resigned because he was required to be employed more than 50 miles from our current headquarters. Also, all employee stock options granted to Mr. Welch as of the date of the employment agreement would have automatically vested and become fully exercisable as of his termination date if his termination of employment was without cause or was in connection with a change in control, and would have remained exercisable for a period of one year from his termination date or such longer period as provided by the applicable plan or grant pursuant to which the options were granted.

      Because Mr. Welch resigned, he is not entitled to receive any severance payments or medical benefits under his employment agreement. All of Mr. Welch’s unvested employee stock options as of July 29, 2005 expired as of such date, and his vested employee stock options will expire on October 29, 2005 (with respect to incentive stock options) and January 29, 2006 (with respect to non-qualified stock options).

STOCK PERFORMANCE GRAPH

      The following graph compares the cumulative total stockholder return on our common stock for the five years ended December 31, 2004 with the Center for Research in Securities Prices (“CRSP”) Total Return Index for the Nasdaq Stock Market (U.S. Companies) and the CRSP Total Return Index for Nasdaq Pharmaceutical Stocks (comprising all companies listed in the Nasdaq Stock Market under SIC 283). The graph assumes that $100 was invested on December 31, 1999 in our common stock and each index and that all dividends were reinvested. No cash dividends have been declared on our common stock. The comparisons in the graph are required by the Securities and Exchange Commission and are not intended to forecast or be indicative of possible future performance of our common stock.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      There are no compensation committee interlocks between us and other entities involving our executive officers and directors who serve as executive officers or directors of such other entities. During the last completed fiscal year, no member of the compensation committee of our board of directors was a current or former officer or employee.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth information regarding the beneficial ownership of our common stock as of October 14, 2005, by:

OTHER INFORMATION

Other Matters of Business

      Our board of directors currently is not aware of any other matters that are to be presented for action at the special meeting. If any other matters properly come before the special meeting or any adjournments or postponements thereof, the persons named in the enclosed proxy will have the discretionary authority to vote all proxies received with respect to such matters in accordance with their judgment.

2006 Annual Meeting Proposals

      Stockholders who wish to have proposals considered for inclusion in the proxy statement and form of proxy for our 2006 annual meeting of stockholders, including nominees for directors, must cause their proposals to be received in writing by our corporate Secretary at the address set forth on the first page of this proxy statement no later than December 12, 2005. Any such proposals should be addressed to our corporate Secretary and may be included in the proxy materials for our 2006 annual meeting of stockholders only if such proposal complies with our bylaws and the rules and regulations promulgated by the SEC. Nothing in this section shall be deemed to require us to include in our proxy statement or our proxy relating to any annual meeting any stockholder proposal or nomination that does not meet all of the requirements for inclusion established by the SEC.

Delivery of Documents to Stockholders Sharing the Same Address

      With regard to the delivery proxy statements and related materials, under certain circumstances, the SEC permits a single set of documents to be sent to any household at which two or more stockholders reside if they appear to be members of the same family. This procedure, known as “householding,” reduces the amount of duplicate information received at a household and reduces mailing and printing costs. Even if householding is implemented, each stockholder will continue to receive a separate proxy card or, in the case of shares of stock held in a street name account, a separate voting instruction form.

      We have not implemented householding rules with respect to our record holders. However, banks, brokers, and other firms may have instituted householding and this may impact stockholders whose shares are registered in the name of the bank, broker, or other firm. If a stockholder received a householding notification from its broker, only one set of the proxy statement and related materials will be mailed to an address at which two or more stockholders reside unless the stockholder gave instructions to the contrary. If any stockholder residing at such an address wishes to receive a separate of the proxy statement and related materials, the stockholder should contact his, her, or its broker directly. A stockholder may also receive additional copies of the proxy statement and related materials by calling the number listed below under the heading “Availability of Additional Information.”

Availability of Additional Information

      Please contact us if you have questions or need more information about the special meeting. Written requests should be directed to the following address: Investor Relations, La Jolla Pharmaceutical Company, 6455 Nancy Ridge Drive, San Diego, California 92121. Telephonic requests should be directed to (858) 646-6649. Upon written request from any person who was our stockholder (of record or beneficially) at the close of business on October 14, 2005, we will send to such person, at no charge, any document to which we refer in, and not attached as an annex to, this proxy statement. You should send your request to our Investor Relations department at the address listed above.

Dated: October      , 2005

ANNEX A

LA JOLLA PHARMACEUTICAL COMPANY

SECURITIES PURCHASE AGREEMENT

      THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of October 6, 2005, is executed by and among La Jolla Pharmaceutical Company, a Delaware corporation (the “Company”), and the persons and entities listed on Schedule A(each a “Purchaser” and collectively, the “Purchasers”).

Recitals

      WHEREAS, each Purchaser desires to purchase, and the Company desires to issue and sell to each Purchaser, the number of shares set forth opposite such Purchaser’s name on Schedule A hereto (all such shares for all Purchasers, the “Shares”) of the Company’s common stock, $0.01 par value per share (“Common Stock”) together with a Closing Warrant (as defined below) for each such Purchaser, at a purchase price for each Purchaser equal to the product of Seventy Five Cents ($0.75) multiplied by the number of Shares purchased by such Purchaser;

      WHEREAS, to induce the Purchasers to enter into this Agreement, the Company has agreed to issue a Contingent Warrant (as defined below) to each Purchaser on the date specified below, and has also agreed to take certain actions specified in this Agreement in advance of the Closing (as defined below); and

      WHEREAS, the Company and the Purchasers are entering into this Agreement to reflect the terms and conditions with respect to each Purchaser’s potential investment in the Company represented by the Shares and the Warrants (as defined below).

      NOW, THEREFORE, in respect of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

Agreement

Section 1.     Purchase of Shares and Warrants

      1.1     On or prior to the date of this Agreement, the Company’s Board of Directors shall have authorized the sale and issuance of the Shares and Warrants and the transactions contemplated by this Agreement, subject to the terms and conditions contained herein.

      1.2     Subject to the terms and conditions of this Agreement, the Company agrees to sell to each Purchaser at the Closing, and each Purchaser agrees to purchase, severally and not jointly, from the Company at the Closing, (a) that number of Shares set forth opposite such Purchaser’s name on Schedule A, and (b) a Warrant in the form attached hereto as Exhibit A, appropriately completed with the name of such Purchaser and the number of shares of Common Stock for which it is potentially exercisable, as set forth opposite such Purchaser’s name on Schedule A and, if the Company shall not have obtained the Share Authorization Approval, an additional Warrant in the form attached hereto as Exhibit B, appropriately completed with the name of such Purchaser and the number of shares of Common Stock for which it is potentially exercisable, as set forth opposite such Purchaser’s name on Schedule A (the “Closing Warrants”), for an aggregate cash purchase price for such Purchaser equal to the product of Seventy Five Cents ($0.75) (the “Per Share Purchase Price”) multiplied by the number of Shares so purchased by such Purchaser. In addition, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions of this Agreement, the Company agrees to issue to each Purchaser on its applicable Issuance Date (as defined below) a Warrant in the form attached hereto as Exhibit C, for no separate consideration, appropriately completed with the name of such Purchaser and the number of shares of Common Stock for which it is potentially exercisable, as set forth opposite such Purchaser’s name on Schedule A (the “Contingent Warrants” and, together with the Closing Warrants, the “Warrants”). As described in greater detail in each Contingent Warrant, a Contingent Warrant will only be exercisable from

and after the “Warrant Trigger Date” (as defined in the Contingent Warrants) (the “Warrant Trigger”). The date on which a particular Contingent Warrant shall be issued (its “Issuance Date”) is (i) the date of this Agreement for the Purchasers listed on Schedule B, and (ii) on the first Business Day (as defined below) after the Warrant Trigger for all other Purchasers. Finally, on the date hereof, the Company and each Purchaser shall enter into and deliver the Rights Agreement (as defined below).

      1.3     The Company will use substantially all of the net proceeds from the sale of the Shares and the Warrants to pursue the registration and approval of Riquent® for sale in world markets; provided, that to the extent the Company’s Board of Directors deems it appropriate, a portion of the proceeds may be used to further other Company programs.

Section 2.     Closing, Delivery and Payment.

      2.1     Closing. The closing of the sale and purchase of the Shares and Closing Warrants (the “Closing”) shall take place at 10:00 a.m. San Diego time on the date (the “Closing Date”) that is five Business Days after the complete satisfaction of all of the conditions to the Closing set forth in Section 6.1 and Section 6.2 (or waiver thereof in accordance with the terms of Section 6.1 or Section 6.2, as applicable), or at such other time or place, if any, as the Company and the Purchasers may mutually agree; provided, that each Purchaser’s obligation to purchase Shares and a Closing Warrant under this Agreement shall terminate and be of no further force or effect immediately after the occurrence of a Warrant Trigger. As used herein, a “Business Day” means any day which is not (i) a Saturday or a Sunday, or (ii) a day on which banking institutions in California or New York are authorized or obligated by law or regulation to close.

      2.2     Delivery. At the Closing, subject to the terms and conditions hereof, the Company will deliver to each Purchaser a certificate representing the number of Shares to be purchased by such Purchaser, and such Purchaser’s Closing Warrant, against payment of the purchase price therefor in immediately available funds by check or wire transfer to an account designated by the Company.

Section 3.     Representations and Warranties of the Company

      As a material inducement to each Purchaser to enter into and perform its obligations under this Agreement, and except as set forth on the Disclosure Schedule (the “Disclosure Schedule”) furnished to each Purchaser specifically identifying the section(s) hereof to which such exception is applicable, which exceptions shall be deemed to be a part of the representations and warranties as if made hereunder, the Company hereby represents and warrants to each Purchaser as of the date of this Agreement as follows:

      3.1     Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to conduct its business as currently conducted and to enter into and perform this Agreement and all other agreements required to be executed by the Company at or prior to the Closing pursuant to Section 6.1 (collectively, together with the Warrants, the “Ancillary Agreements”), to issue the Shares and the Warrants and to carry out the transactions contemplated by this Agreement and the Ancillary Agreements. The Company is duly qualified or otherwise authorized to do business as a foreign corporation or other organization and is in good standing as such in every jurisdiction in which the failure so to qualify would have a material adverse effect on (i) the business, assets, liabilities (contingent or otherwise), operations, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, (ii) the enforceability or binding effect of this Agreement and the Ancillary Agreements or (iii) the ability of the Company to perform its obligations under this Agreement and the Ancillary Agreements (a “Company Material Adverse Effect”). The Company is currently qualified to do business, and in good standing, as a foreign corporation in California. The Company has made available to the Purchasers complete and accurate copies of the Certificate of Incorporation (including all certificates of designation), as amended to date and currently in effect (the “Certificate”), and the by-laws of the Company, as amended to date and currently in effect (the “By-laws’), and the Company has at all times complied in all material respects with all provisions of such documents and is not in default under, or in violation of, any such provision.

      3.2     Subsidiaries, Etc. Section 3.2 of the Disclosure Schedule sets forth the name, jurisdiction of incorporation and authorized and outstanding capitalization of each Subsidiary (as defined below). All of the outstanding shares of capital stock of each of the Subsidiaries are duly and validly authorized, are validly issued and are fully paid and nonassessable, have been offered, issued, sold and delivered in compliance in all material respects with applicable foreign, federal and state securities laws and are owned by the Company free and clear of any Security Interest (as defined below). Except as set forth in Section 3.2 of the Disclosure Schedule, the Company has, and upon the Closing will have, no Subsidiaries and will not own of record or beneficially any capital stock or equity interest or investment in any corporation, association or business entity. Except as disclosed in Section 3.2 of the Disclosure Schedule, each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to carry on its business as currently conducted. Except as set forth in Section 3.2 of the Disclosure Schedule, no Subsidiary owns or leases any property or engages in any activity in any jurisdiction which requires such Subsidiary to qualify to do business as a foreign corporation in such jurisdiction and where the failure to so qualify could reasonably be expected to have a Company Material Adverse Effect. As used in this Agreement, “Subsidiary” means any corporation, partnership, trust, limited liability company or other entity (i) in which the Company directly or indirectly through one or more of its subsidiaries holds stock or other ownership interests representing (a) more than 50% of the voting power of all outstanding stock or ownership interests of such entity or (b) the right to receive more than 50% of the net assets of such entity available for distribution to the holders of outstanding stock or ownership interests upon a liquidation or dissolution of such entity, or (ii) with respect to which the Company directly or indirectly through one or more of its subsidiaries has the right, pursuant to agreement or otherwise, to appoint 50% or more of the members of the board of directors (or similar governing body).

      3.3     Capitalization.

      (A) The authorized capital stock of the Company (immediately prior to the Closing) consists of, as of October 5, 2005, (i) 175,000,000 shares of Common Stock, of which 74,152,686 shares are issued and outstanding, and (ii) 8,000,000 shares of Preferred Stock, $0.01 par value per share, 100,000 of which were designated Series A Junior Participating Preferred Stock, none of which are issued or outstanding, and 7,900,000 of which remain undesignated. The rights, preferences, privileges and restrictions of the Common Stock and Preferred Stock are as stated in the Certificate.

      (B) Section 3.3(B) of the Disclosure Schedule includes a complete and accurate list, based on public filings made with the Commission (as defined below), as of the date of this Agreement, of each person or entity that is known by the Company to be the beneficial owner of at least 5% of the outstanding Common Stock, showing the number of shares of Common Stock (and any options, warrants or other rights to acquire capital stock of the Company) held by each such person or entity. All of the issued and outstanding shares of capital stock of the Company (i) have been duly authorized and validly issued and are fully paid and nonassessable, (ii) have not been issued in violation of preemptive rights, voting agreements or rights of first offer or refusal applicable to the Company’s capital stock (collectively, “Preemptive Rights”) and (iii) have been offered, issued and sold by the Company in compliance in all material respects with all applicable federal and state securities laws.

      (C) Section 3.3(C) of the Disclosure Schedule includes a complete and accurate list, as of the date of this Agreement of: (i) all stock option plans and other stock or equity-related plans of the Company or any Subsidiary currently in effect (the “Company Stock Plans”), indicating for each Company Stock Plan the number of shares of Common Stock issued to date under such Plan, the number of shares subject to outstanding options under such Plan and the number of shares reserved for future issuance under such Plan; and (ii) all holders of securities or rights exercisable for, convertible into, exchangeable for or otherwise giving the holder thereof the right to subscribe for or acquire any capital stock of the Company or any Subsidiary (“Company Securities”) (other than outstanding options to purchase shares of Common Stock under the Company Stock Plans (“Company Stock Options”)), indicating with respect to each Company Security the number of shares of capital stock, and the class or series of such shares, subject to such Company Security, the exercise or conversion price thereof, the date of issuance and the expiration date thereof. The Company has made available to the Purchasers complete and accurate copies of all Company Stock Plans, forms of all stock

option agreements evidencing Company Stock Options and all Company Securities. All of the shares of capital stock of the Company subject to Company Stock Options and Company Securities will be, upon issuance pursuant to the proper exercise of such instruments, duly authorized, validly issued, fully paid and nonassessable.

      (D) Except as disclosed in Section 3.3(D) of the Disclosure Schedule or as required pursuant to the terms of this Agreement, (i) no subscription, warrant, option, convertible security (including convertible debt), participation right or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company or any Subsidiary is authorized or outstanding (other than Company Stock Options and Company Securities that are disclosed pursuant to Section 3.3(C)), (ii) neither the Company nor any Subsidiary has any obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security (including convertible debt) or other such right, or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of the Company or any Subsidiary, (iii) neither the Company nor any Subsidiary has any obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or to make any other distribution in respect thereof, and (iv) there are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company or any Subsidiary.

      (E) Except for the Ancillary Agreements or as disclosed in Section 3.14 of the Disclosure Schedule, there is no agreement, written or oral, in effect between the Company or any Subsidiary and any holders of its securities, or, to the Company’s knowledge, among any holders of its securities, relating to Preemptive Rights or the sale or transfer (including without limitation agreements relating to rights of first refusal, co-sale rights or “drag-along” rights), registration under the Securities Act of 1933, as amended (the “Securities Act”), or voting, of the capital stock of the Company or any Subsidiary.

      3.4     Issuance of Shares. The issuance, sale and delivery of the Shares in accordance with this Agreement, and the issuance and delivery of the shares of Common Stock issuable upon exercise of Warrants (the “Warrant Shares”), have been duly authorized by all necessary corporate action on the part of the Company, subject to the required Share Authorization Approval (as defined below) as contemplated by Section 5.14. The Shares when issued, sold and delivered in accordance with the provisions of this Agreement, and the Warrant Shares when issued in accordance with the provisions of the Warrants, will be duly and validly issued, fully paid and nonassessable, and will not be issued in violation of any Preemptive Rights. On or prior to the date hereof, the Company shall have reserved and shall keep reserved all of its authorized but unissued shares of Common Stock for issuance of the Shares and the Common Stock issuable upon exercise of the Warrants (other than such shares which are already reserved for the Company Stock Plans). The Company is eligible to register the Shares and Warrant Shares for resale by the Purchasers on a registration statement on Form S-3 under the Securities Act.

      3.5     Authority for Agreement. The Company has full corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it is a party, to issue the Shares, the Warrants and the Warrant Shares (subject to obtaining the Share Authorization Approval) and to perform its other obligations hereunder and thereunder. The execution, delivery and performance by the Company of this Agreement and each of the Ancillary Agreements to which it is a party (including the issuance of the Warrant Shares) have been duly authorized by all requisite corporate action by the Company and, when executed and delivered by the Company, this Agreement and each of the Ancillary Agreements will be the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms.

      3.6     No Conflict. The execution, delivery and performance of this Agreement and the Ancillary Agreements, the issuance of the Shares, the Warrants and the Warrant Shares (subject to obtaining the Share Authorization Approval) and the consummation of the other transactions contemplated hereby and thereby by the Company will not (a) conflict with or violate any provision of the Certificate or By-laws of the Company, (b) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any material contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of

indebtedness, Security Interest (as defined below) or other material arrangement to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or to which their respective assets are subject, (c) result in the imposition of any Security Interest upon any assets of the Company or any Subsidiary, or (d) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any Subsidiary or any of their properties or assets. For purposes of this Agreement, “Security Interest” means any mortgage, pledge, security interest, encumbrance, charge, lien or similar right (whether arising by contract or by operation of law).

      3.7     Consents. Except as disclosed in Section 3.7 of the Disclosure Schedule, no consent, permit, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority or agency, including any Self-Regulatory Organization (including NASDAQ) (each of the foregoing is hereafter referred to as a “Governmental Entity”) or any other Person is required to be made or obtained by the Company or any Subsidiary in connection with the offer, issuance, sale and delivery of the Shares and the Warrants, the issuance and delivery of the Warrant Shares or the other transactions to be consummated hereunder, as contemplated by this Agreement and the Ancillary Agreements, except such filings as shall have been made prior to and shall be effective on and as of the Closing, and such filings required to be made after the Closing under applicable federal and state securities laws. Based in part on the representations made by each of the Purchasers in Section 4 of this Agreement, the offer and sale of the Shares, the Warrants and the Warrant Shares to each of the Purchasers will be in compliance with applicable federal and state securities laws.

      3.8     Litigation; Compliance. Except as disclosed in Section 3.8 of the Disclosure Schedule, there is no material action, suit or proceeding, or governmental inquiry or investigation, pending, or, to the Company’s knowledge, any threat thereof or any facts or circumstances that might reasonably be expected to provide the basis therefor, against the Company or any Subsidiary. There is no material action, suit or proceeding, or governmental inquiry or investigation, pending, or, to the Company’s knowledge, any threat thereof or any facts or circumstances that might reasonably be expected to provide the basis therefor, against the Company or any Subsidiary, or any of their employees by reason of the past employment relationships of any employees, in connection with or arising from the past or proposed activities or business affairs of the Company or any Subsidiary, or negotiations by the Company or any Subsidiary with possible investors in the Company or any Subsidiary. Neither the Company nor any Subsidiary is subject to any outstanding judgment, order or decree. The Company and each Subsidiary has, in all material respects, complied with all laws, regulations and orders applicable to its business, including Pharmaceutical Laws (as defined below), and has all material permits and licenses required thereby. For purposes of this Agreement, “Pharmaceutical Law” shall mean any federal, state, local or foreign law, statute, rule or regulation relating to the development, commercialization and sale of pharmaceutical and biotechnology products and devices, including all applicable regulations of the U.S. Food and Drug Administration and comparable applicable foreign regulatory authorities.

      3.9     SEC Documents; Financial Statements. Since June 30, 2004, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission (the “Commission”) pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (all of the foregoing filed prior to or on the date of this Agreement and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The Company has made available to the Purchasers true, correct and complete copies of all SEC Documents. As of the date of filing of such SEC Documents, each such SEC Document, as it may have been subsequently amended by filings made by the Company with the Commission prior to the date of this Agreement, complied in all material respects with the requirements of the Exchange Act applicable to such SEC Document and did not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they are or were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form and substance in all material respects with applicable accounting requirements and published rules and regulations of the Commission with respect thereto. Such financial statements have been prepared in

accordance with generally accepted accounting principles, consistently applied in the United States (“GAAP”), during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements), correspond to the books and records of the Company and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended. Ernst & Young LLP is a registered public accounting firm independent of the Company as required by the Securities Act and Exchange Act. The Company is not aware of any issues raised by the Commission with respect to any of the SEC Documents. No other written information provided by or on behalf of the Company to the Purchasers which is not included in the SEC Documents, including pursuant to this Section 3, when taken as a whole, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are or were made, not misleading. The Company is not required to file and will not be required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to the date of this Agreement and to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound which has not been previously filed as an exhibit to the SEC Documents. Except for the issuance of the Shares and Warrants contemplated by this Agreement and the planned special meeting of the Company’s stockholders to vote on the issuance of the Shares and the Warrant Shares issuable pursuant to the Closing Warrants, no event, liability, development or circumstance has occurred or exists, with respect to the Company, any Subsidiary or their business, properties, prospects, operations or financial condition, that is required to be disclosed by the Company under applicable securities laws and which has not been publicly disclosed. The Company has no reason to believe that its independent auditors will withhold their consent to the inclusion of their audit opinion concerning the Company’s financial statements that shall be included in a “Registration Statement” (as such term is defined in the Rights Agreement) required pursuant to Section 2(a) of the Rights Agreement. Except as disclosed in the SEC Documents, there has been no change or development that has had or could reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect since December 31, 2004.

      3.10     Taxes. The amount shown on the Condensed Consolidated Balance Sheet of the Company as of June 30, 2005 that is included in the Company’s Form 10-Q filed with the Commission on August 9, 2005 (the “Balance Sheet”) as provision for taxes is sufficient in all material respects for payment of all accrued and unpaid federal, state, county, local and foreign taxes for all periods. The Company and each Subsidiary has filed or has obtained currently effective extensions with respect to all federal, state, county, local and foreign tax returns which are required to be filed by it, such returns are complete and accurate in all material respects and all taxes shown thereon to be due have been timely paid with exceptions not material to the Company or such Subsidiary. No controversy with respect to taxes of any type with respect to the Company or any Subsidiary is pending or, to the Company’s knowledge, threatened. The Company and each Subsidiary has withheld or collected from each payment made to its employees the amount of all taxes required to be withheld or collected therefrom and has paid all such amounts to the appropriate taxing authorities when due (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes). The Company has no knowledge of any material liability of any tax to be imposed upon the properties or assets of the Company or any Subsidiary as of the Closing that is not adequately provided for.

      3.11     Property and Assets. Except as disclosed in Section 3.11 of the Disclosure Schedule, the Company and each Subsidiary has good and marketable title to, or a valid leasehold interest in, all of its material properties and assets, including all properties and assets reflected in the Balance Sheet and the SEC Documents, and none of such properties or assets is subject to any Security Interest. Neither the Company nor any Subsidiary owns, or has ever owned, any real estate.

      3.12     Intellectual Property.

      (A) The term “Intellectual Property Assets” means all intellectual property owned or licensed by the Company or any Subsidiary in which the Company or any Subsidiary has a proprietary interest, including without limitation:

      (B) Section 3.12(B) of the Disclosure Schedule contains a complete and accurate list of all material contracts or agreements relating to the Intellectual Property Assets, including all research and development licenses and material transfer agreements (but excluding any license implied by the sale of a product). Section 3.12(B) of the Disclosure Schedule also lists all material clinical, formulation and manufacturing agreements, and associated regulatory consulting service agreements, relating to the Company’s or any Subsidiary’s products and proposed products. There are no outstanding and, to the knowledge of the Company, no threatened disputes or disagreements with respect to any such contract or agreement.

      (C) No contract or agreement listed or required to be listed in Section 3.12(B) of the Disclosure Schedule contains any provision that would cause the terms of any such contract or agreement to become invalid, be breached, terminate or otherwise change as a result of any of the transactions contemplated by this Agreement.

      (D) To the knowledge of the Company, the Intellectual Property Assets are all those necessary for the operation of the business of the Company and its Subsidiaries as currently conducted and currently proposed to be conducted in the reasonably foreseeable future. Except as noted in Section 3.12(D) of the Disclosure Schedule, the Company is the sole owner or exclusive licensee of all right, title and interest in and to each of the Intellectual Property Assets, free and clear of all Security Interests, and has the exclusive right to use and practice without payment to a third party all of the Intellectual Property Assets for the operation of the business of the Company and its Subsidiaries as currently conducted and as currently proposed to be conducted in the reasonably foreseeable future, other than in respect of licenses described in Section 3.12(B) of the Disclosure Schedule. All former and current employees of the Company or any Subsidiary (and all other agents, consultants and contractors who contributed to or participated in the conception or development of the Intellectual Property Assets) have executed written contracts or agreements with the Company that assign to the Company all rights to any inventions, improvements, discoveries or information relating to the business of the Company or any Subsidiary, including without limitation all Intellectual Property Assets owned, controlled by or in the possession of the Company or any Subsidiary. To the knowledge of the Company, there is no unauthorized use, infringement or misappropriation of any of the Intellectual Property Assets by any third party, employee or former employee.

      (E) Section 3.12(E) of the Disclosure Schedule contains a complete and accurate list of all Patents that are owned by the Company or any Subsidiary or used in the Company’s or any Subsidiary’s current operations.

      (F) Section 3.12(F) of the Disclosure Schedule contains a complete and accurate list of all Marks that are used in the Company’s or any Subsidiary’s current operations.

      (G) Currently, the Company has no ownership interest in any registered Copyrights. There are no Copyrights which are material to the business of the Company or any Subsidiary as currently conducted.

      (H) With respect to each Trade Secret:

      3.13     Insurance. The Company and its Subsidiaries maintain valid policies of workers’ compensation insurance and of insurance with respect to its properties and business of the kinds and in the amounts not less than is customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated, including, without limitation, insurance against loss, damage, fire, theft, public liability, clinical trial liability and other risks.

      3.14     Material Contracts and Obligations.     Section 3.14 of the Disclosure Schedule sets forth a list of all material agreements or commitments of any nature (whether written or oral) to which the Company or any Subsidiary is a party or by which either is bound, including without limitation (a) any agreement which requires future expenditures by the Company in excess of $500,000 or which might result in payments to the Company in excess of $500,000, (b) any material employment agreements, employee benefit, bonus, pension, profit-sharing, stock option, stock purchase and similar plans and arrangements, and any consulting agreements entered into or terminated within the 365 days prior to the date hereof, (c) any material distributor, sales representative or similar agreement, (d) any material agreement with any current or former stockholder, officer or director of the Company or any Subsidiary, or any “affiliate” or “associate” of such persons (as such terms are defined in the rules and regulations promulgated under the Securities Act), including without limitation any agreement or other arrangement providing for the furnishing of services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity, (e) any agreement under which the Company or any Subsidiary is restricted from carrying on any business anywhere in the world, (f) any material agreement relating to indebtedness for borrowed money, (g) any agreement for the disposition of a material portion of the Company’s or any Subsidiary’s assets (other than for the sale of inventory in the ordinary course of business), (h) any material agreement concerning research, development or testing of any product by or for the Company or any Subsidiary; and (i) any agreement for the acquisition

of the business or securities or other ownership interests of another party. The Company has made available to the Purchasers copies of the foregoing agreements. Each such agreement and contract is a legal, valid, and binding obligation of the parties thereto and is in full force and effect. Neither the Company or any Subsidiary, nor, to the Company’s knowledge, any other party thereto, is in default of any of its obligations under any of the agreements or contracts listed in Section 3.14 of the Disclosure Schedule.

      3.15     Compliance. There is no term or provision of any mortgage, indenture, contract, agreement or instrument to which the Company or any Subsidiary is a party or by which either is bound, or, to the Company’s knowledge, of any provision of any state, federal or foreign judgment, decree, order, statute, rule or regulation applicable to or binding upon the Company or any Subsidiary, which has had or is reasonably likely to have a Company Material Adverse Effect. To the Company’s knowledge, none of the employees of the Company or any Subsidiary is in material violation of any term of any contract or covenant (either with the Company or with another entity) relating to employment, patents, assignment of inventions, proprietary information disclosure, non-competition or non-solicitation.

      3.16     Employees.

      (A) All current and former employees of the Company or its Subsidiaries who have performed development work or provided technical services to the Company or any Subsidiary or have otherwise had access to confidential or proprietary information of the Company have executed and delivered a confidentiality, proprietary information and inventions agreement in the forms presented to the Purchasers (the “IP Agreements”), and all of such agreements are in full force and effect. All current and former consultants of the Company or its Subsidiaries who have performed development work or provided technical services to the Company or any Subsidiary or have otherwise had access to confidential or proprietary information of the Company or any Subsidiary have executed and delivered an IP Agreement to the Company, and all of such agreements are in full force and effect.

      (B) The Company is not aware that any key employee of the Company or any Subsidiary has plans to terminate his or her employment relationship with the Company or such Subsidiary. The Company and its Subsidiaries have complied in all material respects with all applicable laws relating to wages, hours, equal opportunity, collective bargaining, layoffs, workers’ compensation insurance and the payment of social security and other taxes. None of the employees of the Company or any Subsidiary is represented by any labor union, and there is no labor strike or other labor trouble pending with respect to the Company or any Subsidiary or, to the Company’s knowledge, threatened. To the Company’s knowledge, no employee of the Company or any Subsidiary is obligated under any contract or subject to any judgment, decree or administrative order that would conflict or interfere with (i) the performance of the employee’s duties as an employee, director or officer of the Company or any Subsidiary, or (ii) the Company’s or any Subsidiary’s business as currently conducted or currently proposed to be conducted.

      3.17     Books and Records. The minute books of the Company made available to the Purchasers or their counsel contain complete and accurate records of all corporate actions of its stockholders and its Board of Directors and committees thereof since January 1, 2005, whether taken at a meeting or by written consent.

      3.18     Environmental Matters.

      (A) The Company and each Subsidiary has complied in all material respects with all applicable Environmental Laws (as defined below). There is no pending or, to the Company’s knowledge, threatened civil or criminal litigation, written notice of violation, formal administrative proceeding, or investigation, inquiry or information request by any Governmental Entity, relating to any Environmental Law involving the Company or any Subsidiary. For purposes of this Agreement, “Environmental Law” shall mean any federal, state, local or foreign law, statute, rule or regulation or the common law relating to the environment or occupational health and safety, including any statute, regulation, administrative decision or order pertaining to (i) treatment, storage, disposal, generation and transportation of industrial, toxic or hazardous materials or substances or solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater and soil contamination; (iv) the release or threatened release into the environment of industrial, toxic or hazardous materials or substances, or solid or hazardous waste, including emissions, discharges, injections, spills, escapes

or dumping of pollutants, contaminants or chemicals; (v) the protection of wild life, marine life and wetlands, including all endangered and threatened species; (vi) storage tanks, vessels, containers, abandoned or discarded barrels and other closed receptacles; (vii) health and safety of employees and other persons; or (viii) manufacturing, processing, using, distributing, treating, storing, disposing, transporting or handling of materials regulated under any law as pollutants, contaminants, toxic or hazardous materials or substances, or oil or petroleum products or solid or hazardous waste. As used above, the terms “release” and “environment” shall have the meaning set forth in the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”).

      (B) Neither the Company nor any Subsidiary has any material liabilities or material obligations arising from the release of any Materials of Environmental Concern (as defined below) into the environment. For purposes of this Agreement, “Materials of Environmental Concern” shall mean any chemicals, pollutants or contaminants, hazardous substances (as such term is defined under CERCLA), solid wastes and hazardous wastes (as such terms are defined under the Resource Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum products or any other material subject to regulation under any Environmental Law.

      (C) Neither the Company nor any Subsidiary is a party to or bound by any court order, administrative order, consent order or other agreement between the Company or any Subsidiary and any Governmental Entity entered into in connection with any legal obligation or liability arising under any Environmental Law.

      (D) The Company is not aware of any material environmental liability of any solid or hazardous waste transporter or treatment, storage or disposal facility that has been used by the Company or any Subsidiary.

      3.19     No Solicitation or Advertisement. Neither the Company or any Subsidiary nor any person acting on either’s behalf has engaged, in connection with the offering or sale of the Shares or Warrants, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act.

      3.20     Securities Act Registration. Assuming that the representations and warranties of each of the Purchasers contained herein are true, it is not necessary in connection with the offer, sale and delivery of the Shares, Warrants and Warrant Shares, if any, in the manner contemplated by this Agreement to register the Shares, the Warrants or the Warrant Shares under the Securities Act or under applicable state securities or Blue Sky laws regulating the issuance or sale of securities.

      3.21     United States Real Property Holding Company. The Company is not now and has never been a “United States real property holding corporation,” as defined in §897(c)(2) of the Internal Revenue Code of 1986, as amended (the “Code”), and Treasury Regulation §1.897-2(b), and the Company has filed with the Internal Revenue Service all statements, if any, with its United States income tax returns, which are required under Treasury Regulation §1.897-2(h).

      3.22     Benefit Plans. Except as set forth in Section 3.22 of the Disclosure Schedule, neither the Company, any Subsidiary nor any Plan Affiliate (as defined below) has maintained, sponsored, adopted, made contributions to or obligated itself to make contributions to or to pay any benefits or grant rights under or with respect to any material Employee Benefit Plan (as defined below), whether written, oral, voluntary or pursuant to a collective bargaining agreement or law, which could give rise to or result in the Company, any Subsidiary or such Plan Affiliate having any debt, liability, claim or obligation of any kind or nature, whether accrued, absolute, contingent, direct, indirect, known, perfected or inchoate or otherwise and whether or not due or to become due. Correct and complete copies (or, if oral, descriptions) of all Employee Benefit Plans have been made available to each Purchaser. As used herein, “Plan Affiliate” means any person or entity with which the Company or any Subsidiary constitutes all or part of a controlled group of corporations, a group of trades or businesses under common control or an affiliated service group, as each of those terms are defined in Section 414 of the Code. As used herein, “Employee Benefit Plan” means, collectively, each bonus, deferred compensation, incentive compensation, stock purchase, stock option, severance or termination pay, health or other medical, life, disability or other insurance, supplemental unemployment benefit, profit sharing, pension, retirement, supplemental retirement or other employee benefit plan, program, agreement or arrangement, whether written or unwritten, formal or informal, maintained or contributed to or required to be contributed to by any person for the benefit of any employee or former employee of the Company, any Subsidiary or their

affiliates or their dependants or beneficiaries, as well as the compensation practices and policies regarding vacations, sick leaves, leaves of absence and all perquisites of employment other than those mandated by any legal requirement and shall include to the extent applicable to Company or any Subsidiary, without limitation, “Employee Pension Benefit Plans” (as defined in Section 3(2) of ERISA (as defined below), “Employee Welfare Benefit Plan” (as defined in Section 3(1) of ERISA) and “Multi-employer Plan” (as defined in section 3(37) of ERISA) ), but shall exclude any such arrangements or perquisites that do not exceed, individually or in the aggregate, $300 per month per any particular person. As used herein, “ERISA” means the Employee Retirement Income Security Act of 1974 and any law of any foreign jurisdiction of similar import. The Company has made all “matching” contributions required pursuant to the terms of the Company’s 401(k) plan or otherwise promised to employees (in writing or orally).

      3.23     Foreign Corrupt Practices Act; Etc. The Company, its Subsidiaries and their respective officers, directors, employees and agents are in compliance with and have not violated the Foreign Corrupt Practices Act of 1977, as amended, or any rules and regulations thereunder, or any similar laws of any foreign jurisdiction. To the Company’s knowledge, no governmental or political official in any country is or has been employed by, or acted as a consultant to or held any material beneficial ownership interest in the Company. The Company, its Subsidiaries and their respective officers, directors, employees and agents are in compliance with and have not violated the U.S. money laundering laws or regulations, the U.S. Bank Secrecy Act, as amended by the USA Patriot Act of 2001 (including any recordkeeping or reporting requirements thereunder), or the anti-money laundering laws or regulations of any jurisdiction.

      3.24     Certain Matters Related to Third Parties. Neither the Company nor any Subsidiary has ever intentionally aided, facilitated or furthered (whether by action or inaction), or intentionally participated in, any effort, scheme or arrangement intended to (or having the foreseeable effect of) misleading or defrauding any creditor or stockholder of the Company or any Subsidiary or any creditor or stockholder of any third party. Neither the Company nor any Subsidiary has ever received any direct or indirect indication, whether written or oral, that the Commission (or any other Governmental Entity) is investigating the Company or any Subsidiary in connection with its role in any such effort, scheme or arrangement.

      3.25     Brokers. Except as set forth in Section 3.25 of the Disclosure Schedule, neither the Company nor any Subsidiary has engaged any brokers, finders or agents, or incurred, or will incur, directly or indirectly, any liability for brokerage or finder’s fees or agents’ commissions or any similar charges in connection with this Agreement and the transactions contemplated hereby.

      3.26     Investment Company. Neither the Company nor any Subsidiary is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

      3.27     Sarbanes-Oxley Act. The Company and its Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002, as amended to date, that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder, except where such noncompliance could not have, individually or in the aggregate, a Company Material Adverse Effect.

      3.28     Internal Accounting Controls. The Company and its Subsidiaries maintain a system of accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

      3.29     Insolvency Actions. Neither the Company nor any Subsidiary has made any filing, or authorized any filing or similar formal action, to seek protection pursuant to any bankruptcy law and the Company does not have any knowledge or reason to believe that either’s creditors intend to initiate involuntary bankruptcy proceedings.

      3.30     Dilutive Effect. The Company acknowledges that its obligation to issue Warrant Shares upon the exercise of the Warrants that are issued, in accordance with such Warrants (subject to the availability of sufficient authorized shares of Common Stock), is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company.

      3.31     Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that each Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby. The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the Ancillary Agreements and the transactions contemplated hereby and thereby, and any advice given by a Purchaser or any of its representatives or agents in connection therewith, if any, is merely incidental to such Purchaser’s purchase hereunder. The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement and the Ancillary Agreements has been based solely on the independent evaluation by the Company and its representatives. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those expressly set forth in Section 4 or expressly set forth in the Ancillary Agreements.

      3.32     Application of Takeover Protections. The Company and its Board of Directors have taken (or will take prior to the Closing, if the Closing is the event that would trigger such matters) all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate, the By-laws, a stockholder rights agreement to which the Company is party, the laws of the state of its incorporation or the laws of any other state which is applicable to the Purchasers as a result of the transactions contemplated by this Agreement, including, without limitation, the Company’s issuance of the Shares, Warrants and Warrant Shares and the Purchasers’ ownership, voting (to the extent applicable) or disposition of the Shares, Warrants and Warrant Shares.

      3.33     No Integrated Offering. Neither the Company, any Subsidiary nor any of their affiliates, nor any person acting on its or their behalf, has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Shares, Warrants and Warrant Shares to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or any Subsidiary take any action or steps that would cause the offering of the Shares, Warrants or Warrant Shares to be integrated with other offerings.

      3.34     Compliance with Nasdaq Continued Listing Requirements. Except as disclosed in Section 3.34 of the Disclosure Schedule or in the SEC Documents, the Company is in compliance with applicable Nasdaq National Market System continued listing requirements. Except as disclosed in Section 3.34 of the Disclosure Schedule or in the SEC Documents, (a) there are no proceedings pending or, to the Company’s knowledge, threatened against the Company relating to the continued listing of the Common Stock on the Nasdaq National Market System and (b) the Company has not received any notice of, nor to the Company’s knowledge is there any basis for, the delisting of the Common Stock from the Nasdaq National Market System.

      3.35     Transactions with Affiliates. Except as disclosed in the SEC Documents, none of the officers or directors of the Company and, to the Company’s knowledge, none of the employees of the Company is currently a party to any transaction with the Company or any Subsidiary (other than as holders of stock options and/or warrants, and for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the Company’s knowledge, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

Section 4.     Representations and Warranties of the Purchasers

      Each Purchaser hereby severally represents and warrants to the Company as follows:

      4.1     Investment. Such Purchaser is acquiring the Shares, its Warrants and the Warrant Shares, if any, for his, her or its own account, for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the same; and, except as contemplated by this Agreement and the Exhibits hereto, such Purchaser has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the disposition thereof. Such Purchaser is an “accredited investor” as defined in Rule 501(a) under the Securities Act.

      4.2     Authority. Such Purchaser has full power and authority to enter into and to perform this Agreement and the Ancillary Agreements in accordance with their terms. The execution, delivery and performance by such Purchaser of this Agreement and each of the Ancillary Agreements to which it is a party have been duly authorized by all requisite action by such Purchaser and, when executed and delivered by such Purchaser, this Agreement and each of the Ancillary Agreements to which it is party will be the valid and binding obligations of such Purchaser, enforceable against it in accordance with their respective terms. Any Purchaser which is a corporation, limited liability company, partnership or trust represents that it has not been organized, reorganized or recapitalized specifically for the purpose of investing in the Company.

      4.3     Experience. Such Purchaser has carefully reviewed the representations concerning the Company contained in this Agreement, and has made inquiry concerning the Company, its business and its personnel; the officers of the Company have made available to such Purchaser any and all written information which he, she or it has requested and have answered to such Purchaser’s satisfaction all inquiries made by such Purchaser; and such Purchaser has sufficient knowledge and experience in finance and business that he, she or it is capable of evaluating the risks and merits of his, her or its investment in the Company and such Purchaser is able financially to bear the risks thereof. Such Purchaser acknowledges that an investment in the Company has a high degree of risk. No investigation undertaken by or on behalf of the Purchaser shall limit or restrict the Purchaser’s right to rely on the representations and warranties of the Company contained herein.

      4.4     Restricted Shares. Such Purchaser understands that (a) the Shares, its Warrants and the Warrant Shares have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Rule 506 promulgated under the Securities Act, (b) the Shares, its Warrants and the Warrant Shares must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration and (c) the Company will make a notation on its transfer books to such effect. Such Purchaser represents that it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. Such Purchaser acknowledges that the Shares, its Warrants and the Warrant Shares have not been registered under the Securities Act or qualified under any applicable blue sky laws in reliance, in part, on the representations and warranties herein.

      4.5     Legend. Such Purchaser understands that any certificates evidencing the Shares, the Warrants and the Warrant Shares may bear the following legend:

      The legend set forth above shall be removed and the Company hereby agrees to issue the Shares or Warrant Shares, as applicable, without such legends to the holder thereof, (i) if such Shares or Warrant Shares are registered for resale under the Securities Act, (ii) if such holder provides the Company with an opinion of counsel or other evidence reasonably acceptable to the Company to the effect that a public sale, assignment or transfer of the such Shares or Warrant Shares, as applicable, may be made without registration

under the Securities Act, or (iii) upon expiration of the applicable period under Rule 144(k) of the Securities Act (or any successor rule). When the Company is required to cause legends to be removed from certificates pursuant to the foregoing sentence, if unlegended certificates are not delivered to a Purchaser within three (3) Business Days of submission by that Purchaser of (x) legended certificate(s) to the Company’s transfer agent (together with a representation letter in customary form) and (y) written notification to the Company that the Purchaser has requested the transfer agent to remove such legends, the Company shall be liable to the Purchaser for liquidated damages in an amount equal to 1.0% of the aggregate purchase price of the Shares or Warrant Shares evidenced by such certificate(s) for each thirty (30) day period (or portion thereof) beyond such three (3) Business Days that the unlegended certificates have not been so delivered.

      4.6     Brokers. Such Purchaser has not engaged any brokers, finders or agents and has not incurred, and will not incur, directly or indirectly, any liability for brokerage or finder’s fees or agents’ commissions or any similar charges in connection with this Agreement and the transactions contemplated hereby.

      4.7     Certain Purchasers. If any Purchaser is not a United States person, such Purchaser hereby represents that such Purchaser is satisfied as to the full observance of the laws of such Purchaser’s jurisdiction in connection with any invitation to subscribe for the Shares, its Warrants and the Warrant Shares, including (i) the legal requirements of such Purchaser’s jurisdiction for the offer, purchase and sale of securities, (ii) any foreign exchange restrictions applicable to such offer, purchase and sale, (iii) any governmental or other consents that may need to be obtained and (iv) the income tax and other tax consequences, if any, which may be relevant to the offer, purchase, holding, redemption, sale or transfer of the Shares, its Warrants and the Warrant Shares. Such Purchaser’s exercise and payment for, and such Purchaser’s continued beneficial ownership of, the Shares, its Warrants and the Warrant Shares will not violate any applicable securities or other laws of such Purchaser’s jurisdiction.

      4.8     Organization and Standing. Such Purchaser, if an entity, is duly organized, validly existing and in good standing under the laws of its jurisdiction of formation and has full power and authority to enter into and perform this Agreement and all Ancillary Agreements to which it is party, and to carry out the transactions contemplated by this Agreement and such Ancillary Agreements.

Section 5.     Covenants

      5.1     Affirmative Covenants. The Company covenants and agrees that prior to the Closing or Warrant Trigger it will (unless waived in whole or in part in writing by Purchasers that have agreed to purchase at least a majority of the Shares to be purchased at the Closing) perform and observe the following covenants and provisions, and will cause each Subsidiary to perform and observe such of the following covenants and provisions as are applicable to such Subsidiary:

      5.2     SEC Filings; Annual Budget and Other Information. The Company will until December 31, 2008 (unless waived in whole or in part in writing by Purchasers (i) that have agreed to purchase at least a majority of the Shares to be purchased at the Closing, or (ii) if after the Closing, that hold at least a majority of the Shares outstanding) deliver true, accurate and complete copies of the following to each Purchaser that owns at least 75% of the Shares originally purchased by it at the Closing:

      5.3     Negative Covenants of the Company. The Company agrees that:

      5.4     Indemnification. (a) In consideration of each Purchaser’s execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and acquiring the Shares and the Warrants hereunder and in addition to all of the Company’s other obligations under this Agreement and the Ancillary Agreements, the Company shall defend, protect, indemnify and hold harmless each Purchaser and each other holder of the Shares, Warrants or Warrant Shares and all of their affiliates, stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (collectively, “Claims”), incurred by any Indemnitee as a result of, or arising out of, or relating to any breach of representation, warranty, covenant or agreement made by or to be performed on the part of the Company under this Agreement or any Ancillary Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Claims which is permissible under applicable law. Subject to Section 5.4(b)of this Agreement, the Company shall reimburse the Indemnitees, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with the investigating or defending any such Claim.

      (b) Promptly after an Indemnitee has knowledge of any Claim as to which such Indemnitee reasonably believes indemnity may be sought or promptly after such Indemnitee receives notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnitee shall, if a Claim in respect thereof is to be made against the Company under this Section 5.4, deliver to the Company a written notice of such Claim, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and the Indemnitee; provided, that an Indemnitee shall have the right to retain its own counsel if, in the reasonable opinion of such Indemnitee, the representation by such counsel of the Indemnitee and the Company would be inappropriate due to actual or potential conflicting interests between such Indemnitee and the Company; provided, further, that the Company shall not be responsible for the reasonable fees and expenses of more than one (1) separate legal counsel for such Indemnitee. In the case of an Indemnitee, the separate legal counsel (if applicable) referred to in the immediately preceding sentence (the “Legal Counsel”) shall be selected by the Purchasers holding at least a majority in interest of the Shares or Warrant Shares to which the Claim relates. The Legal Counsel shall not represent any Indemnitee that sends such counsel written notice that such Indemnitee does not wish such counsel to represent it in connection with the matters discussed in this Section. The Indemnitees, other than any Indemnitee that delivers the notice discussed in the preceding sentence, hereby waive any conflict of interest or potential conflict of interest that may arise as a result of the representation of such Indemnitees by the Legal Counsel in connection with the subject matter of the Claim. The Indemnitee shall cooperate fully with the Company in connection with any negotiation or defense of any such action or Claim by the Company and shall furnish to the Company all information reasonably available to the Indemnitee which relates to such action or Claim. The Company shall keep the Indemnitee fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. The Company shall not be liable for any settlement of any Claim effected without its prior written consent; provided, however, that the Company shall not unreasonably withhold, delay or condition its consent. The Company shall not, without the prior written consent of the Indemnitee, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a full release from all liability in respect to such Claim, action and proceeding. The failure to deliver written notice to the Company as provided in this Agreement shall not relieve the Company of any liability to the

Indemnitee under this Section 5.4, except to the extent that the Company is materially prejudiced in its ability to defend such action.

      5.5     Obligations. Each party shall use commercially reasonable efforts to timely satisfy each of the conditions to be satisfied by it as provided in Section 6 of this Agreement.

      5.6     Form D and Blue Sky. The Company agrees to file timely a Form D with the Commission with respect to the Shares, Warrants and Warrant Shares as required under Regulation D and to provide, upon request, a copy thereof to each Purchaser. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Shares, Warrants and Warrant Shares for, sale to the Purchasers pursuant to this Agreement under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Purchasers on or prior to the Closing Date. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 5.6.

      5.7     Reservation of Shares. The Company shall take all actions necessary to at all times have authorized, and reserved for the purpose of issuance, no less than one hundred percent (100%) of the number of shares of Common Stock needed to provide for the issuance of the Warrant Shares upon the exercise of all issued and outstanding Warrants, without regard to any limitations on such exercise of such Warrants; provided, that prior to obtaining the Share Authorization Approval, (a) the Company shall reserve all of its authorized but unissued shares, other than such shares which are already reserved for the Company Stock Plans, for such purposes, and (b) the Company shall not be required to take any other action under this Section so long as the Company is complying with Section 5.14.

      5.8     Filing of Form 8-K. On the date of this Agreement or the next Business Day, the Company shall issue a press release, in form reasonably acceptable to Essex and its counsel, announcing the transactions contemplated hereby. The Company shall use reasonable efforts within one Business Day after the public announcement of the transactions contemplated hereby to file (1) a Current Report on Form 8-K with the Commission furnishing as an exhibit to such Current Report on Form 8-K the press release announcing the signing of this Agreement, and (2) a Current Report on Form 8-K with the Commission describing the terms of the transactions contemplated by this Agreement and the Ancillary Agreements, and including as exhibits to such Current Report on Form 8-K (i) this Agreement, (ii) the form of Contingent Warrant, (iii) the form of Closing Warrant and (iv) the Rights Agreement, each in the form required by the Exchange Act.

      5.9     Waivers to Existing Registration Rights. With respect to any existing agreements or arrangements under which the Company is obligated to register the sale of any of its securities under the Securities Act (other than pursuant to the Rights Agreement), the Company shall use its commercially reasonable best efforts to obtain all waivers with respect to such agreements (i) at the time any registration statement is filed pursuant to the Rights Agreement, and (ii) through the period of effectiveness of each such registration statement, so that the Company would not be required to register the sale of any of its securities pursuant to such other agreements or arrangements as a result of any actions taken by the Company to file any registration statements pursuant to the Rights Agreement.

      5.10     Transfer Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent, and any subsequent transfer agent, to issue certificates, registered in the name of each Purchaser or their respective nominee(s), for the Shares and (upon exercise of the Warrants) the Warrant Shares, in the appropriate amounts (the “Irrevocable Transfer Agent Instructions”), in form and substance reasonably acceptable to the Purchasers. The Company agrees that no instruction inconsistent with the Irrevocable Transfer Agent Instructions referred to in this Section will be given by the Company to its transfer agent and that the Shares and Warrant Shares, if any, shall be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Warrants and the Registration Rights Agreement (but subject to the express transfer limitations set forth therein).

      5.11     Board Nominees; Director Protections. The Company shall ensure that, unless otherwise agreed in writing by Essex and Frazier Healthcare V, LP (“Frazier”), the Company’s Board of Directors shall consist of no more than nine authorized directors. If at any time fewer than two individuals designated by Essex (the

“Essex Designees”), one individual designated by Frazier (the “Frazier Designee”), and one individual designated by mutual written consent of Essex and Frazier (the “Joint Designee”) are then serving on the Board of Directors, or if any of the Joint Designee’s, Frazier Designee’s, or Essex Designees’ term as a director is expiring at or prior to the next meeting of the Company’s stockholders, then in either case the Company shall ensure that each individual or individuals (as the case may be) designated by Essex, Frazier or the joint approval of Essex and Frazier, as applicable, to serve as a director is properly nominated for election as a director by the stockholders at the next meeting of the Company’s stockholders (the “Next Meeting”), and that a vote on such election is taken at such Next Meeting (or, if then permitted by the Company’s Bylaws and applicable law and requested by Essex or Frazier (or jointly), as applicable, such designee(s) shall be appointed as a director by the Board of Directors to serve until he or she may be so nominated at the Next Meeting); provided, that in any case where such a designee is not already on the Board and is to be elected at a stockholders meeting (as opposed to appointed by the Board), the Company shall ensure that the Next Meeting is called as expeditiously as is practicable. The Company shall also ensure that each individual serving as an Essex Designee or Frazier Designee (each a “Designee”) is at all times covered and insured by the Company’s directors and officers liability insurance, under a valid policy with a responsible and reputable insurance company or association in such amount, type and covering such risks as are at least as protective of directors as is the Company’s current such policy. The Company shall promptly reimburse all reasonable expenses of each Designee incurred in attending any meeting of the Board of Directors (or any committee thereof), whether in person or by remote access, and in taking any other action requested by the Company or the Board. The Company shall enter into an indemnification agreement with each Designee at or prior to such Designee becoming a director (or such later date as is requested by the Designee), in form reasonable acceptable to Essex and Frazier, which agreement shall be no less protective of the Designees than any other indemnification agreement between the Company and any director. Essex and Frazier agree that that the Company’s current form of indemnification agreement is acceptable to them given the current legal and business environment and applicable law (but reserve the right to require that such agreement continue to be reasonably acceptable to them as such environment or laws change). Unless waived in writing by such Designee (or by Essex or Frazier, as applicable, on such Designee’s behalf), a Designee shall be entitled to receive the same compensation (whether in the form of cash, securities or otherwise) for serving as a director as is paid to any other director.

      5.12     Preemptive Rights. (a) As used in this Section, the term “New Securities” means any shares of Common Stock, shares of Preferred Stock or any other class of capital stock of the Company, whether or not now authorized, or any securities of any type that are directly or indirectly convertible into shares of such capital stock, or options, warrants, debt instruments or rights to acquire shares of such capital stock; provided, that “New Securities” does not include any (i) shares of Common Stock (or options therefor) issued to officers, directors or employees of, or consultants to, the Company pursuant to Company Stock Plans or agreements on terms approved by the Board of Directors; (ii) shares of Common Stock, or options or warrants to purchase Common Stock, issued to financial institutions or lessors in connection with commercial credit arrangements, equipment financings or similar transactions, provided such issuances are primarily for other than equity financing purposes; (iii) shares of Common Stock, or options or warrants to purchase Common Stock, issued pursuant to (A) joint ventures, technology licensing or research and development activities, (B) distribution or manufacture of the Company’s products or services, (C) the purchase of advertising placement, or (D) any other transaction involving corporate partners, in each case that are primarily for other than equity financing purposes; or (iv) shares of Common Stock, or options or warrants to purchase Common Stock, issued in connection with bona fide acquisitions, mergers or similar transactions.

      (b) If, at any time and from time to time prior to December 31, 2008, the Company should desire to issue New Securities, it shall give each Purchaser that owns at least 75% of the Shares originally purchased by it (or its predecessor or affiliates) at the Closing (a “Qualifying Purchaser”) the first right to purchase its “Proportionate Portion” of such securities, determined by multiplying the total number of shares of New Securities available for purchase by a fraction, the numerator of which is the total number of shares of Common Stock then held by such Qualifying Purchaser, and the denominator of which is the number of shares of Common Stock actually issued and outstanding on such date, on the same terms as the Company is willing to sell such New Securities to any other person or entity.

      (c) Promptly prior to any sale or issuance by the Company of any New Securities, the Company shall deliver to each Qualifying Purchaser a written notice of its intention to issue and sell any New Securities (the “Pre-Notice”), which Pre-Notice shall ask such Qualifying Purchaser if it desires to review the terms of such proposed issuance (such additional notice, a “Participation Notice”). Within two (2) Business Days of receiving the Pre-Notice, a Qualifying Purchaser must notify the Company whether it desires to receive a Participation Notice. If a Qualifying Purchaser fails to respond to a Pre-Notice within such time frame, such Qualifying Purchaser will be deemed to have waived its right to receive such Participation Notice and its right to purchase its Proportionate Portion. Upon the request of a Qualifying Purchaser, and only upon a request by such Qualifying Purchaser, for a Participation Notice, the Company shall promptly, but no later than three (3) Business Days after such request, deliver a Participation Notice to such Purchaser. The Participation Notice shall describe in reasonable detail the proposed terms of the issuance of the New Securities, the amount of proceeds intended to be raised thereunder, the Persons to whom the New Securities are to be issued, and attached to which shall be a term sheet or similar document relating thereto. Within five (5) days after receipt of the Participation Notice (the “Exercise Period”), each Qualifying Purchaser shall notify the Company whether such Qualifying Purchaser desires to exercise its option to purchase the Proportionate Portion (or any part thereof) of the New Securities so offered. If a Qualifying Purchaser fails to respond to the Participation Notice during the Exercise Period, such Qualifying Purchaser will be deemed to have declined to exercise its option to purchase its Proportionate Portion. In the event that the Qualifying Purchasers elect to purchase New Securities offered by the Corporation under the Participation Notice during the Exercise Period, then a closing of the sale and issuance of the New Securities to the electing Qualifying Purchasers shall occur no later than the later of (i) the date set forth in the Participation Notice, and (ii) the date that is fifteen (15) Business Days after receipt of the Participation Notice.

      (d) After the expiration of the Exercise Period, the Company may, during a period of ninety (90) days immediately following the end of the Exercise Period, sell and issue any New Securities not purchased hereunder to other persons or entities, upon the same terms and conditions as those set forth in the Participation Notice. In the event the Company has not sold the New Securities within said ninety (90) day period, the Company shall not thereafter issue or sell any New Securities without first offering such securities to the Qualifying Purchaser in the manner provided above.

      (e) Each Qualifying Purchaser that receives Nonpublic Information pursuant to this Section 5.12 shall keep such information confidential to the extent necessary to comply with applicable securities laws (including, without limitation, Regulation FD).

      5.13     Listing. The Company shall comply with all requirements of the Principal Market or Capital Market (each as defined below), as applicable, with respect to the issuance of the Shares and the Warrant Shares, if any, and shall use its best efforts to (i) have the Shares and Warrant Shares, if any, listed on the Principal Market on or before the date the applicable registration statement with respect thereto under the Rights Agreement is declared effective by the Commission, (ii) maintain the listing of the Company’s Common Stock at all times on the Principal Market until all Shares or Warrant Shares, if any, have been sold on the Principal Market, and (iii) if such listing is for any reason suspended by the Commission or the Principal Market, (A) take steps to promptly obtain listing on the Principal Market again, and (B) take steps to promptly obtain listing on the Capital Market until the listing on the Principal Market is restored.

      5.14     Stockholder Approvals. The Company shall use its best efforts to satisfy the conditions to be satisfied by it as provided in Section 6.1(C) of this Agreement. In addition, and without limiting the generality of the foregoing, the Company shall:

Section 6.     Conditions to Closing

      6.1     The obligation of each of the Purchasers to purchase Shares at the Closing is subject to the fulfillment to the Purchaser’s reasonable satisfaction, or the waiver in writing by the Purchaser (as to itself only), of each of the following conditions on or before such Closing:

      6.2     The obligation of the Company to sell Shares to a Purchaser under this Agreement is subject to fulfillment, or the waiver in writing by the Company, of the following condition on or before the Closing:

      6.3     The obligation of a Purchaser to purchase Shares at the Closing may be terminated at any time prior to the Closing by such Purchaser if (i) the Company shall have breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, which breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 6.1(A) or 6.1(B) and (B) is not cured by the Company within 10 days following receipt of written notice of such breach or failure to perform and (ii) such Purchaser gives written termination notice to the Company (a “Termination Notice”). If a Purchaser delivers a Termination Notice to the Company, it shall concurrently deliver of copy of the Termination Notice to the other Purchasers. If a Termination Notice is delivered to the Company in accordance with the terms of this Section 6.3, this Agreement shall automatically become void and have no effect with respect to such Purchaser.

Section 7.     Miscellaneous

      7.1     This Agreement, and the rights and obligations of each Purchaser hereunder, may be assigned by such Purchaser to (a) any person or entity to which Shares are transferred by such Purchaser, or (b) to any affiliate, partner, member, stockholder or subsidiary of such Purchaser, and, in each case, such transferee shall be deemed a “Purchaser” for purposes of this Agreement; provided, that such assignment of rights shall be contingent upon the transferee providing a written instrument to the Company certifying its status as an “accredited investor” and notifying the Company of such transfer and assignment and agreeing in writing to be bound by the terms of this Agreement. The Company may not assign or delegate its rights or obligations under this Agreement. Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the respective successors, assigns, heirs, executors, and administrators of the parties hereto.

      7.2     All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Closing of the transactions contemplated hereby, and the transfer of the Shares, Warrants and Warrant Shares by the Purchasers, for a period of three (3) years after the date of this Agreement. All covenants (including indemnification obligations with respect to breaches of representations and warranties if a claim with respect thereto is made prior to the third anniversary of the date of this Agreement) contained herein shall survive the execution and delivery of this Agreement and the Closing of the transactions contemplated hereby, and the transfer of the Shares, Warrants and Warrant Shares by the Purchasers (except to the extent expressly provided in this Agreement).

      7.3     Each party to the Agreement will pay its own expenses in connection with the transactions contemplated by this Agreement, whether or not the transactions are consummated; provided, that upon the earlier of the Closing or occurrence of the Warrant Trigger, the Company shall pay up to $400,000 of the fees and disbursements of Essex, Frazier and their counsel in connection with the due diligence, negotiation, drafting of, and closing of the transactions contemplated by, this Agreement and the Ancillary Agreements. In addition, after the Closing the Company will pay the reasonable fees and disbursements (a) of a single counsel for the Purchasers in connection with any subsequent amendment, waiver or consent of or under this Agreement, the Ancillary Agreements or any related document or agreement initiated by the Company, and (b) of any Purchaser’s counsel in connection with successful enforcement of this Agreement, any of the Ancillary Agreements or any related document or agreement.

      7.4     The Company and each Purchaser will indemnify and save the other parties harmless from and against any and all claims, liabilities or obligations with respect to investment banking, brokerage or finders’ fees or commissions, or consulting fees in connection with the transactions contemplated by this Agreement and the Ancillary Agreements asserted by any person on the basis of any agreement, statement or representation alleged to have been made by such indemnifying party.

      7.5     The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

      7.6     In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each party shall be entitled to specific performance of the agreements and obligations of the other parties hereunder and to such other injunctive or other equitable relief, without the necessity of showing economic loss and without any bond or other security being required, as may be granted by a court of competent jurisdiction. Each party acknowledges and agrees that the other parties could be damaged irreparably if any of the provisions of this Agreement are not performed according to their specific terms and that any breach of this Agreement could not be adequately compensated in all cases by monetary damages alone.

      7.7     This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and the laws of the United States applicable therein (in each case without giving effect to any choice or conflict of laws provision or rule that would cause the application of the laws of any other jurisdiction) and shall be treated in all respects as a Delaware contract. Any action, suit or proceeding arising out of or relating to this Agreement shall be brought in San Diego County, California or, if it has or can acquire jurisdiction, any Federal court located in such State and County, and EACH OF THE PARTIES HERETO, AFTER CONSULTING WITH OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND WAIVES TRIAL BY JURY (AND AGREES NOT TO REQUEST TRIAL BY JURY), IN EACH CASE IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in the courts of the State of California or the United States of America, in each case located in San Diego County, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such matter brought in any such court has been brought in an inconvenient forum. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

      7.8     All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (a) three business days after being sent by registered or certified mail, return receipt requested, postage prepaid, (b) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery or (c) upon delivery when sent by facsimile (with confirmation of receipt), in each case to the intended recipient as set forth below:

      If to the Company:

or at such other address as may have been furnished in writing by the Company to the other parties hereto, with a copy to:

      If to a Purchaser, at its address set forth on Schedule A, or at such other address as may have been furnished in writing by such party to the Company, with a copy to its legal counsel set forth on Schedule A, if any.

      Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section.

      7.9     This Agreement and the Ancillary Agreements (and the schedules and exhibits hereto and thereto) contain the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, written or oral.

      7.10     This Agreement may be amended or terminated and the observance of any term of this Agreement may be waived with respect to all parties to this Agreement (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of at least a majority of the Shares then held by all Purchasers (or, if prior to Closing, by the Purchasers who have agreed to purchase a majority of the Shares to be purchased at Closing). Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereunder may not be waived with respect to any Purchaser without the written consent of such Purchaser unless such amendment, termination or waiver applies to all Purchasers in the same fashion. The Company shall give prompt written notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination or waiver. Any amendment, termination or waiver effected in accordance with this Section 7.10 shall be binding on all parties hereto, even if they do not execute such consent.

      7.11     The rights and remedies of the parties to this Agreement are cumulative and not alternative. Except as set forth in this Agreement, no failure or delay by any party in exercising any right, power, or privilege under this Agreement will operate as a waiver of the right, power, or privilege, and no single or partial exercise of any right, power, or privilege will preclude any other or further exercise of the right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing, (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of that party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

      7.12     The Company hereby agrees to provide prompt notice to each Purchaser following any “determination date” (as defined in Treasury Regulation Section 1.897-2(c)(1)) on which the Company becomes a United States real property holding corporation. In addition, upon a written request by a Purchaser, the Company shall provide such Purchaser with a written statement informing the Purchaser whether the Purchaser’s interest in the Company constitutes a United States real property interest. The Company’s determination shall comply with the requirements of Treasury Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company shall provide timely notice to the Internal Revenue Service, in accordance with and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any successor regulation, that such statement has been made. The Company’s written statement to the Purchaser shall be delivered to the Purchaser within ten (10) Business Days of the Purchaser’s written request therefor.

      7.13     Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural, and vice versa.

      7.14     This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to each other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

      7.15     The section headings are for the convenience of the parties and in no way alter, modify, amend, limit or restrict the contractual obligations of the parties. Any reference in this Agreement to a particular section or subsection shall refer to a section or subsection of this Agreement, unless specified otherwise.

      7.16     All transfer, excise or other taxes payable to any jurisdiction (in the United States and outside of the United States) or by reason of the sale or issuance of the Shares (except for such taxes payable by reason of any subsequent transfer of the Shares) shall be paid or provided for by the Company.

      7.17     The obligations of each Purchaser under this Agreement and any Ancillary Agreement to which such Purchaser is a party are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement or any Ancillary Agreement. Nothing contained herein or in any Ancillary Agreement, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions. Each Purchaser confirms that it has independently participated in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Except as provided by this Agreement or the Ancillary Agreements, each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any Ancillary Agreements, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

      7.18     The obligations of each Purchaser under this Agreement and any Ancillary Agreement are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement or any Ancillary Agreement. The decision of each Purchaser to purchase Shares, Warrants and Warrant Shares to this Agreement and the Ancillary Agreements has been made by such Purchaser independently of any other Purchaser. Nothing contained herein or in any Ancillary Agreement, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement or the Ancillary Agreements. Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment in the Shares, Warrants and Warrant Shares or enforcing its rights under this Agreement or the Ancillary Agreements. Each Purchaser shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of the other Ancillary Agreements, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that each of the Purchasers has been provided with the same Agreement and Ancillary Agreements for the purpose of closing a transaction with multiple Purchasers and not because it was required or requested to do so by any Purchaser.

      7.19     Except to the extent required to comply with applicable law, no announcement regarding any Purchaser in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made without the prior consent of such Purchaser. Prior to the Closing, no announcement regarding the Company in a press release, conference, advertisement, announcement, professional or trade publication, mass marketing materials or otherwise to the general public may be made by a Purchaser without the prior consent of the Company. Notwithstanding the foregoing, the Company shall be permitted to make the press release pursuant to Section 5.8 above, and thereafter any Purchaser may at any time post a notice on its website that includes information about the Company and/or the financing that was contained in such press release.

      IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the date first set forth above.

                    

SCHEDULE A

Schedule of Purchasers

SCHEDULE B

Purchasers receiving Contingent Warrants at Execution

Domain Public Equity Partners, L.P.

Special Situations Fund III, L.P.

Special Situations Cayman Fund, L.P.

Special Situations Private Equity Fund, L.P.

Special Situations Life Sciences Fund, L.P.

EXHIBIT A

Form of Closing Warrant (Warrant A)

[See Annex B to this Proxy Statement.]

EXHIBIT B

Form of Closing Warrant (Warrant B)

[See Annex C to this Proxy Statement.]

EXHIBIT C

Form of Contingent Warrant

[See Annex D to this Proxy Statement.]

EXHIBIT D

Rights Agreement

[See Annex E to this Proxy Statement.]

ANNEX B

FORM OF CLOSING WARRANT (WARRANT A)

      THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE HEREUNDER MAY BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

La Jolla Pharmaceutical Company

WARRANT TO PURCHASE COMMON STOCK

(Void after the Termination Time, as defined in Section 3 below)

Warrant No.: [          ]

Number of Shares: [          ]

Date of Issuance:                     , 2005

      La Jolla Pharmaceutical Company, a Delaware corporation (the “Company”), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [                    ], the registered holder hereof or its permitted assigns is entitled, subject to the terms and conditions set forth below, to purchase from the Company upon surrender of this Warrant (as defined below), at any time on or after the issuance hereof, but not after 5:00 p.m., Eastern Time, on the Expiration Date (as defined below), [                    ] fully paid nonassessable shares of Common Stock (as defined below) of the Company at the Exercise Price (as defined below) per share, subject to adjustment as provided below. Capitalized terms used herein but not defined shall have the same meanings assigned to them in the Securities Purchase Agreement by and among the Company and the parties listed on Schedule A attached thereto (the “Purchasers”), dated as of October 6, 2005 (as such agreement may be amended, supplemented and modified from time to time as provided in such agreement, the “Securities Purchase Agreement”).

      This Warrant (as defined below) is one of a series of “Closing Warrants” issued in connection with the transactions described in the Securities Purchase Agreement and the Registration Rights Agreement among the Company and the Purchasers, dated as of October 6, 2005 (as such agreement may be amended, supplemented and modified from time to time as provided in such agreement, the “Registration Rights Agreement”). The Warrant Shares (as defined below) issued upon exercise of this Warrant and the holder hereof and thereof shall be entitled to all of the rights and privileges set forth in the Registration Rights Agreement.

1.     Definitions.

      The following terms as used in this Warrant shall have the following meanings:

      (a) “Business Day” means any day, which is not (i) a Saturday or a Sunday, or (ii) a day on which banking institutions in California or New York are authorized or obligated by law or regulation to close.

      (b) “Common Stock” means (i) the common stock, $0.01 par value per share, of the Company, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock.

      (c) “Common Stock Authorization Date” means the first Business Day after an amendment to the “Certificate” (as defined in the Securities Purchase Agreement) to increase the number of authorized shares

of Common Stock becomes effective (which in any event shall occur no later than 3 Business Days after the date on which the “Share Authorization Approval” (as defined in the Securities Purchase Agreement) occurs).

      (d) “Closing Price” with respect to a share of Common Stock on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the NASDAQ National Market (“NASDAQ”) or, if the Common Stock is not listed or admitted to trading on the NASDAQ, on the principal national security exchange or quotation system on which the Common Stock is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of the Common Stock on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service.

      (e) “Exercise Price” shall be equal to $1.00 per Warrant Share, subject to further adjustment as hereinafter provided.

      (f) “Expiration Date” means the fifth anniversary of the Common Stock Authorization Date.

      (g) “Extraordinary Transaction” has the meaning provided in Section 10 hereof.

      (h) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization or association and a government or any department or agency thereof.

      (i) “Principal Market” means NASDAQ or if the Common Stock is not traded on NASDAQ, then the principal securities exchange or trading market for the Common Stock.

      (j) “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

      (k) “Termination Time” has the meaning set forth in Section 3(a) hereof.

      (l) “Trading Day” shall mean (x) a day on which the Principal Market is open for business or (y) if the applicable security is not so listed on a Principal Market or admitted for trading or quotation, a Business Day.

      (m) “Warrants” means this Warrant and, where the context so indicates, each other “Closing Warrant” to purchase shares of Common Stock issued pursuant to the Securities Purchase Agreement and all warrants issued in exchange, transfer or replacement thereof.

      (n) “Warrant Shares” means all shares of Common Stock issuable upon exercise of the Warrants.

2.     Exercise of Warrant.

      (a) Subject to the terms and conditions hereof, including the early termination of this Warrant pursuant to Section 3 of this Warrant, this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or in part, at any time and from time to time, from and after the Warrant Date (as defined below) and prior to the Termination Time by (i) delivery of a written notice, in the form attached as Exhibit A hereto or a reasonable facsimile thereof (the “Exercise Notice”), to the Company at the principal corporate office of the Company (or such office or agency of the Company as the Company may designate in writing to the holder hereof) and to the Company’s designated transfer agent (the “Transfer Agent”), of such holder’s election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) (A) payment to the Company of an amount equal to the Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the “Aggregate Exercise Price”) in cash or delivery of a certified check or bank draft payable to the order of the Company or wire transfer of immediately available funds or (B) notification to the Company at the principal corporate office of the Company (or such office or agency of the Company as the Company may designate in writing to the holder hereof) and to the Transfer Agent that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 2(d) of this Warrant), and (iii) the surrender of this Warrant to a common carrier for overnight delivery to the Company (or such office or agency of the Company as the Company may designate

in writing to the holder hereof) as soon as practicable following such date (or an indemnification undertaking or other form of security reasonably satisfactory to the Company with respect to this Warrant in the case of its loss, theft or destruction, or an affidavit of lost Warrant, in accordance with Section 11 of this Warrant); provided, however, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 8 of this Warrant shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), the Company shall use its best efforts on or before the third Business Day, but in no event later than the fifth Business Day (the “Warrant Share Delivery Date”) following the date of receipt by the Company (or such office or agency of the Company as the Company may designate in writing to the holder hereof) of the Exercise Notice, the Aggregate Exercise Price (or notice of Cashless Exercise) and this Warrant (or an indemnification undertaking or other form of security reasonably satisfactory to the Company with respect to this Warrant in the case of its loss, theft or destruction, or an affidavit of lost Warrant, in accordance with Section 11) (the “Exercise Delivery Documents”), (A) in the case of a public resale of such Warrant Shares, subject to any restrictions that may be imposed by applicable securities laws, at the holder’s request, to credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder’s or its designee’s balance account with The Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission system or (B) to issue and deliver to the address as specified in the Exercise Notice, a certificate or certificates in such denominations as may be requested by the holder in the Exercise Notice, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled upon such exercise. Upon delivery of the Exercise Delivery Documents, the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. In the case of a dispute as to the determination of the Exercise Price or the calculation of the number of Warrant Shares, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determination or calculation to the holder via facsimile within five (5) Business Days after receipt of the Exercise Delivery Documents. If the holder and the Company are unable to agree upon the determination of the Exercise Price or calculation of the number of Warrant Shares within two (2) Business Days of such disputed determination or calculation being submitted to the holder, then the Company shall immediately submit via facsimile (i) the disputed determination of the Exercise Price or the Closing Price to an independent, reputable investment banking firm selected jointly by the Company and the holder or (ii) the disputed calculation of the number of Warrant Shares to its independent, outside auditor. The Company shall cause the investment banking firm or the auditor, as the case may be, to perform the determination or calculation and notify the Company and the holder of the results no later than ten (10) Business Days from the time such entity receives the disputed determination or calculation. Such investment banking firm’s or auditor’s determination or calculation, as the case may be, shall be deemed final, binding and conclusive absent manifest error. All fees and expenses of such determinations shall be borne solely by the Company. Notwithstanding anything to the contrary contained in this Warrant, if the holder elects to exercise this Warrant after the holder has received notice of a contemplated Extraordinary Transaction, and the holder has notified the Company that such exercise is conditioned upon the consummation of such Extraordinary Transaction, then the holder shall not be deemed to have exercised this Warrant until the time immediately preceding the consummation of the Extraordinary Transaction. If such Extraordinary Transaction is not consummated or is abandoned, then the holder shall not be deemed to have exercised this Warrant and shall not be entitled to receive any shares of Common Stock and the Company shall refund to such holder any amounts actually delivered on account of the Aggregate Exercise Price and shall return to the holder all other Exercise Delivery Documents received by the Company from or on behalf of such holder (including this Warrant which shall remain in effect and be unaffected by such events, except that if the Expiration Date shall have occurred during the period between such attempted exercise and such failure to consummate the Extraordinary Transaction, the Expiration Date shall be extended until the date that is ten (10) Business Days after the holder is notified that the attempted exercise has been deemed null and void).

      (b) Notwithstanding anything contained in this Warrant to the contrary, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of this Warrant or to distribute certificates which evidence such fractional shares. If more than one Warrant shall be presented for exercise at the same time by the same holder, the number of full shares of Common Stock which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of shares of Common Stock purchasable on exercise of all Warrants so presented. In lieu of any fractional shares, the Company shall pay to the holder an amount of cash equal to the same fraction of the current market value of a share of Common Stock. For purposes of this Section 2(b), the current market value of a share of Common Stock shall be the Closing Price of a share of Common Stock for the Trading Day immediately prior to the date of such exercise or, if the Closing Price is not determinable due to the failure of the Company to maintain the listing of the Common Stock on a national securities exchange or NASDAQ and the Common Stock is not quoted in the over-the-counter market, as determined in good faith by a majority of the Company’s Board of Directors, whose determination shall be final, binding and conclusive.

      (c) If the Company shall fail for any reason or for no reason (except in the case of a dispute as to the Exercise Price or the Closing Price which is being resolved in accordance with Section 2(a) of this Warrant) to issue to the holder within five (5) Business Days of receipt of the Exercise Delivery Documents, a certificate for the number of shares of Common Stock to which the holder is entitled or, subject to applicable securities laws, to credit the holder’s or its designee’s balance account with DTC, in accordance with Section 2 of this Warrant, for such number of shares of Common Stock to which the holder is entitled upon the holder’s exercise of this Warrant, the Company shall, in addition to any other remedies under this Warrant or the Securities Purchase Agreement or otherwise available to such holder, including any indemnification under the Securities Purchase Agreement, pay as additional damages in cash to such holder on each day after the Warrant Share Delivery Date if such exercise is not timely effected an amount equal to one-half percent (0.5%) per month multiplied by the product of (I) the number of shares of Common Stock not issued to the holder on or prior to the Warrant Share Delivery Date and to which such holder is entitled and (II) the Closing Price of the Common Stock on the Warrant Share Delivery Date, provided that if the Closing Price is not determinable due to the failure of the Company to maintain the listing of the Common Stock on a national securities exchange or NASDAQ and the Common Stock is not quoted on over-the-counter market, then the Closing Price shall be as determined in good faith by a majority of the Company’s Board of Directors, whose determination shall be final, binding and conclusive.

      (d) Notwithstanding anything contained herein to the contrary, the holder of this Warrant may, at its election, exercised in its sole discretion, in lieu of making the cash payment otherwise contemplated to be made to the Company upon its exercise of this Warrant in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

      For purposes of the foregoing formula:

      The date of this Warrant is                     , 2005 (the “Warrant Date”). This Warrant, in all events, shall be wholly void and of no effect at and after the first to occur of (i) 5:00 pm, Eastern Time, on the Expiration Date; and (ii) the time immediately following the consummation of an Extraordinary Transaction of any type described in clauses (ii), (iii) or (iv) of Section 10 hereof so long as notice to the holder of such

Extraordinary Transaction was properly given in accordance with Section 9 hereof (or waived by such holder) (as applicable, the “Termination Time”). At the Termination Time, or as soon as practicable thereafter, the holder of this Warrant shall surrender to the Company for cancellation this Warrant. Failure to deliver this Warrant shall not affect its automatic cancellation.

      The Company hereby covenants and agrees as follows:

      (a) Issuance of Warrants and Warrant Shares. This Warrant is, and any Warrants issued in substitution for or replacement of this Warrant will, upon issuance, be, validly issued, fully paid and non-assessable and free from all taxes, liens and charges with respect to the issuance thereof, and shall not be subject to preemptive rights or other similar rights of stockholders of the Company. All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance and payment hereof or Cashless Exercise in accordance with the terms hereof, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by or through the Company with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock.

      (b) Certain Actions. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder. Without limiting the generality of the foregoing, the Company (i) will not increase the par value of any shares of Common Stock issuable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) will take all such actions as may be reasonably necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant and (iii) will not take any action which results in any adjustment of the Exercise Price if the total number of shares of Common Stock issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock then authorized by the Company’s Certificate of Incorporation and available for the purpose of issue upon such exercise.

      (c) Obligations Binding on Successors. This Warrant will be binding upon any entity succeeding to the Company in one or a series of transactions by merger, consolidation or acquisition of all or substantially all of the Company’s assets or other similar transactions.

      (d) Reservation of Shares. During the period within which the rights represented by this Warrant may be exercised, the Company will take all actions reasonably necessary to at all times have authorized, and reserved for the purpose of issuance, no less than the number of shares of Common Stock needed to provide for the issuance of the Warrant Shares upon exercise of all of the Warrants without regard to any limitations on exercise; provided, that prior to the Common Stock Authorization Date (i) the Company shall reserve all of its authorized but unissued shares, other than such shares which are already reserved for the Company Stock Plans (as defined in the Securities Purchase Agreement), for such purposes, and (ii) the Company shall not be required to take any other action under this Section 4(d) prior to the Common Stock Authorization Date so long as the Company is complying with Section 5.14 of the Securities Purchase Agreement.

5.     Taxes.

      The Company shall pay any and all documentary, stamp, transfer and other similar taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

      Except as otherwise specifically provided herein, prior to the exercise of the Warrants represented hereby, the holder of this Warrant shall not be entitled, as such, to any rights of a stockholder of the Company with respect to the Warrant Shares, including, without limitation, the right to vote or to consent to any action of the stockholders of the Company, to receive dividends or other distributions, or to receive any notice of meetings

of stockholders of the Company, and shall not be entitled to receive any notice of any proceedings of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (except only as to the Warrant Shares upon exercise of this Warrant in the holder’s discretion) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

      (a) The initial holder of this Warrant and each subsequent holder of this Warrant which acquires this Warrant in any transfer other than a transfer pursuant to an effective registration statement under the Securities Act, by the acceptance hereof, represents and warrants that (i) it is acquiring this Warrant and (ii) upon exercise of this Warrant will acquire the Warrant Shares then issuable upon exercise thereof, in each case for its own account, for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant or any of the Warrant Shares for any minimum or other specific term and reserves the right to dispose of this Warrant and the Warrant Shares at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. Each holder of this Warrant which acquires this Warrant in any transfer other than a transfer pursuant to an effective registration statement under the Securities Act further represents, by acceptance hereof, that, as of the date of such acceptance, such holder is either a “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act or an “accredited investor” within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act, and was not organized for the specific purpose of acquiring the Warrants or Warrant Shares.

      (b) Any certificate evidencing the Warrant Shares issued upon exercise hereof (and all securities issued in exchange therefor or in substitution thereof) shall, until the registration of the Warrant Shares under the Securities Act or the expiration of the holding period applicable to sales of the Warrant Shares under Rule 144(k) under the Securities Act (or any successor provision), bear a legend in substantially the following form:

      THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO SUCH SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

      The legend set forth above shall be removed and the Company hereby agrees to issue a certificate for the Warrant Shares without such legend to the holder thereof, (i) if such Warrant Shares are registered for resale under the Securities Act, (ii) if such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a public sale, assignment or transfer of the such Warrant Shares may be made without registration under the Securities Act, or (iii) upon expiration of the applicable period under Rule 144(k) of the Securities Act (or any successor rule).

      (a) The Company shall maintain or cause to be maintained a register for this Warrant (the “Warrant Register”), containing the record name and address of the Person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the Person in whose name any Warrant is registered on the Warrant Register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant. The Company may appoint an agent for the purpose of maintaining the Warrant Register, issuing the Common Stock or other securities then issuable upon the exercise of this Warrant, exchanging this Warrant, replacing this Warrant or any or all of the foregoing. Thereafter, any such

registration, issuance, exchange, or replacement, as the case may be, may be made at the office of such agent. In the event the Company so appoints such an agent, the Company shall send written notice to the holder of this Warrant of such appointment, the name of the agent and the address of the office at which the Warrant Register will be maintained.

      (b) This Warrant and all rights hereunder shall be assignable and transferable by the holder to any transferee without the consent of the Company upon surrender of this Warrant with a properly executed assignment (in the form of Exhibit B attached hereto) at the principal corporate office of the Company (or such office or agency of the Company as the Company may designate in writing to the holder hereof) if: (i) such holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such rights are being transferred or assigned; and (iii) such transfer shall have been conducted in accordance with all applicable federal and state securities laws. By accepting the transfer or assignment of all or any portion of this Warrant, the transferee agrees to be bound by all of the provisions of this Warrant.

      The Exercise Price and the number of Warrant Shares issuable upon the exercise of each Warrant are subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 9.

      (a) In case the Company shall after October 6, 2005 (the “Reference Date”) pay a dividend in shares of Common Stock, or make a distribution of shares of Common Stock, to all holders of the outstanding Common Stock, the Exercise Price in effect at the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Exercise Price by a fraction of which (i) the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for determination of the stockholders of record entitled to receive such dividend or distribution, whether such date is fixed by the Company’s Board of Directors or by statute, contract or otherwise (the “Record Date”), and (ii) the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction in the Exercise Price to become effective immediately after the opening of business on the day following the Record Date. If any dividend or distribution of the type described in this Section 9(a) of this Warrant is declared but not so paid or made, the Exercise Price shall again be adjusted to the Exercise Price which would then be in effect if such dividend or distribution had not been declared.

      (b) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock after the Reference Date, the Exercise Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Exercise Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

      (c) No adjustment in the Exercise Price shall be required under this Section 9 unless the aggregate of all such adjustments would require an increase or decrease of at least one percent (1%) in the Exercise Price; provided, however, that any adjustments which by reason of this Section 9(c) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 9 shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for a change in the par value of the Common Stock.

      (d) In case: (i) the Company shall declare a dividend (or any other distribution) on its Common Stock that would require an adjustment in the Exercise Price pursuant to this Section 9; or (ii) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase

any share of any class or any other rights or warrants; or (iii) of any Extraordinary Transaction; or (iv) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company: the Company shall mail or cause to be mailed to the holder at such address appearing in the Warrant Register a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights are to be determined, which notice shall be so mailed as promptly as possible but in any event at least five (5) days prior to such record date, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective or occur, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for securities or other property deliverable upon such event, which notice shall be mailed as promptly as possible but in any event at least ten (10) days prior to the date the applicable event becomes effective. In addition, whenever the Exercise Price is adjusted as provided in this Section 9, the Company shall prepare a notice of such adjustment of the Exercise Price setting forth the adjusted Exercise Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Exercise Price to the holder of each Warrant at the holder’s last address in the Warrant Register within twenty (20) days of the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment.

      (e) In any case in which this Section 9 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the holder of any Warrant exercised after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such exercise by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such holder any amount in cash in lieu of any fractions of shares of Common Stock pursuant to Section 2(b) of this Warrant.

      (f) For purposes of this Section 9, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company.

      (g) Upon each adjustment of the Exercise Price pursuant to this Section 9, each Warrant shall thereupon evidence the right to purchase that number of shares of Common Stock (calculated to the nearest hundredth of a share) obtained by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment upon exercise of the Warrant by the Exercise Price in effect immediately prior to such adjustment and dividing the product so obtained by the Exercise Price in effect immediately after such adjustment. The adjustment pursuant to this Section 9(g) to the number of shares of Common Stock purchasable upon exercise of a Warrant shall be made each time an adjustment of the Exercise Price is made pursuant to this Section 9 (or would be made but for Section 9(c) of this Warrant).

      The occurrence of any of the following events is referred to herein as an “Extraordinary Transaction”: (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination, including a reverse stock split), (ii) any consolidation, merger or combination of the Company with another Person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock (other than as a result of a change in name, a change in par value or a change in the jurisdiction of incorporation), (iii) any statutory exchange, as a result of which holders of Common Stock generally shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, or (iv) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other person as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock.

      If this Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on receipt of an indemnification undertaking or other form of security reasonably acceptable to the Company (or in the case of a mutilated Warrant, the Warrant), cause the Warrant Agent to issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. In every case, the applicant for a replacement Warrant shall furnish to the Company such security or indemnity as may be required by the Company to save it harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company evidence to its satisfaction of the destruction, loss or theft of the applicant’s Warrant and of the ownership thereof.

12.     Notice.

      All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (a) three business days after being sent by registered or certified mail, return receipt requested, postage prepaid, (b) one business day after being sent via a reputable nationwide overnight courier service guaranteeing next business day delivery or (c) upon delivery when sent by facsimile (with confirmation of receipt), in each case to the intended recipient as set forth below:

      If to the Company:

      With a copy to:

or at such other address as may have been furnished in writing by the Company to the holder.

      If to the Transfer Agent:

      If to the holder, at its address set forth on Schedule A to the Securities Purchase Agreement, or at such other address as shall be delivered to the Company upon the issuance or transfer of this Warrant, or at such other address as may have been furnished in writing by such party to the Company, in each case with a copy to its legal counsel set forth on such Schedule A or otherwise furnished to the Company, if any.

      Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for which it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other party notice in the manner set forth in this Section.

13.     Amendments.

      This Warrant and any term hereof may be amended, changed or waived only by an instrument in writing signed by the Company and the holder of this Warrant; provided, that any term in either of Section 3 or Section 4 or both may be amended, changed or waived by an instrument in writing signed by the Company and holders of Closing Warrants to purchase a majority of Warrant Shares represented by all Closing Warrants; provided, that (x) any such amendment, change or waiver must apply to all Closing Warrants; and (y) the number of Warrant Shares subject to this Warrant, the Exercise Price and the Expiration Date may not be amended, and the right to exercise this Warrant may not be altered or waived, without the written consent of the holder.

      This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware and the laws of the United States applicable therein (in each case without giving effect to any choice or conflict of laws provision or rule that would cause the application of the laws of any other jurisdiction) and shall be treated in all respects as a Delaware contract. Any action, suit or proceeding arising out of or relating to this Warrant shall be brought in San Diego County, California or, if it has or can acquire jurisdiction, any Federal court located in such State and County, and THE COMPANY AND THE HOLDER HEREOF, AFTER CONSULTING WITH OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL BY JURY (AND AGREE NOT TO REQUEST TRIAL BY JURY), IN EACH CASE IN CONNECTION WITH ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT. The Company and the holder hereof each hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in the courts of the State of California or the United States of America, in each case located in San Diego County, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such matter brought in any such court has been brought in an inconvenient forum. The Company and the holder hereof each hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. By accepting this Warrant from the Company or its previous holder, the holder agrees to be bound by the terms of this Section 14.

      The headings of this Warrant are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

      IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date hereof.

EXHIBIT A [TO FORM OF CLOSING WARRANT (WARRANT A)]

EXERCISE NOTICE

(To be executed by the Holder of Warrant if such Holder desires to exercise Warrant)

      The undersigned holder hereby exercises the right to purchase [                    ] shares of Common Stock (“Warrant Shares”) of La Jolla Pharmaceutical Company, a Delaware corporation (the “Company”), evidenced by the attached Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. [This exercise is contingent upon the consummation of the contemplated Extraordinary Transaction of which the undersigned has been notified by the Company.]

      1.     Form of Exercise. The holder intends that payment of the Exercise Price shall be made (Select one and complete):

      o     “Cash Exercise” with respect to [                    ] Warrant Shares; and/or

      o     “Cashless Exercise” with respect to [                    ] Warrant Shares (to the extent permitted by the terms of the Warrant).

      2.     Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the sum of [$          ] the Company in accordance with the terms of the Warrant.

      3.     Delivery of Warrant Shares. The holder of this Warrant has sold or will sell the shares of Common Stock issuable pursuant to this Notice pursuant to a registration statement or an exemption from registration under the Securities Act of 1933, as amended.

      4.     Private Placement Representations. The holder of this Warrant confirms the continuing validity of, and reaffirms as of the date hereof, its representations and warranties set forth in Section 7 of the Warrant.

      5.     The undersigned requests that certificates for such shares be issued in the name of:

(Please print name, address and social security or federal employer identification number (if applicable)

      6.     Replacement Warrant. If the shares issuable upon this exercise of the Warrant are not all of the Warrant Shares which the Holder is entitled to acquire upon the exercise of the Warrant, the undersigned requests that a new Warrant evidencing the rights not so exercised be issued in the name of and delivered to:

(Please print name, address and social security or federal employer identification number (if applicable)

Name of Holder (print):       

 

(Signature):                    

 

(By:)                           

 

(Title:)                         

 

Tax ID No.                    

 

Dated: __________, 

 

ACKNOWLEDGMENT

      The Company hereby acknowledges this Exercise Notice and hereby directs [                    ] to issue the above indicated number of shares of Common Stock in accordance with the Irrevocable Transfer Agent Instructions dated [                    ] 2005 from the Company and acknowledged and agreed to by [                    ]

EXHIBIT B [TO FORM OF CLOSING WARRANT (WARRANT A)]

FORM OF ASSIGNMENT

      FOR VALUE RECEIVED,                     hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the Warrant to acquire La Jolla Pharmaceutical Company Common Stock (as defined in the attached Warrant) to acquire the number of Warrant Shares set opposite the name of such assignee below and in and to the foregoing Warrant with respect to said acquisition rights and the shares of Common Stock issuable upon exercise of the Warrant:

      If the total of the Warrant Shares are not all of the Warrant Shares evidenced by the foregoing Warrant, the undersigned requests that a new Warrant evidencing the right to acquire the Warrant Shares not so assigned be issued in the name of and delivered to the undersigned.

      In connection with any transfer of the Warrant prior to the expiration of the holding period applicable to sales thereof under Rule 144(k) under the Securities Act (or any successor provision) (other than any transfer pursuant to a registration statement that has been declared effective under the Securities Act), the undersigned confirms that the Warrant is being transferred: