-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ul7VV+Kf0R0oKv8aj5ZbGcHKz27G90EK3IyM6VytRoZmyqMwNc2OE0VuO5/zda+Y JmJ3FlOfv1vUPnY8CNCe2w== 0001047469-04-012577.txt : 20040420 0001047469-04-012577.hdr.sgml : 20040420 20040420060256 ACCESSION NUMBER: 0001047469-04-012577 CONFORMED SUBMISSION TYPE: 40-F PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040420 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARDIOME PHARMA CORP CENTRAL INDEX KEY: 0001036141 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 000000000 FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 40-F SEC ACT: 1934 Act SEC FILE NUMBER: 000-29338 FILM NUMBER: 04741639 BUSINESS ADDRESS: STREET 1: 3650 WESBROOK MALL STREET 2: V6S 2L2 CITY: VANCOUVER BC STATE: A1 BUSINESS PHONE: 6042225577 MAIL ADDRESS: STREET 1: 3650 WESBROCK MALL STREET 2: V6S 2L2 CITY: VANCOUVER BC 40-F 1 a2134050z40-f.htm 40-F
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United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 40-F

(Check One:)
o	REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
ý	ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the thirteen-month period ended December 31, 2003 Commission File Number: 1-14596

CARDIOME PHARMA CORP.
(Exact name of Registrant as specified in its charter)

CANADA (Province or other jurisdiction of incorporation or organization)
6th Floor, 6190 Agronomy Road Vancouver, British Columbia, Canada V6T 1Z3 telephone number: (604) 677-6905 (Address and telephone number of Registrant's principal executive offices)
PTSGE Corp. 925 Fourth Avenue, Suite 2900 Seattle, Washington 98104 telephone number: (206) 623-7580 (Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)
Primary Standard Industrial Classification Code (if applicable))		Not Applicable (I.R.S. Employer Identification Number (if applicable))

Securities registered or to be registered pursuant to Section 12(b) of the Act. None.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Title		Name of Each Exchange on Which Quoted
Common Shares		NASD OTC Bulletin Board

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

For annual reports, indicate by check mark the information filed with this Form:

ý Annual information form ý Audited annual financial statements

Indicate number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

37,315,709 common shares as at December 31, 2003

Indicate by check mark whether the Registrant by filing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to the Registrant in connection with such Rule.

Yes o No ý

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ý No o

TABLE OF CONTENTS

		Page Number
Principal Documents		3
Controls and Procedures		3
Principal Accountant Fees and Services		4
Disclosure of Contractual Obligations		4
Undertaking and Consent to Service of Process		5

EXHIBITS

Exhibit		Description
1*		Annual Information Form of the Registrant for the thirteen-month period ended December 31, 2003.
2*		Consolidated Audited Financial Statements of the Registrant for the thirteen-month period ended December 31, 2003, including reconciliation to United States generally accepted accounting principles and Auditors' Report to the Shareholders.
3*		Management's Discussion and Analysis of the Registrant for the thirteen-month period ended December 31, 2003.
4*		Collaboration and License Agreement dated October 16, 2003 by and between Cardiome Pharma Corp. and Fujisawa Healthcare, Inc.(1).
5*		Consent of Ernst & Young LLP.
6.1*		Certifications of Chief Executive Officer pursuant to Rule 13(a)-14(b) and Section 1350 oaf Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
6.2*		Certifications of Chief Financial Officer pursuant to Rule 13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

Except where otherwise indicated, all dollar amounts stated in this Annual Report on Form 40-F are Canadian dollars.

Principal Documents

The following documents have been filed as part of this Annual Report on Form 40-F:

A. Annual Information Form

For our Annual Information Form for the thirteen-month period ended December 31, 2003, see Exhibit 1 of this Annual Report on Form 40-F.

B. Management's Discussion and Analysis

For Management's Discussion and Analysis for the thirteen-month period ended December 31, 2003, see Exhibit 2 of this Annual Report on Form 40-F.

C. Audited Annual Financial Statements

For our consolidated audited financial statements for the thirteen-month period ended December 31, 2003, including the report of independent chartered accountants with respect thereto, see Exhibit 3 of this Annual Report on Form 40-F. For a reconciliation of important differences between Canadian and United States generally accepted accounting principles, see Note 16 of the Notes to the Consolidated Financial Statements.

Controls and Procedures

A Disclosure Controls and Procedures

Within 90 days prior to the date of this report we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded, that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of control is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

B. Changes in Internal Control Over Financial Reporting

We have reviewed our internal controls, and there were no significant changes to our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Principal Accountant Fees and Services

The following table provides information about the fees billed to us for professional services rendered by Ernst & Young LLP, our principal accountant, during fiscal 2003 and 2002:

	2003		2002
	(in Canadian Dollars)
Audit fees	$	273,300	$	233,036
Audit-related fees		—		—
Tax fees		4,379		16,350
All other fees		—		—

Total fees	$	277,679	$	249,386

Audit Fees. Audit fees consist of fees for the audit of our annual financial statements or services that are normally provided in connection with statutory and regulatory filings or engagements.

Audit-Related Fees. Audit related fees are fees for assurance and related services related to the performance of the audit or review of the annual financial statements that are not reported under "Audit Fees." These include M&A due diligence for business acquisitions, audit and accounting consultations regarding business acquisitions, and other attest services not required by statute.

Tax Fees. Tax fees included tax compliance, tax planning, tax advice and various taxation matters.

All Other Fees. There were no other services provided by our principal accountant, other than audit, audit-related and tax services.

PRE-APPROVAL POLICIES

Since the enactment of the Sarbanes-Oxley Act of 2002 on July 30, 2002, all audit and non-audit services performed by the Registrant's auditor for the thirteen-month period ended December 31, 2003 were pre-approved by the audit committee of the Registrant. It is the Registrant's policy that all audit and non-audit services performed by the Registrant's auditor will continue to be pre-approved by the audit committee of the Registrant.

Disclosure of Contractual Obligations

In the normal course of business the the Company is obligated to make future payments. These obligations represent contracts and other commitments that are known and non-cancellable.

		Contractual Obligations
		Payment due by period
		Total		2004		2005-2006		2007-2008		Thereafter
		(in Canadian Dollars)
Capital Lease Obligations(1)		$	35,579	$	28,464	$	7,115	$	Nil	$	Nil
Operating Lease Obligations			3,302,306		303,636		518,493		627,475		1,852,702
Commitments for Clinical Research Agreements			5,123,836		4,275,836		848,000		Nil		Nil
Commitments under License Agreement(2)			544,530		25,930		129,650		259,300		129,650 per annum
	Total	$	9,006,251	$	4,633,866	$	1,503,258	$	627,475	$	1,982,352

(1): Includes interest portion

(2): As of December 31, 2003, pursuant to four license and service agreements, the Company has various commitments as described in Note 11(d). Majority of these commitments are contingent upon achievement of certain milestones which may or may not actually occur. The amounts disclosed in this table represent minimum annual royalties described in Note 11(d) (iii), converted in Canadian Dollars at the year-end exchange rate of 1.2965

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

Undertaking

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when required to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

Consent to Service of Process

A Form F-X signed by us and our agent for service of process is filed with the Commission together with this Annual Report.

Any change to the name and address of the agent for service for service of process shall be communicated promptly to the Securities and Exchange Commission by an amendment to the Form F-X.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Company certifies that it meets all of the requirements for filing on Form 40-F, and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

CERTIFICATIONS

I, Robert W. Rieder, certify that:

1.

I have reviewed this annual report on Form 40-F of Cardiome Pharma Corp.;

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of registrant as of, and for, the periods presented in this annual report.

4.

The Registrant's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:

a): designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The Registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (and persons performing the equivalent function):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and

6.

The Registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: April 19, 2004

By:	/s/ ROBERT W. RIEDER
	Name:	Robert W. Rieder
	Title:	President and Chief Executive Officer

I, Doug Janzen, certify that:

1.

I have reviewed this annual report on Form 40-F of Cardiome Pharma Corp.;

2.

3.

4.

a): designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and

6.

Dated: April 19, 2004

By:	/s/ DOUG JANZEN
	Name:	Doug Janzen
	Title:	Chief Financial Officer

EXHIBITS

Exhibit		Description
1*		Annual Information Form of the Registrant for the thirteen-month period ended December 31, 2003.
2*		Consolidated Audited Financial Statements of the Registrant for the thirteen-month period ended December 31, 2003, including reconciliation to United States generally accepted accounting principles and Auditors' Report to the Shareholders.
3*		Management's Discussion and Analysis of the Registrant for the thirteen-month period ended December 31, 2003.
4*		Collaboration and License Agreement dated October 16, 2003 by and between Cardiome Pharma Corp. and Fujisawa Healthcare, Inc.(1).
5*		Consent of Ernst & Young LLP.
6.1*		Certifications of Chief Executive Officer pursuant to Rule 13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).
6.2*		Certifications of Chief Financial Officer pursuant to Rule 13(a)-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

Notes:

*: Filed herewith.
(1): This exhibit has been filed separately with the Commission pursuant to an application for confidential treatment. The confidential portions of this exhibit have been omitted and are marked "REDACTED."

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TABLE OF CONTENTS
EXHIBITS
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
SIGNATURES
CERTIFICATIONS
EXHIBITS
EX-1 3 a2134050zex-1.htm EX-1
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Exhibit 1

[LOGO]

CARDIOME PHARMA CORP.

ANNUAL INFORMATION FORM

FOR THE THIRTEEN MONTHS ENDED DECEMBER 31, 2003

APRIL 12, 2004

TABLE OF CONTENTS

		Page
REFERENCE INFORMATION		1
CAUTION REGARDING FORWARD LOOKING STATEMENTS		1
CORPORATE STRUCTURE		1
GENERAL DEVELOPMENT OF THE BUSINESS		2
	Company Overview	2
	Summary of Current Projects	2
	Development of the Business	4
NARRATIVE DESCRIPTION OF THE BUSINESS		6
	General	6
	Products in Development	7
	Business Strategy	11
	Corporate Partnerships	11
	Licenses and Collaborative Research Agreements	12
	Patents and Proprietary Protection	15
	Potential Markets	15
	Competition	17
	Regulatory Environment	18
	Process Development and Manufacturing	19
	Human Resources	20
	Facilities	20
RISK FACTORS		20
SELECTED CONSOLIDATED FINANCIAL INFORMATION		32
DIVIDEND RECORD AND POLICY		32
MANAGEMENT'S DISCUSSION AND ANALYSIS AND FINANCIAL STATEMENTS		32
SHARE CAPITAL AND MARKET FOR SECURITIES		33
DIRECTORS AND OFFICERS		33
	Directors and Executive Officers	36
	Scientific Advisory Board	40
ADDITIONAL INFORMATION		43

CARDIOME PHARMA CORP.

ANNUAL INFORMATION FORM

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

APRIL 12, 2004

REFERENCE INFORMATION

In this annual information form, a reference to the "Company", "Cardiome", "we", "us", "our" and similar words refer to Cardiome Pharma Corp. and its subsidiaries or any one of them as the context requires.

All references herein to "dollars" and "$" are to Canadian dollars, unless otherwise indicated. On April 12, 2004, the exchange rate for conversion of Canadian dollars into U.S. dollars was Cdn.$1.00 = U.S.$0.7475 based upon the Federal Reserve Bank of New York noon buying rate.

Unless otherwise stated, the information set forth in this annual information form is as of March 31, 2004.

CAUTION REGARDING FORWARD LOOKING STATEMENTS

This annual information form, together with the documents incorporated by reference herein, contains forward-looking statements which may not be based on historical fact, including without limitation statements containing the words "believe", "may", "plan", "will", "estimate", "continue", "anticipate", "intend", "expect" and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among others, our stage of development, lack of product revenues, additional capital requirements, risk associated with the completion of clinical trials and obtaining regulatory approval to market our products, the ability to protect our intellectual property and dependence on collaborative partners. These factors should be considered carefully and readers are cautioned not to place undue reliance on such forward-looking statements. See "Risk Factors" for a more detailed discussion of these risks. We assume no obligation to update or revise the forward-looking statements contained herein. In addition to the disclosure contained in this annual information form, readers are encouraged to review the "Management's Discussion and Analysis of Financial Condition and Operations" section of our 2003 Annual Report for an additional discussion of factors that could affect our future performance.

CORPORATE STRUCTURE

We were incorporated under the Company Act (British Columbia) on December 12, 1986 under the name Nortran Resources Ltd. In June 1992, we changed the focus of our business from mining exploration to drug research and development and changed our name to Nortran Pharmaceuticals Inc. In June 2001, we changed our name to Cardiome Pharma Corp. On March 8, 2002, we continued under the Canada Business Corporations Act and effected a four-to-one share consolidation. On May 14, 2003, we amended our articles to create a class of preferred shares, issuable in series and to create special rights and restrictions for our common shares and our preferred shares.

We have two wholly-owned subsidiaries, Rhythm-Search Developments Ltd., a company incorporated under the Company Act (British Columbia) and Cardiome, Inc. (formerly Paralex, Inc.) a company incorporated under the Delaware General Corporation Law. In September 2002, Atriven Cardiology Corp., formerly one of our subsidiaries, was dissolved and its assets were transferred to the Company.

Our head office and principal place of business is located at 6190 Agronomy Road, 6^th Floor, Vancouver, British Columbia, Canada, V6T 1Z3. The address and the contact numbers of the registered office of the Company are as follows: P.O. Box 10424, Pacific Centre, Suite 1300, 777 Dunsmuir Street, Vancouver, British Columbia, Canada, V7Y 1K2; telephone number: (604) 643-7100 and fax number: (604) 643-7900.

GENERAL DEVELOPMENT OF THE BUSINESS

Company Overview

We are a drug discovery and development company focused on developing proprietary drugs to treat or prevent cardiac diseases. Our current drug discovery and development efforts target the treatment of cardiac arrhythmia, which is an abnormal electrical signal in the heart, or an abnormal heart beat resulting from such a signal, and congestive heart failure, which is the failure of the heart to pump blood at a rate sufficient to support the body's needs. Our arrhythmia drug candidates are designed to stop, and prevent future occurrences of, arrhythmia by blocking specific ion channels, which are specialized pores in the membrane of certain cells. Our congestive heart failure drug candidate sensitizes cardiac muscle cells to intracellular calcium, leading to improved cardiac oxygen-use efficiency. We believe that increasing the cardiac oxygen-use efficiency will improve the ability of the heart to pump blood. We also have a program, applying our congestive heart failure drug candidate, for the treatment of allopurinol intolerant hyperuricemia (gout).

Summary of Current Projects

We have two projects focused on arrhythmia, one on congestive heart failure and one on the treatment of allopurinol intolerant hyperuricemia (gout).

Arrhythmias are disturbances in heart rate and rhythm. There are two broad types of arrhythmia: atrial arrhythmia and ventricular arrhythmia. Atrial arrhythmias affect the two upper chambers of the heart and are less life-threatening but more widespread than ventricular arrhythmias. Ventricular arrhythmias affect the two lower chambers of the heart and are life-threatening. Our antiarrhythmic projects treat atrial arrhythmias.

Congestive heart failure is a condition characterized by an inability of the heart to pump blood at a rate sufficient to support the body's needs. An imbalance between the ability of the left ventricle to pump blood, called ventricular performance and the speed that the heart tissue can metabolize the oxygen contained in the blood, called myocardial oxygen consumption, leads to an impairment of the heart's ability to contract.

The following table indicates the name of our product candidates, their therapeutic focus and their stage of development:

Product Candidate	Therapeutic Focus	Stage of Development
RSD1235	Atrial Arrhythmia (intravenous application) Atrial Arrhythmia (oral application)	Phase III clinical trial initiated Pre-clinical
Kv1.5	Atrial Arrhythmia	Pre-clinical
Oxypurinol	Congestive Heart Failure	Phase II/III clinical trial initiated
Oxypurinol	Allopurinol Intolerant Hyperuricemia (gout)	New Drug Application filed

RSD1235

RSD1235 is an agent used to treat atrial arrhythmia that is suitable for intravenous administration in a hospital setting and may be developed for chronic oral therapy. In a Phase II clinical trial using

intravenous administration of RSD1235, the drug effectively terminated atrial fibrillation ("AF") and converted AF to normal heart rhythm. The Phase II clinical trial, completed in September 2002, involved 56 new-onset AF patients and showed that RSD1235 terminated AF in 61% of patients receiving the drug compared to 5% of patients receiving the placebo within 30 minutes of the end of infusion of the drug. On August 6, 2003, we initiated a Phase III clinical trial, called ACT 1, for the intravenous administration of RSD1235. This is the first of three Phase III clinical trials that we, together with Fujisawa Healthcare Inc. ("Fujisawa"), our development partner, plan to conduct to support our application for regulatory approval of RSD1235 in the United States and Canada. ACT 1 will involve studies in approximately 420 patients and will provide data on the level of safety and effectiveness of RSD1235 in the acute treatment of atrial fibrillation and atrial flutter. The primary goals of the clinical trial are to convert atrial arrhythmia to normal heart rhythm and observe neurological and cardiovascular effects of the drug, with particular emphasis on lack of side-effect arrhythmias. ACT 1 is projected to be completed in the second half of 2004 and cost approximately U.S.$10.7 million, of which approximately U.S.$2.1 million was incurred as of December 31, 2003. The remaining U.S.$8.6 million will be incurred in 2004 and 2005. In March 2004, we initiated our second Phase III clinical trial, called ACT 2, for the intravenous application of RSD1235. ACT 2 will involve 210 patients and will evaluate the efficacy and safety of intravenous RSD1235 for the treatment of patients who have developed transient atrial fibrillation following cardiac surgery. ACT 2 is projected to be completed in the first half of 2005 and cost approximately U.S.$6.8 million, which will be incurred in 2004 and 2005. We are managing ACT 1 and ACT 2. The third Phase III clinical trail, called ACT 3, for the intravenous application of RSD1235, will be managed by Fujisawa. We are evaluating several options on the design of ACT 3 with Fujisawa. ACT 3 is expected to be initiated in the second half of 2004 and cost approximately U.S.$9.5 million, which will be incurred in 2004 and 2005. We are responsible for 25% of the costs for all three Phase III clinical trials while Fujisawa will be responsible for the remaining 75%.

In a proof-of-concept oral dosing study in humans completed in December 2002, RSD1235 was also shown to have significant oral bioavailability suggesting it could also be used for chronic oral therapy. We are evaluating several strategic options on formulation and the design of clinical trials. We plan to submit an investigational new drug application for the initiation of a Phase I clinical study in the fourth quarter of 2004.

Kv1.5

Our Kv1.5 program is a discovery-stage program focused on discovering an agent that treats atrial arrhythmia by selectively blocking a specific ion channel found only in atrial cardiac tissue. An ion channel is a specialized pore in the membrane of cells which assists in controlling and transferring electrical impulses, called "action potentials", in the cell. This project is in the pre-clinical stage. Our recent data has confirmed the ability of these drugs to modify the electrical activity of human cardiac tissue studied in the laboratory. We did not devote significant resources to this program during fiscal 2003. We are evaluating several strategic options on the advancement of this pre-clinical program.

Oxypurinol CHF

In the oxypurinol program, we expect to determine if oxypurinol is a safe and effective therapy for the treatment of congestive heart failure. We submitted an investigational new drug application with the U.S. Food and Drug Administration ("FDA") in June 2002. In March 2003, we initiated a Phase II/III clinical trial, called OPT-CHF, on the oral application of oxypurinol to treat congestive heart failure. This Phase II/III clinical trial will involve studies in 400 patients with moderate to severe symptomatic congestive heart failure (rated by the New York Heart Association as class III-IV) and will demonstrate the level of safety and effectiveness of oxypurinol in the treatment of congestive heart failure. The primary goals of the clinical trial are to establish, using several clinical efficacy measures, the overall

number of patients who improve, worsen or remain unchanged from oxypurinol versus placebo during a six-month course of therapy. We expect to complete patient recruitment for OPT-CHF in the fourth quarter of 2004 and report on the results in mid 2005. The Phase II/III clinical trial is estimated to cost U.S.$7.5 million, of which approximately U.S.$1.2 was incurred as of December 31, 2003. The remaining U.S.$6.3 million will be incurred in 2004 and 2005.

In September 2003, we completed a proof-of-concept trial, called EXOTIC, on the intravenous application of oxypurinol for the treatment of congestive heart failure and reported a favourable result. The trial included 18 patients with coronary heart disease. The administration of intravenous oxypurinol (200mg) reduced xanthine oxidase activity by 65% (p< 0.05) across the broad patient group. In the sub-set of 13 patients in whom acetylcholine challenge produced vasoconstriction, oxypurinol reduced the observed vasoconstriction by 33% (p< 0.05), and increased coronary flow velocity by > 20% (p< 0.05). These results indicate that oxypurinol, by inhibiting xanthine oxidase activity, improves the impaired endothelial function in patients with coronary artery disease. Also in 2003, we initiated two additional proof-of-concept trials, EXOTIC-EF and LaPlata, to study the intravenous application of oxypurinol and the oral application of oxypurinol for the treatment of congestive heart failure, respectively. We expect to report on the results for EXOTIC-EF and LaPlata in the second and third quarters of 2004 respectively. The estimated cost associated with all three proof-of-concept trials is U.S.$500,000, of which approximately U.S.$101,000 was incurred as of December 31, 2003. The remaining U.S.$399,000 will be incurred in 2004.

Oxypurinol Gout

Pursuant to our license from ILEX Oncology, Inc. ("ILEX"), we exercised our option to acquire for U.S.$250,000 the rights to clinical trial data for oxypurinol in the treatment of allopurinol intolerant hyperuricemia (gout), in May 2002. A pivotal, open-label Phase II/III clinical study for the treatment of patients with symptomatic hyperuricemia (gout) who are intolerant to allopurinol was completed by ILEX prior to our acquisition of this technology. In December 2003, we submitted a New Drug Application ("NDA") to the FDA for oxypurinol for the treatment of allopurinol intolerant gout patients. The six-month review date for the NDA submission is June 23, 2004. We are evaluating our strategy for the commercialization of oxypurinol for the treatment of gout, which includes the sale of this product or entering into marketing arrangements.

We are currently conducting our own research and clinical development on all of our product candidates. At this time, we have no plans to develop an in-house marketing or manufacturing capability. As part of our business strategy, we will seek collaborative partners to spearhead late-stage development and marketing of these product candidates.

Development of the Business

General

Since 1992, we have been involved in research and development of drugs with potential to treat cardiac arrhythmia. Until 2001, we were also developing this technology for local anaesthetic and other uses. In addition, we acquired or in-licensed other technologies and carried out research and development of compounds for the treatment of pain (until early 1999) and cough (until late 2000), and did some initial pre-clinical work on a compound for erectile dysfunction (until early 2000). In August 1999, we closed a private placement for gross proceeds of $5.1 million and in April 2000, we closed a private placement for gross proceeds of $7.8 million. In January 2001, we narrowed our focus to the cardiac area and during the fiscal year ended November 30, 2001, we allocated all of our research and development resources to our projects relating to cardiac arrhythmia. In October 2001, we closed a private placement for gross proceeds of $1.1 million. In March 2002, we closed a concurrent public offering in Canada and private placement in the United States raising $30.9 million of gross

proceeds and acquired Cardiome, Inc. (formerly Paralex, Inc.). The acquisition of Cardiome, Inc. provided us with the technology it had licensed from The Johns Hopkins University ("JHU") for the use of oxypurinol in the treatment of congestive heart failure, and an option from ILEX to acquire rights to clinical trial data for oxypurinol in the treatment of allopurinol intolerant hyperuricemia (gout), which we exercised in May 2002. In April 2003, we closed a bought deal private placement for gross proceeds of approximately $8 million. In September 2003, we closed a public offering of common shares for gross proceeds of approximately $23 million. Effective December 31, 2003, we changed our fiscal year-end from November 30 to December 31, so that our fiscal year-end coincides with the calendar year-end.

Collaboration and License Agreement with Fujisawa Healthcare Inc.

On October 16, 2003, we entered into a collaboration and license agreement with Fujisawa for the co-development and commercialization of RSD1235 as an intravenous formulation for the treatment of atrial fibrillation and atrial flutter. Pursuant to the agreement, we have granted to Fujisawa an exclusive license to RSD1235 and its related technology to develop, make and sell intravenous or injectable drugs in North America, including a right to sublicense to third parties. The agreement was subject to receipt of regulatory approval under anti-competition legislation in the United States which we received on October 28, 2003 (the "Effective Date"). We retain the rights to the intravenous formulation of RSD1235 for markets outside of North America and worldwide rights to the oral formulation of RSD1235 for chronic atrial fibrillation.

Under the terms of the agreement, Fujisawa paid us an up-front payment of U.S.$10 million on the Effective Date and agreed to pay us milestone payments of up to U.S.$54 million based on achievement of specified development and commercialization milestones, as well as royalties based on future net sales and sublicense revenue. Fujisawa is also responsible for 75% of all the remaining development costs, including costs associated with the ACT 1 trial incurred prior to the signing of the agreement, and all marketing costs for the intravenous application of RSD1235 in North America. Fujisawa has also agreed to make further milestone payments with respect to any subsequent drugs developed under the agreement. In addition, we have the right to require Fujisawa to acquire U.S.$4 million of our common shares at a 25% premium to the average closing price of our common shares on the TSX over a 30 calendar day period at any time within the twelve-month period after the Effective Date. The agreement can be terminated entirely, or on a country by country basis, by either party if certain development or commercialization milestones are not met. Unless the agreement is otherwise terminated, the royalty payment period for each country will expire on the later of the expiration of the last valid claim of our patent rights or the date upon which competitive sales exceed a certain percentage of the market in the country for a certain period of time.

All development activities will be jointly managed by Fujisawa and us. Fujisawa will be responsible for the development plan, NDA application and registration, along with the commercial manufacturing, marketing and sale of RSD1235. Cardiome will manage the ongoing ACT 1 trial and the second planned study known as ACT 2. Cardiome will also be responsible for the continued manufacturing of clinical supplies of RSD1235.

UCB Farchim S.A. Development and Transfer Agreement

We entered into a development and transfer agreement with UCB Farchim S.A. ("UCB") on September 18, 2002 under which UCB purchased from us the exclusive rights to an anti-tussive program. Concurrently, we acquired a perpetual, worldwide exclusive license, with the right to grant sublicenses, to all cardiovascular applications associated with the technology. Consideration for the disposition includes royalties on future net sales of products arising from this technology, upfront payments, and milestone payments of up to U.S.$8 million on the first product developed by UCB and an additional U.S.$3 million for each subsequent product developed. Also, UCB agreed to pay us for

research services to be provided over an initial period of 12 months, extendable to up to 36 months at a rate of U.S.$600,000 per annum. During fiscal 2003, UCB extended the service agreement for 6 months. Subsequent to December 31, 2003, UCB notified us that they had no intention to extend the service agreement beyond March 2004. For our license to the cardiovascular applications associated with this technology, we agreed to pay a royalty to UCB for any cardiovascular products developed and sold which utilize technology patented subsequent to September 18, 2002.

Acquisition of Cardiome, Inc. (formerly Paralex, Inc.)

On March 8, 2002, we completed the acquisition of all of the outstanding shares of Cardiome, Inc., in exchange for 8,203,396 common shares. Also, on March 8, 2002, we completed a concurrent public offering in Canada and private placement in the U.S. of $30.9 million and issued 9,309,657 common shares along with warrants entitling the holders to purchase 2,327,414 common shares at a price of $6.64 per common share.

Prior to the acquisition, Cardiome, Inc. was a private, New York based development-stage bio-pharmaceutical company incorporated in January 2001. Since that time, it had not conducted any significant business activities other than entering into license agreements with JHU and ILEX. The license from JHU is for certain intellectual property relating to the use of oxypurinol and other related compounds called xanthine oxidase inhibitors for the treatment of congestive heart failure, other cardiovascular disorders and neuromuscular disease. The license from ILEX is for rights to oxypurinol clinical data, drug supply and know-how and an option on rights to oxypurinol for the treatment of gout, which we have exercised. Oxypurinol has been studied in humans and is utilized in a compassionate use program for patients who are allergic to allopurinol, a conventional treatment for gout. Prior to the acquisition, Cardiome, Inc. did not have any research and development expenditures and had no employees.

AstraZeneca License

We entered into a license agreement dated October 16, 2000 with AstraZeneca A.B, or AstraZeneca. Under the terms of the license agreement, or AstraZeneca License, we granted AstraZeneca an exclusive worldwide license to develop and market a specific antiarrhythmic compound, RSD1122, developed by us, in exchange for initial, milestone, and royalty payments. AstraZeneca assumed responsibility for all costs for the development and marketing of RSD1122. Effective June 18, 2002, the agreement was terminated at no financial obligation from either party. AstraZeneca returned all rights and pre-clinical data associated with RSD1122 in July 2002.

NARRATIVE DESCRIPTION OF THE BUSINESS

General

We are a drug discovery and development company focused on developing proprietary drugs to treat or prevent cardiac diseases. We target the treatment of cardiac arrhythmia, which is an abnormal electrical signal in the heart, or an abnormal heart beat resulting from such a signal, through the use of atria-selective ion channel modulating drug candidates. Additionally, we target the treatment of congestive heart failure, through the use of drugs known to inhibit the enzyme xanthine oxidase, which have recently been shown to increase contractile efficiency in heart failure.

We are currently focussing our efforts on two projects designed to prevent or treat cardiac arrhythmia and a third project designed to prevent or treat congestive heart failure ("CHF"), as well as applying our CHF drug candidate, for the treatment of allopurinol intolerant hyperuricemia (gout). The RSD1235 project focuses on an atrial antiarrhythmic agent that is suitable for intravenous administration in a hospital setting and may be developed for chronic oral therapy. In a Phase II clinical trial using intravenous administration of RSD1235 completed in September 2002, RSD1235

effectively terminated atrial fibrillation ("AF") and converted AF to normal heart rhythm. This project is currently in Phase III clinical trials. In a proof-of-concept oral dosing study in humans done in December 2002, RSD1235 was also shown to have significant oral bioavailability suggesting it could also be used for chronic oral therapy. We plan to submit an investigational new drug application for initiation of a Phase I clinical study in the fourth quarter of 2004. The Kv1.5 project is a discovery-stage project focused on discovering an agent that treats atrial arrhythmia by selectively blocking a specific ion channel found only in atrial cardiac tissue. Ion channels are specialized pores in the membrane of cells which assist in controlling and transferring electrical impulses, called action potentials, in cells. With respect to congestive heart failure, we expect to determine if oxypurinol is a safe and effective therapy for the treatment of congestive heart failure. We submitted an investigational new drug application, or IND, with the FDA in June 2002. Under this IND, we initiated a Phase II/III clinical trial on the oral application of oxypurinol to congestive heart failure in March 2003. In addition, in May 2002, we exercised our option to acquire the clinical trial data for oxypurinol in the treatment of allopurinol intolerant hyperuricemia (gout), a metabolic disease, from ILEX Oncology, Inc. In December 2003, we submitted a NDA for the treatment of gout. The six-month review date for the NDA submission is June 23, 2004. We are evaluating our strategy for the commercialization of oxypurinol for the treatment of gout which includes the sale of this product or entering into marketing arrangements.

Products in Development

Antiarrhythmia Projects

Antiarrhythmia Overview

The heart is made up of four chambers, two on the left side (from the heart owner's perspective) and two on the right. The atria are the upper chambers of the heart. The ventricles are the lower chambers of the heart where the majority of the muscular pumping action of the heart takes place. The right side of the heart stores (right atria) and pumps (right ventricle) de-oxygenated blood to the lungs where it exchanges carbon dioxide for oxygen and returns to the left side of the heart. There, oxygenated blood moves from the left atria to the left ventricle where it is pumped through the aorta and circulated into the body. The pumping of the heart depends on the organized contraction of the atria and ventricles, each controlled by electrical impulses. The flow of these electrical impulses from cell to cell depends on the cell membrane's selective permeability to sodium, potassium or calcium ions via specialized pores, called ion channels, in the membrane of cells which assist in controlling and transferring electrical impulses, called action potentials, in cells. Arrhythmia results when cells lose the ability to correctly carry ions across the membranes causing a deviation from their normal sequence of initiation and conduction of electrical impulses and resulting in disturbances in heart rate and rhythm.

Fibrillation arrhythmia describes a type of arrhythmia in which the heart chambers, instead of alternately contracting, quiver continuously in a chaotic pattern. There are two broad types of arrhythmia: atrial arrhythmia and ventricular arrhythmia. Atrial arrhythmias affect the upper chambers of the heart and are less directly life-threatening but more widespread than ventricular arrhythmias. Atrial arrhythmias require medical management to prevent further structural damage to the heart and are increasing in number with the population ageing. Ventricular arrhythmias affect the lower chambers of the heart and have immediate life-threatening implications whenever they occur. Our current antiarrhythmic projects address atrial arrhythmias.

Atrial Fibrillation Antiarrhythmia

Atrial fibrillation, the most common chronic arrhythmia, is a condition affecting the upper chambers of the heart. Atrial fibrillation is an arrhythmia in which the atria, instead of intermittently contracting, quivers continuously in a chaotic pattern, causing totally irregular, often rapid ventricular

rate. The condition is characterized by rapid, chaotic beating that is either temporary or permanent. This condition is common but, unlike ventricular arrhythmias, is not acutely life-threatening. The main danger from such arrhythmias is that they may cause stroke or if prolonged may lead to heart failure. Over 6,000,000 individuals in the developed world suffer occasionally or chronically from atrial arrhythmias.

Current drugs used to treat atrial fibrillation have the same limitations on usefulness as the current ventricular antiarrhythmic drugs: limited efficacy combined with life-threatening side effects. Unlike current drugs used to treat atrial arrhythmia, our drug candidates for atrial fibrillation selectively target those ion channels that are uniquely important for such atrial arrhythmias. Blockade of these channels with our atrial fibrillation drug candidates has been shown in pre-clinical studies to effectively terminate atrial fibrillation. Pre-clinical studies and clinical studies conducted to date show that our clinical candidates appear to target these channels which mediate atrial arrhythmia without disrupting potassium channels that control normal functioning of the middle layer of heart wall composed of cardiac muscle, or the ventricular myocardium. Based on these results, we expect that our clinical candidates will display a superior cardiovascular safety profile compared with other available and emerging therapies.

We have successfully developed an antiarrhythmic product candidate, RSD1235, and intend to expand our drug candidate pipeline through our Kv1.5 project.

RSD1235 Project

RSD1235 was developed specifically to treat atrial arrhythmia. The drug has been shown to be a safe and effective antiarrhythmic in various animal studies modeling an arrhythmia condition. That safety and efficacy profile is believed to result from the drug's atria selective mechanism of action. Animal studies indicate that the drug exhibits a much stronger impact on the electrical activity of the atria of the heart than on the ventricles. This may make it an effective and potentially safer atrial antiarrhythmic drug than existing and near term competition in this field. Clinical data suggests that RSD1235 is rapidly cleared from the body after intravenous dosing which may make it an ideal therapy for emergency intravenous use in hospital. RSD1235 is designed to have fewer side effects than currently utilized intravenous antiarrhythmic drugs. Recent pre-clinical studies have confirmed that RSD1235 also has significant oral bioavailability in animals.

We completed our Phase I clinical trial of the intravenous application of RSD1235 in July 2001. The Phase I clinical trial examined the safety and metabolism of RSD1235 in humans. We completed our Phase II clinical trial on the intravenous application of RSD1235 in September 2002. The Phase II clinical trial involved 56 new-onset AF patients and showed that RSD1235 terminated AF in 61% of patients receiving the drug compared to 5% of patients receiving the placebo within 30 minutes of the end of infusion of the drug. On August 6, 2003, we initiated a Phase III clinical trial, called ACT 1, for the intravenous administration of RSD1235. This is the first of three Phase III clinical trials that we, together with Fujisawa, our development partner, plan to conduct to support our application for regulatory approval of RSD1235 in the United States and Canada. ACT 1 will involve studies of approximately 420 patients and will provide data on the level of safety and effectiveness of RSD1235 in the acute treatment of atrial fibrillation and atrial flutter. The primary goals of the clinical trial are to convert atrial arrhythmia to normal heart rhythm and observe neurological and cardiovascular effects of the drug, with particular emphasis on lack of side-effect arrhythmias. ACT 1 is projected to be completed in the second half of 2004 and cost approximately U.S.$10.7 million, of which approximately U.S.$2.1 million was incurred as of December 31, 2003. The remaining U.S.$8.6 million will be incurred in 2004 and 2005. In March 2004, we initiated our second Phase III clinical trial, called ACT 2, for the intravenous application of RSD1235. ACT 2 will involve 210 patients and will evaluate the efficacy and safety of intravenous RSD1235 for the treatment of patients who have developed transient atrial fibrillation following cardiac surgery. ACT 2 is projected to be completed in the first half of 2005 and

cost approximately U.S.$6.8 million, which will be incurred in 2004 and 2005. We are managing ACT 1 and ACT 2. The third Phase III clinical trail, called ACT 3, for the intravenous application of RSD1235, will be managed by Fujisawa. We are evaluating several options on the design of ACT 3 with Fujisawa. ACT 3 is expected to be initiated in the second half of 2004 and cost approximately U.S.$9.5 million, which will be incurred in 2004 and 2005. We are responsible for 25% of the costs for all three Phase III clinical trials while Fujisawa will be responsible for the remaining 75%.

Kv1.5 Project

The Kv1.5 Project is aimed exclusively at atrial arrhythmia. Recent research has shown that the Kv1.5 potassium channels are located in the atrial but not ventricular chambers of the heart. The Kv1.5 channel is known to be important to the early-repolarising currents that mediate atrial electrical activity. Because this channel is exclusive to the atria and important to atrial pacing, it may make an ideal target for a chronic therapy atrial arrhythmia drug. We are using cloned Kv1.5 potassium channels from human sourced tissue to design drugs to selectively block the Kv1.5 channel. The administration of such an atria-selective drug is expected to be safer than that of existing drugs for atrial arrhythmia, which produce unwanted action in the ventricles. Our research data has confirmed the ability of these drugs to modify the electrical activity of human cardiac tissue studied in the laboratory. We did not devote significant resources to this program during fiscal 2003. We are evaluating several strategic options on the advancement of this pre-clinical program.

Congestive Heart Failure Project

Congestive Heart Failure Overview

Congestive heart failure is the failure of the heart to pump blood at a rate sufficient for the metabolizing tissue. During congestive heart failure, the cardiac output decreases resulting in, among other things, an increase in venous fluid volume. It is characterized by fatigue, shortness of breath and fluid retention. It generally occurs when the left ventricle pumping capability begins to fail. Fluid begins to pool in the lungs leading to congestion which, in turn, causes breathing difficulty and swelling in the lungs. When the right ventricle is directly affected, blood begins to collect in the body's extremities resulting in swelling. In most cases, congestive heart failure is a progressive condition. The ventricular muscle over-stretches resulting in continued reduction in cardiac output, further exacerbating the condition. Current methods of treating heart failure involve one or a combination of decreasing blood pressure, removing water from the body and increasing the force of heart contraction.

A number of medicines are used to increase the contraction of the heart. Unfortunately, most of these medicines are "contractility agents"; that is, they increase the contraction of the heart while simultaneously accelerating the heart's consumption of oxygen. This increased oxygen consumption can be a serious problem as many, if not most, of these patients have coronary artery disease which limits blood and oxygen supply to the heart. Thus, although such medicines may make the patient feel better initially, they may not increase life expectancy. In fact, current medicines that increase cardiac contractility, primarily inotropes such as dobutamine and dopamine, may actually decrease life expectancy.

At JHU, Dr. Eduardo Marbán's research has demonstrated that the class of agents known as xanthine oxidase inhibitors, or XO Inhibitors, (which includes oxypurinol) has the ability to increase the contraction strength of the heart in patients with congestive heart failure without increasing the oxygen

consumed by the heart to the extent caused by other medicines. See "JHU License" and "Marbán Agreement" below. In studies conducted at JHU, Dr. Marbán has shown these effects in both animals and in humans during cardiac catheterization. Accordingly, such XO Inhibitors may offer the possibility of a new mode of therapy for patients with congestive heart failure. The intellectual property encompassing Dr. Marbán's research, acquired by us pursuant to the JHU License, relates not only to oxypurinol but also to any XO Inhibitor used in the treatment of congestive heart failure or other cardiovascular disorders. We believe that XO Inhibitors, including oxypurinol, have significant potential in the treatment of congestive heart failure due to their ability to increase the contraction strength of the heart in patients with congestive heart failure without increasing the oxygen consumed by the heart.

Oxypurinol Congestive Heart Failure Project

The oxypurinol project will target both acute and chronic therapy for patients with congestive heart failure. We submitted an investigational new drug application ("IND") with the U.S. Food and Drug Administration ("FDA") in June 2002. Under this IND, we initiated a Phase II/III clinical trial, called OPT-CHF, on the oral application of oxypurinol to congestive heart failure in March 2003. This Phase II/III clinical trial will involve studies in 400 patients with moderate to severe symptomatic heart failure (rated by the New York Heart Association as class III-IV) and will demonstrate the level of safety and effectiveness of oxypurinol. The primary goals of the clinical trial are to establish, using several clinical efficacy measures, the overall number of patients who improve, worsen or remain unchanged from oxypurinol versus placebo during a six-month course of therapy. We expect to complete patient recruitment for OPT-CHF in the fourth quarter of 2004 and to report on the results in mid 2005. The Phase II/III clinical trial is estimated to cost U.S.$7.5 million, of which approximately U.S.$1.2 was incurred as of December 31, 2003. The remaining U.S.$6.3 million will be incurred in 2004 and 2005.

In September 2003, we completed a proof-of-concept trial, called EXOTIC, on the intravenous application of oxypurinol for the treatment of congestive heart failure and reported a favourable result. The trial included 18 patients with coronary heart disease. The administration of intravenous oxypurinol (200mg) reduced xanthine oxidase activity by 65% (p< 0.05) across the broad patient group. In the sub-set of 13 patients in whom acetylcholine challenge produced vasoconstriction, oxypurinol reduced the observed vasoconstriction by 33% (p< 0.05), and increased coronary flow velocity by greater than 20% (p< 0.05). We believe that these results indicate that oxypurinol, by inhibiting xanthine oxidase activity, improves the impaired endothelial function in patients with coronary artery disease. Also in 2003, we initiated two additional proof-of-concept trials, EXOTIC-EF and LaPlata, to study the intravenous application of oxypurinol and the oral application of oxypurinol for the treatment of congestive heart failure, respectively. We expect to report on the results for EXOTIC-EF and LaPlata in the second and third quarters of 2004, respectively. The estimated cost associated with all three proof-of-concept trials is U.S.$500,000, of which approximately U.S.$101,000 was incurred as of December 31, 2003. The remaining U.S.$399,000 will be incurred in 2004.

Other Opportunities

Hyperuricemia (Gout)

Pursuant to the ILEX License, we exercised our option to acquire for U.S.$250,000 the rights to clinical trial data for oxypurinol in the treatment of allopurinol intolerant hyperuricemia (gout) in May 2002. A pivotal, open-label Phase II/III clinical study for the treatment of patients with symptomatic hyperuricemia (gout) who are intolerant to allopurinol was completed by ILEX prior to our acquisition of this technology. In December 2003, we submitted a NDA to the FDA for oxypurinol for the treatment of allopurinol intolerant gout patient. The six-month review date for the NDA submission is June 23, 2004. We are evaluating our strategy for the distribution of oxypurinol, considering whether to sell oxypurinol directly or enter into other marketing arrangements.

Business Strategy

Our business strategy is based around several important principles that guide our activities.

Core Expertise

We focus on drugs that treat cardiac diseases and conditions. By focusing our efforts in this way, we have been able to assemble teams of employees and external advisors with strong knowledge and understanding of cardiology. This collective knowledge, experience and expertise helps ensure that the novel ideas pursued are of a high caliber and are therefore more likely to result in a drug which impacts a specific disease state.

Discovery and Development

We undertake both discovery and development activities in order to create novel drug candidates and to then demonstrate their applicability in human patients. This mixture of efforts supports partnership activities and enables us to pursue internally generated discovery projects, acquire projects that dovetail with the cardiac focus as well as in-licensed later-stage projects.

Multiple Projects

A central principle of our business strategy is to minimize the risk inherent in early stage drug discovery and development. We emphasize a portfolio approach to risk diversification as we have drug candidates: (1) within multiple independent cardiac projects (currently arrhythmia and congestive heart failure), (2) at various stages of development (pre-Clinical to Phase III), and (3) within their clinical projects that have two potential methods of dosage (intravenous for acute therapy and oral for chronic therapy).

External Resources

We operate as a "semi-virtual" research and development organization, intending to reduce internal operating expenses to allow flexibility as well as maintain a low level of operating losses. We maintain a small, core team of scientists and staff with the necessary skill base, and contract out the specialized work required for our projects, such as pre-clinical toxicology services and contract manufacturing.

Collaboration Strategy

Our core of expertise lies in the ability of our personnel to research and develop potential drug candidates into the clinical development stage. As part of our business strategy, we may seek collaborative partners with experience in the late-stage development and marketing of drugs in the relevant therapeutic areas. The intention is to select partners with both the human and financial resources to spearhead the late-stage clinical development of our product candidates based on requirements by the FDA in the United States, the TPD in Canada as well as other drug regulatory agencies in other countries.

We presently have no plans for developing an in-house marketing or manufacturing capability.

Corporate Partnerships

We develop our product candidates both independently and in collaboration with established pharmaceutical companies or other suitable partners. Corporate partners may provide financial resources, research and development and manufacturing capabilities, and sales and marketing infrastructure, to aid in the commercialization of our potential products. Our corporate partnership agreements are described above. See "General Development of the Business".

Licenses and Collaborative Research Agreements

An important aspect of our product development strategy is the establishment of collaborations with research centres with resources and expertise vital to our programs. In each collaboration, we either have an exclusive license to all patented or patentable technology developed under the research agreement or a right to an exclusive license on commercially reasonable terms. We are parties to the following licenses and collaborative research agreements:

Fujisawa Collaboration and License Agreement

See "Development of the Business—Collaboration and License Agreement with Fujisawa Healthcare Inc.".

UBC License and UBC Research Agreement

By agreement dated February 12, 1992, we acquired an option from the University of British Columbia, or UBC, to license the inventions which underlie some of our novel antiarrhythmic compounds. These compounds form the basis of part of our research and development efforts, being certain technology relating to aminocyclohexylamides for antiarrhythmic and local anaesthetic uses, which is referred to as the Technology. On March 29, 1996, we entered into a formal license agreement with UBC, or the UBC License, whereby UBC granted us, in consideration for the sum of $20,000 (paid) and the issuance of 25,000 common shares (issued), an exclusive, world-wide license to use and, subject to the consent of UBC, sublicense the Technology, and any improvements thereto, for antiarrhythmic and local anaesthetic uses, and to manufacture, distribute and sell products derived therefrom to the general public during the term of the UBC License. The UBC License will terminate upon the expiration of the last patent obtained under it.

Under the terms of the UBC License, we have agreed to issue to UBC a further 25,000 common shares within 30 days of the commencement of Phase III clinical trials and an additional 25,000 common shares within 30 days of receipt of notice of new drug approval for the first drug covered by a patent of the Technology. We are also required to pay to UBC quarterly royalties from manufacturing revenues ranging from 1.5% for products developed from improvements to the Technology made by us to 3.5% for products developed from the Technology or improvements to the Technology made by UBC or UBC and us together, and further royalties from sublicensing revenues, subject to minimum annual royalties of $10,000 in the first two years of commercial sale and $50,000 thereafter. In addition, we will pay all costs associated with patent applications.

We were required to pay UBC a $75,000 grant in each of the first five years of the UBC License (as at November 30, 2002, all fully paid), to be used at UBC's discretion to fund basic scientific research related to some aspects of the Technology to be undertaken by UBC in the laboratory of Dr. Michael Walker or his successor. We do not have any rights in any intellectual property arising from such research.

In addition, we entered into a five year research agreement with UBC, or the UBC Research Agreement, dated March 1, 1997, under which we were required to fund a specific and mutually agreed upon research project with respect to the Technology by paying to UBC a further $75,000 plus a further sum equal to 38% of overhead costs associated with the project, estimated at $28,500, in each of the first five years of the UBC Research Agreement (as at November 30, 2002, all fully paid). Under the UBC Research Agreement, we have an option to license, on an exclusive worldwide basis, any intellectual property arising from the work at UBC under the UBC Research Agreement.

The UBC License and the UBC Research Agreement constituted arm's length transactions. The consideration payable under both agreements was determined through our negotiations with UBC.

Our RSD1235 technology is not part of the Technology that we licensed from UBC. To ensure we protect our intellectual property rights to certain antiarrhythmic technology that we discovered in house, we entered into a technology assignment agreement with UBC in July 2001. In accordance with this technology assignment agreement, UBC formally assigned all its rights, title and interest to such technology including, RSD1235. In consideration for this assignment of intellectual property, we issued 5,000 of our common shares to UBC in October 2001.

JHU License

Pursuant to our agreement dated April 18, 2001, as amended by agreement dated October 18, 2001 with JHU, the JHU License, we obtained the exclusive worldwide rights to U.S. patent application Serial No. 09/186,755 (which subsequently matured into U.S. Patent No. 6,191,136) and Patent Cooperation Treaty application PCT U.S.98/23878, each filed on November 5, 1998 and European Patent Office application filed August 2, 2000 all of which were assigned to JHU and entitled "Methods for Treatment of Disorders of Cardiac Contractility", and which are referred to as the Patent Rights. The Patent Rights relate to the therapeutic, diagnostic and commercial use of XO Inhibitors for cardiovascular and neuromuscular disease, which is referred to as the Licensed Field. We also obtained the exclusive option to any and all technologies developed by JHU in the Licensed Field of which Eduardo Marbán, M.D. is the inventor.

In consideration for the JHU License, we paid JHU an initial license fee of U.S.$50,000. In addition, we are obligated to pay a royalty to JHU on net sales of any product developed by us with the Patent Rights. If a product developed by us contains both the Patent Rights and other active ingredients, the royalty rate may be reduced, subject to a minimum royalty rate. Our royalty payment obligation will terminate upon expiration of the Patent Rights. Further, the annual royalties are subject to certain annual minimum royalties which increase annually for the first six years that such royalties are payable. We also agreed to reimburse JHU up to U.S.$67,500 for all costs associated with the preparation, filing, maintenance and prosecution of the Patent Rights and certain legal fees.

As additional consideration for the JHU License, our wholly-owned subsidiary, Cardiome, Inc. (formerly Paralex, Inc.) previously issued (i) 390,000 shares of its common stock to JHU and (ii) 210,000 shares of its common stock to Dr. Marbán for a purchase price of $0.001 per share. These shares of Cardiome, Inc. have now been exchanged for our common shares pursuant to the acquisition completed on March 8, 2002.

During 2003, JHU expanded its patent protection with the issuance of U.S. Patent No. 6,569,862 and its U.S. patent application, Serial No. 10/404,076. In accordance with the JHU License, we obtained the worldwide exclusive license to this new patent and patent application for no additional license fee. We reimbursed JHU $22,273 for costs associated with the prosecution of these patent rights.

ILEX License

Pursuant to a license agreement dated December 19, 2001, or the ILEX License, between us and ILEX Oncology, Inc., or ILEX, ILEX granted us an exclusive worldwide sublicense to all of ILEX's rights under a license agreement dated March 31, 1995, between ILEX on the one hand, and Burroughs Wellcome Co. and The Wellcome Foundation, Ltd., collectively referred to as BW, on the other, as amended, which is referred to as the Original License Agreement, in the field of the treatment of hyperuricemia (gout) in humans who are intolerant of allopurinol. Under the Original License Agreement, BW had granted an exclusive license to ILEX in BW's know-how regarding, among other things, the manufacture and use of oxypurinol in that field. Under the ILEX License, ILEX also granted us an exclusive worldwide license, in that field, in ILEX's know-how concerning manufacture and certain uses of oxypurinol and in ILEX's oxypurinol IND, to make, have made, use, offer to sell

and sell products comprising or containing oxypurinol, including an exclusive license in the ILEX trademark "OXYPRIM" for use in connection with sales efforts concerning relevant products. ILEX further granted us an option until December 2002 to purchase for U.S.$250,000 certain clinical trial data ILEX has and may acquire in the future, to evaluate the usage of oxypurinol in hyperuricemic patients intolerant to allopurinol. We exercised this option in May 2002. We also obtained the right to grant sublicenses in the above, subject to ILEX approval.

Under the ILEX License, we agreed to pay ILEX upon execution, an initial fee of U.S.$250,000 (paid). We also agreed to pay BW a U.S.$200,000 milestone payment (upon FDA approval of an NDA incorporating oxypurinol) and royalties based on net sales of relevant products (subject to certain conditions), all as would otherwise be required of ILEX under the Original License Agreement. In addition, we agreed to perform ILEX's obligations under the Original License Agreement concerning a compassionate use program regarding relevant products. Further, we agreed to pay certain milestone payments to ILEX tied to the regulatory approval process. We also agreed to pay royalties to ILEX based on net sales of relevant products, subject to certain conditions. Finally, we agreed to reimburse ILEX for certain expenses, and to purchase certain supplies from ILEX.

The term of the ILEX License extends until the expiration of ILEX's obligation to pay royalties under the Original License Agreement (determined on a country-by-country basis), at which time the rights licensed or sublicensed to us convert to a fully paid, non-exclusive, irrevocable royalty-free license or sublicense. The ILEX License purports to provide each party with the right to terminate based on certain insolvency events of the other, or if the other's breach continues after notice and beyond defined cure periods. It also provides us with the right to terminate upon termination of the Original License Agreement.

Marbán Agreement

Pursuant to an agreement entered into in May 2001 and effective as of January 1, 2002, or the Marbán Agreement, between us and Cardiosciences Consulting, Inc. ("CCI"), a private company owned by Dr. Eduardo Marbán, CCI agreed to cause Dr. Eduardo Marbán, the inventor of the technology licensed under the JHU License, to provide advisory services to us with regard to therapeutic applications of XO Inhibitors, for up to twelve days per year. The Marbán Agreement states that materials, including inventions, prepared by or furnished to CCI or Dr. Marbán as a direct result of performing services under the Marbán Agreement will be owned exclusively by Cardiome, Inc. Various obligations owed to us under the Marbán Agreement are expressly made subject to policies of and obligations owed by CCI and Dr. Marbán to JHU.

We agreed to pay CCI U.S.$100,000 per year for Dr. Marbán's services under the Marbán Agreement, plus reimbursement of certain expenses. The Marbán Agreement has a term of four years. It contains no provision concerning any renewal of that term. The Marbán Agreement also provides that it will automatically terminate in the event Dr. Marbán is no longer available to render and is not rendering services thereunder, due to his obligations to JHU, his physical or mental disability, or his death.

Antalium Collaborative Research and License Agreement

We entered into a collaborative research and license agreement with Antalium Inc., or Antalium, on November 30, 2000, for the worldwide rights for the development and commercialization of certain nociblocker compounds developed by us. Pursuant to the agreement, Antalium has a right to select certain compound(s) from a group of test compounds delivered by us on or before May 31, 2002. Antalium did not select any test compounds prior the expiration its license. The agreement was terminated on May 31, 2002.

MacLeod and Quastel Agreement

By agreement dated November 19, 1997 entered into between us and Drs. MacLeod and Quastel, we acquired ownership to certain intellectual property related to nociblocker technology and all their therapeutic uses. The agreement provides that we will pay to each of Drs. MacLeod and Quastel $25,000 in each of the first five years as a University grant-in-aid, commencing April 1, 1997 (as at November 30, 2002, all fully paid). We are also required to pay to each of Drs. MacLeod and Quastel $250,000 upon commencement of Phase III clinical trials on a compound licensed to us under the agreement, and a further $1,000,000 upon the filing of a new drug application in the United States or Canada for a compound licensed by us under the agreement. The agreement further requires us to spend a minimum of $200,000 each year for five years on the research and development of drugs using nociblocker technology, which includes expenditures under the cough project and nociblocker project (as at November 30, 2002, this minimum financial commitment satisfied). We assigned all patent applications related to the cough project and nocibloker project to UCB Farchim S.A. or UCB as a result of the sale of our anti-tussive program to UCB in September 2002.

Patents and Proprietary Protection

We consider our patent portfolio as one of the key value contributors to our business; therefore, we devote a substantial amount of resources each year to maintaining and augmenting our patent portfolio. Our patent strategy is to pursue the broadest possible patent protection on our proprietary products and technology in selected jurisdictions. Accordingly, for novel compounds, claims for the compound, composition and use will be made and for known compounds, claims directed to novel composition and/or use will be made in the patent application. We plan to protect our technology, inventions and improvements to our inventions by filing patent applications in selected key countries according to industry standard in a timely fashion.

In addition to our patents, we also rely upon trade secrets, know-how and continuing technological innovations to develop our competitive position. It is our policy to require our directors, employees, consultants, members of our scientific advisory board and parties to collaborative agreements to execute confidentiality agreements upon the commencement of employment, consulting or collaborative relationships with us. In the case of employees and consultants, the agreements provide that all inventions resulting from work performed for us utilizing our property or relating to our business and conceived of or completed by the individual during employment are the exclusive property of ours to the extent permitted by law.

As of April 4, 2004, we hold rights to 87 patents and patent applications in the United States and other jurisdictions in respect of certain core technologies utilized by us. To date, 23 patents have been issued in the United States and other jurisdictions. These patents and patent applications do not include any of the 30 patent applications assigned to UCB Farchim S.A. ("UCB") as a result of the sale of our anti-tussive program to UCB in September 2002.

We are required to pay milestone payments and royalties for the 23 patents or patent applications licensed from, or for which we have been granted commercial rights by, the University of British Columbia and JHU. Of these patents or patent applications, 18 have been licensed under the UBC License described below under "Business Overview—Licenses and Collaborative Research Agreements—UBC License and UBC Research Agreement" and 5 have been licensed under the JHU License. See "JHU License" below. We have no royalty obligations associated with any of the remaining of 64 patents or patent applications in our portfolio.

Potential Markets

We focus on developing proprietary drugs to treat or prevent cardiac diseases. Our projects are in relatively early stages of development. Products that may result from our research and development

projects are not expected to be commercially available for a number of years, if at all. We have no developed or approved products. Therefore, any discussion of a market for our products is of a very preliminary nature.

The broad category of cardiovascular disease, includes congestive heart failure, stroke, coronary heart disease, arrhythmias and more. The market for cardiovascular disease represents the largest drug market based on total worldwide sales of approximately U.S.$64 billion in 1998.

As the general population ages, the incidence of cardiovascular disease will increase significantly. There will be an estimated 50% increase in the annual number of Canadians diagnosed with heart disease and stroke over the next 25 years. This demand will far surpass existing healthcare resources and facilities.

The next decade will be the critical time frame in which to anticipate and manage the impact of cardiovascular disease on healthcare systems. In this endeavour, doctors are expected to look to pharmaceutical companies for therapies and treatments.

Antiarrhythmic Drug Market

The current antiarrhythmic drug market includes several drugs to treat the various types of arrhythmia. Although the number of antiarrhythmic drugs has grown in the past few decades, they have very undesirable characteristics. The older Class I drugs carry the risk of increased mortality and the more potent Class III drugs such as amiodarone can be toxic to the lungs and other organs. Prescribing patterns are currently dominated by drugs to treat one type of arrhythmia, atrial fibrillation. The worldwide market for all prescribed drugs to manage arrhythmias, excluding anticoagulants, totalled U.S.$ 1.4 billion in 1999, with pharmaceuticals to treat atrial fibrillation arrhythmias representing approximately U.S.$1.1 billion of that total. Approximately U.S.$800 million of the U.S.$1.1 billion was in the United States.

While antiarrhythmic drug sales are already substantial, there still remains a major unmet market need for safe antiarrhythmics. As indicated above, current drugs for treating arrhythmia have serious side effects that limit their use. In fact, a study indicates that one of the commonly prescribed antiarrhythmics actually increases mortality rates in patient groups to which it is administered. Other studies, SWORD and various meta analysis studies for example, have shown other drugs to be pro-arrhythmic.

Aging populations in major markets worldwide, and the increasing pharmacotherapy needs that will accompany them, will contribute to growth beyond current levels. One forecast for the next five to ten years is an annual growth rate in total pharmaceutical sales in the four percent range. The key driver for sales is not, however, the annual growth of the market but its absolute size. Given the serious side effects of antiarrhythmic drugs currently on the market, a product that is both safe and effective would provide for significant market penetration into an already large market.

Congestive Heart Failure Market

Congestive heart failure is the only significant cardiovascular disorder to show a marked increase in incidence over the past 40 years. Approximately 5,000,000 persons in the United States suffer from congestive heart failure, while the developed world total is estimated at approximately 10,000,000. The American Heart Association reported that the number of hospital discharges in the United States rose from 377,000 in 1979 to 995,000 in 2001 with a projected direct and indirect cost of U.S.$28.8 billion in 2004. The incidence of newly diagnosed congestive heart failure cases exceeds 3,600,000 each year. It is the number one cause of hospitalization in the United States in patients over 65 years of age. The prognosis for congestive heart failure in terms of mortality is poor and the disease is now characterized in the United States as "epidemic". The mortality rate is comparable to the worst forms of cancer—

experts indicate that 20% of patients die within one year with an 80% mortality rate by year eight for men. The current cost of pharmaceuticals to treat congestive heart failure is in excess of U.S.$1.5 billion worldwide, just under U.S.$1 billion of that cost is in the United States alone.

Congestive heart failure sales will be driven by two factors: introduction of new, more effective drug compounds and the aging population. One forecast expects major market sales of congestive heart failure drugs will increase 4% per annum over the next four years, accelerating to 9% per annum over the ensuing five years. Within two years, the major market sales for congestive heart failure drugs is forecast to be U.S.$1.9 billion, rising to U.S.$ 2.9 billion within 7 years.

Competition

The pharmaceutical and related biotechnology industries are characterized by extensive research efforts, rapid technology change and intense competition. Competition in the biopharmaceutical industry is based primarily on product performance, including efficacy, safety, ease of use and adaptability to various modes of administration, patient compliance, price, acceptance by physicians, marketing, and distribution. Barriers to entry into the market include the availability of patent protection in the United States and other jurisdictions of commercial interest and the ability and time needed and cost required to obtain governmental approval for testing, manufacturing and marketing.

Antiarrhythmia Drug Market Competition

We are aware of a number of companies engaged in the development of drugs in the cardiac arrhythmia therapeutic area. Additionally, there are a significant number of other pharmaceutical and biotechnology companies developing and/or marketing ion channel focused therapeutics. Some of these companies have substantially more financial and technical resources, more extensive research and development capabilities, products at a later stage of development, and greater marketing, distribution, production and human resources than us.

However, there are many serious cardiovascular diseases for which existing therapies are inadequate. One of the key inadequacies of many drugs is safety. We seek to develop atria-selective ion channel-modulating drugs to overcome this inadequacy as it has found that these drugs are safer than existing therapies in initial animal studies. Our competitive advantage lies in our experience in the fields of ion channels, pathology of arrhythmias, toxicology and pharmacology, which is the science that deals with the origin, nature, chemistry, effects, and uses of drugs, and our ability to develop relevant in vitro and in vivo models for specific pathologies.

There is extensive competition within the areas of antiarrhythmic drugs from existing therapies and therapies under development. In 1999, worldwide sales of pharmaceuticals to treat atrial arrhythmias were approximately U.S.$1.1 billion. The largest class in antiarrhythmic drug sales are Class I drugs (1999 sales of U.S.$303 million) which block sodium channels in cardiac cells. Class I drug examples are Rhythmol, Tambocor and Quinaglute. Class II drugs (U.S.$133 million) consist of beta blockers such as Inderol. Class III drugs (U.S.$281 million) are potassium-channel blockers such as Cordarone and Betapace. Class IV drugs (U.S.$255 million) are calcium-channel blockers such as Cardizem.

Congestive Heart Failure Market Competition

We believe that oxypurinol, as a treatment for congestive heart failure, will be the first drug of its kind in connection with the treatment of congestive heart failure. To date, digoxin is the only known approved drug able to increase myocardial contractility with minimal increases in cardiac oxygen demand. Given that digoxin has a limited therapeutic index, which is the experimental index of the relative safety of a compound, it must be closely monitored with regular blood tests to avert the possibility of side effects that may include cardiac arrhythmia, which can be fatal. Other inotropic

agents such as dopamine and dobutamine also increase myocardial contractility, but also have narrow therapeutic indices, thus minimizing their utility in the treatment of congestive heart failure.

The current standard of care for congestive heart failure consists primarily of diuretics, digoxin, angiotensin converting enzyme inhibitors, or ACE-inhibitors and in some cases, a beta blocker. However, treatment options for this complicated disease may employ various combinations of the following:

1.: Diuretics such as furosemide and spironolactone that remove excess fluid and decrease the workload of the heart and improve symptoms and survival.
2.: Cardiac glycosides, like digoxin, that increase contractility of the heart and provide an improved neuro-hormonal environment thereby reducing the workload on the heart, improving symptoms and reducing hospitalizations.
3.: Vasodilators like the nitrates, ACE-inhibitors, angiotensin II inhibitors, and calcium channel antagonists that reduce the workload of the heart, reduce blood pressure, improve coronary blood flow, improve symptoms and, in some studies like those with ACE-inhibitors, improve survival.
4.: Alpha and beta adrenergic blockers, like doxazosin and carvedilol, reduce physiologic stressors, reduce the heart rate and allow the heart to function more efficiently and effectively and in the case of beta blockers, may increase survival.
5.: Inotropic agents like dopamine and dobutamine are used in very severe cases to increase the contractility of the heart and improve its output.

Regulatory Environment

The research and development, manufacture and marketing of pharmaceutical products are subject to regulation for safety and efficacy. Drug licensing laws require licensing of manufacturing facilities, carefully controlled research and testing of products, governmental review and approval of results prior to marketing of therapeutic products, and adherence to Good Manufacturing Practices during production. In the United States, these activities are subject to rigorous regulation by the U.S. Food and Drug Administration, or FDA, and in Canada, these activities are regulated by the Food and Drug Act (Canada) and the rules and regulations promulgated thereunder, which are enforced by the Canadian Therapeutic Products Directorate, or TPD.

Our success is ultimately dependent on obtaining marketing approval for drugs currently under development and will depend on our ability to comply with worldwide regulations governing the manufacturing, quality control, pre-clinical evaluation, and clinical testing of investigational new drugs. Depending upon the circumstances surrounding the clinical evaluation of a product, we may undertake clinical trials, contract clinical trial activities to contract research organizations or rely upon corporate partners for such development. This approach will allow us to make cost effective developmental decisions in a timely fashion. See "Business Strategy—Collaboration Strategy".

The principal activities that must be completed after initial research and before obtaining approval for marketing of a product in Canada and the United States are as follows:

1.: pre-clinical studies, which includes pharmacological and efficacy testing in animals, toxicology testing and formulation work based on in vitro results, performed to assess the safety and potential efficacy of the product;
2.: submission of an investigational new drug, or IND, application, which must become effective before human clinical trials commence;

3.: Phase I clinical trials, the initial introduction of the product into human subjects, under which the compound is tested for safety, dosage, tolerance, metabolic interaction, distribution, excretion and pharmacodynamics;
4.: Phase II clinical trials involving studies in a limited patient population to: (1) determine the efficacy of the product for specific, targeted indications, (2) determine optimal dosage, and (3) identify possible adverse effects and safety risks;
5.: Phase III clinical trials which are undertaken to further evaluate clinical efficacy of the product and to further test for its safety within an expanded patient population at geographically dispersed clinical study sites;
6.: the submission of a New Drug Application, or NDA, to the government authorities in the United States, or a new drug submission, or NDS, in Canada; and
7.: FDA approval of an NDA and TPD approval of an NDS prior to any commercial sale or shipment of the product, including pre-approval and post-approval inspections of its manufacturing facilities.

Two key factors influencing the rate of progression of clinical trials are the rate at which patients are available to participate in the research project and whether effective treatments are currently available for the disease that the drug is intended to treat.

An IND must be filed and accepted by the TPD or FDA, as applicable, before each phase of human clinical trials may begin. The IND application must contain specified information including the results of the pre-clinical studies or clinical tests completed at the time of the IND application. In addition, since the method of manufacture may affect the safety and efficacy of a drug, information on manufacturing methods and standards and the stability of the drug substance and the dosage form must be presented so that the TPD or FDA can ensure that the product that may eventually be sold to the public has the same composition as that determined to be effective and safe in the clinical trials. Production methods and quality control procedures must be in place to ensure a relatively pure compound, essentially free of contamination and uniform with respect to all quality aspects.

Upon completion of all clinical studies the results are submitted to the TPD as part of a Canadian NDS or to the FDA as part of a Product License Application or NDA to obtain approval to commence marketing the product. In addition, an establishment license application must be filed and approved by the FDA or TPD for the production of a product and test sites must demonstrate that Good Laboratory Practices and Good Clinical Practices have been maintained during pre-clinical and clinical evaluation. We may partner later stage development of our drug candidates with companies that have experience in manufacturing in accordance with Good Laboratory Practices and Good Clinical Practices.

Even after marketing approval for a drug has been obtained, further studies may be required (sometimes called Phase IV studies). Post-market studies may provide additional data on safety and efficacy necessary to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially tested and approved.

The research and development, manufacture and marketing of pharmaceutical products are subject to regulation in the United States by the FDA, in Canada by the TPD and by comparable authorities in other foreign countries. These national agencies and other federal, state, provincial and local entities will regulate the testing, manufacture, safety and promotion of any products that may be developed.

Process Development and Manufacturing

We currently have no plans to establish manufacturing facilities for the commercial production of our product development candidates. Our strategy is to develop, manufacture and commercialize our

therapeutic products through arrangements with major pharmaceutical and biotechnology companies and we may rely on such companies, licensees or other contractual manufacturing entities for commercial scale manufacturing and marketing of our products. There can be no assurance, however, that we will be able to reach satisfactory arrangements with such parties, that such arrangements will be successful or that our partners or contractors will be able to develop adequate manufacturing capabilities for commercial scale quantities.

Human Resources

As of April 12, 2004, we employed or retained 50 persons, 21 of whom hold advanced degrees in science or business, including 13 who hold Ph.D degrees. In addition, we maintain affiliations with major research centres including the University of British Columbia and Johns Hopkins University. See "Narrative Description of the Business—Licenses and Collaborative Research Agreements". Our employees are not unionized. We believe that relations with our employees are good.

Facilities

Our head office and main laboratory is located at 6190 Agronomy Road, 6^th Floor, Vancouver, British Columbia, Canada. On September 3, 2003, we entered into a lease agreement for such premises which consists of 15,852 square feet of office and laboratory space. The term of the lease is 10 years commencing on March 15, 2004. Annual lease payments will be $301,000 per annum in the first year, increasing by $8,000 each year until the fifth year at which time the annual lease payments will be $333,000 per annum. For each remaining year of the term after the fifth year, the annual lease payments will be $357,000 per annum. We may, at our option, extend the term of the lease for three additional two-year periods. Our previous lease expired on March 31, 2004.

RISK FACTORS

You should consider carefully the following risks and other information included in this annual information form, including our historical consolidated financial statements and related notes, before you decide to purchase our common shares. If any of the following risks actually occur, our business, financial condition and operating results could be adversely affected. As a result, the trading price of our common shares could decline and you could lose part or all of your investment.

We are establishing a new pharmaceutical development business and have no developed or approved products

We are in the early drug discovery and development stage and are subject to all of the risks associated with the establishment of a new business enterprise. As a result, our business must be evaluated in light of the problems, delays, uncertainties and complications encountered in connection with a newly established pharmaceutical development business.

Our proposed products are currently in the research and development stage and we have not generated any revenues from product sales, nor do we expect to generate any product revenues from our product candidates for treatment of arrhythmia and congestive heart failure product candidates for at least two years. We may generate product revenue in 2004 if we are successful in obtaining regulatory approval to commercialize oxypurinol for the treatment of gout; however, the expected revenue from this orphan drug candidate, if any, is expected to be insignificant compared to the level of operating expenditures we are currently incurring. Substantial pre-clinical research and clinical development work and testing for our product candidates remains to be completed, as Kv1.5 and the oral application of RSD1235 are in the pre-clinical stage, the intravenous administration of RSD1235 is in two Phase III clinical trials, and oxypurinol in the treatment of congestive heart failure is in a Phase II /III clinical trial. In addition, the intellectual property rights and pre-clinical data associated with

RSD1122 were returned to us from our former collaborative partner, AstraZeneca AB on July 4, 2002. We decided not to carry out and fund further research and development on RSD1122 at this time. Accordingly, it remains uncertain as to whether our research and development efforts will be successful. There is a possibility that none of our potential products will be found to be safe and effective or that we will be unable to receive necessary regulatory clearances in order to commercialize them.

Our failure to successfully develop and obtain regulatory approval for our products that are under development would have a material adverse effect on our business, financial condition and results of operations.

If we do successfully develop our products, they may not achieve market acceptance and we may not be able to sell them

Even if we do develop a safe and effective product and obtain the necessary regulatory clearances, the process will take years, and by the time this occurs, because of the competitive and dynamic nature of the drug development industry, there is a risk that at such time, any such product:

•: will not be economical to market, or will not be marketable at prices that will allow us to achieve profitability,
•: will not be successfully marketed or achieve market acceptance,
•: will not be preferable to existing or newly developed products marketed by third parties, or
•: will infringe proprietary rights held by third parties now or in the future that would preclude us from marketing any such product.

The degree of market acceptance of products developed by us, if any, will depend on a number of factors, including the establishment and demonstration in the medical community of the clinical efficacy and safety of our products and their potential advantage over alternative treatment methods. There is no assurance that physicians, patients or the medical community in general will accept and utilize any products that may be developed by us.

In addition, by the time our products, if any, are ready to be commercialized, what we believe to be the market for these products may have changed. Any estimates referenced herein of the number of patients who have received or might have been candidates to use a specific product may not accurately reflect the true market or market prices for such products or the extent to which such products, if successfully developed, will actually be used by patients.

Our failure to successfully introduce and market our products that are under development would have a material adverse effect on our business, financial condition and results of operations.

We have limited revenues, a history of significant losses and an accumulated deficit

We have had no sales revenue to date. Although we have been involved in the pharmaceuticals industry since 1992, we have been engaged only in research and development. We have generated limited non-sales revenue and have incurred significant operating losses, including net losses of $19,865,813 for the thirteen-month period ended December 31, 2003, and $14,029,706 and $7,157,885 for the fiscal years ended November 30, 2002 and 2001, respectively. Our revenues were $6,047,193 for the thirteen-month period ended December 31, 2003, and $1,768,409 and $197,028 for the fiscal years ended November 30, 2002 and 2001, respectively. Since inception, our accumulated deficit is $64,291,629, as of December 31, 2003. We anticipate that we will incur substantial operating expenses in connection with the research, development, testing and approval of our proposed products and we expect these expenses to result in continuing and significant operating losses for the foreseeable future. If we are unable to develop, obtain regulatory clearance for, and successfully commercialize our

product candidates, we will not be able to significantly increase revenues or achieve profitable operations.

We will have additional future capital needs and there are uncertainties as to our ability to raise additional funding

We will require substantial additional capital resources to further develop our product candidates, obtain regulatory approvals and ultimately to commercialize our products. While we believe that our current capital resources will be sufficient to fund our operations as currently anticipated for the next two fiscal years, we do not expect to be able to commercialize our major product candidates or complete all of our current clinical studies during this period. Accordingly, unless we are able to access the capital markets, our resources during this period will be limited to cash on hand and any revenues we are able to generate from corporate collaboration or licensing arrangements and from our orphan drug candidate, oxypurinol for the treatment of gout.

In addition, our future cash requirements may vary materially from those now expected. For example, our future capital requirements may increase if:

•: we make faster than expected scientific progress in our discovery, research and development projects, if we expand the magnitude and scope of these activities, or if we modify our focus as a result of our discoveries,
•: our progress with pre-clinical studies and clinical trials is delayed or we experience set backs,
•: we experience delays or unexpected increased costs in connection with obtaining regulatory approvals,
•: we experience unexpected or increased costs relating to preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, or
•: we are required or elect to develop, acquire or license new technologies and products.

We intend to seek additional funding through corporate collaborations and licensing arrangements, public or private equity or debt financing, and/or capital lease transactions. However, if our research and development activities do not show positive progress, or if capital market conditions in general or with respect to biotechnology or development stage companies such as ours are unfavorable, our ability to obtain additional funding on acceptable terms, if at all, will be negatively affected. Additional equity financing could result in significant dilution to our shareholders.

If sufficient capital is not available, we may be required to delay, reduce the scope of, eliminate or divest of one or more of our discovery, research or development projects, any of which could have a material adverse effect on our business, financial condition, prospects or results of operations.

Our share price has experienced volatility and may be subject to fluctuation in the future based on market conditions

The market prices for the securities of biotechnology companies, including our own, have historically been highly volatile. The market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of any particular company. In addition, because of the nature of our business, certain factors such as our announcements, competition from new therapeutic products or technological innovations, government regulations, fluctuations in our operating results, results of clinical trials, public concern regarding the safety of drugs generally, general market conditions and developments in patent and proprietary rights can have an adverse impact on the market price of our common shares. For example, since 1996, after giving effect to our reverse stock split completed on March 8, 2002, our share price in Canada experienced an increase from $2.60 during our fiscal year ended November 30, 1997 to our historic high of $12.60 during our fiscal year

ended November 30, 1998 and then a drop to our historic low of $1.35 during the third quarter of our fiscal year ended November 30, 2002. During the period from September 1, 2000 to December 31, 2000 alone, the price of our common shares ranged from a high of $9.00 to a low of $2.00 as we announced our successful completion of a licensing agreement with AstraZeneca AB in October 2000 and our unsuccessful Phase II clinical results of our Cough Program, one of our previous projects, in December 2000.

It is uncertain whether any products we develop will receive regulatory approval and changes in regulatory policy could cause potential delays in receiving approval

The pre-clinical studies and clinical trials of any products developed by us and the manufacturing, labeling, sale, distribution, export or import, marketing, advertising and promotion of any of those products are subject to regulation by federal, provincial, state and local governmental authorities, in the United States principally by the Food and Drug Administration, in Canada by the Therapeutic Products Directorate and by other similar agencies in other countries. Any product developed by us, if any, must receive all relevant regulatory approvals or clearances before it may be marketed and sold in a particular country.

Currently, in connection with our pre-clinical development activities for Kv1.5, our Phase III clinical trials for RSD1235, our Phase II/III clinical trial for oxypurinol in the treatment of congestive heart failure, and our anticipated approval of a new drug application for oxypurinol in the treatment of gout, we are required to adhere to guidelines established by the Food and Drug Administration in the United States and the Therapeutic Products Directorate in Canada. These agencies and the regulatory process in general require us to conduct extensive pre-clinical studies and clinical trials of each of our product candidates in order to establish its safety and efficacy. These pre-clinical studies and clinical trials can take many years and require the expenditure of substantial resources.

In addition to the risk of unfavorable results of our research, because the data obtained from our pre-clinical and clinical activities are susceptible to varying interpretations, our successful completion of the regulatory process is uncertain. We may encounter delays, have limits imposed on us or our product candidates or fail to obtain the regulatory approval or clearance required to commercialize our product candidates. In addition, delays or rejections may be encountered based upon changes in regulatory policy during the period of product development and/or the period of review of any application for regulatory approval or clearance for a product. Delays in obtaining regulatory approvals or clearances would adversely affect the marketing of any products developed by us, if any, impose significant additional costs on us, diminish any competitive advantages that we may otherwise have attained and adversely affect our ability to receive royalties and generate revenues and profits. Accordingly, despite our expenditures and investment of time and effort, we may never receive any required regulatory approvals or clearances for any products developed by us.

Regulatory approval, if granted, may entail limitations on the indicated uses for which a new product may be marketed that could limit the potential market for such product, and product approvals, once granted, may be withdrawn if problems occur after initial marketing. Furthermore, manufacturers of approved products are subject to pervasive review, including compliance with detailed regulation governing good manufacturing practices. Failure to comply with applicable regulatory requirements can result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution.

We are also subject to numerous federal, provincial and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, the environment and the use and disposal of hazardous substances, used in connection with our discovery, research and development work. Although we have not yet been

required to expend identifiable additional resources to comply with these regulations, the extent of government regulations may change in a manner which could have an adverse effect on the discovery, development, production and marketing of our products, and we may be required to incur significant additional costs to comply with future laws or regulations.

We have substantial competition in the pharmaceutical industry and with respect to products we are developing

The pharmaceutical industry is very competitive. Many companies, as well as research organizations, currently engage in or have in the past engaged in efforts related to the development of products in the same therapeutic areas as we do. Because of the number of competitors we face, as well as resources available to certain of our competitors, there is a risk that one or more of our competitors may develop more effective or more affordable products than us, or may achieve earlier patent protection or product commercialization than us, or that such competitors will commercialize products that will render our product candidates obsolete, possibly before we are able to commercialize them.

Many of the companies developing competing technologies and products have significantly greater financial resources and expertise in discovery, research and development, manufacturing, pre-clinical studies and clinical testing, obtaining regulatory approvals and marketing than we do. Other smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Academic institutions, government agencies and other public and private research organizations may also conduct research, seek patent protection and establish collaborative arrangements for discovery, research, clinical development and marketing of products similar to those of ours. Currently, these companies and institutions compete with us in recruiting and retaining qualified scientific and management personnel as well as in acquiring technologies complementary to our projects. Once we develop a marketable product, in addition to the foregoing, we will face competition with respect to product efficacy and safety, ease of use and adaptability to various modes of administration, acceptance by physicians, the timing and scope of regulatory approvals, availability of resources, reimbursement coverage, price and patent position, including potentially dominant patent positions of others.

There is extensive competition within our area of concentration, antiarrhythmic drugs, both from existing therapies and therapies under development. Our most significant competitors in this therapeutic area are well established, large pharmaceuticals companies that have significantly more financial resources than us. These competitors currently produce and market both generic and branded antiarrhythmic drugs. Examples of generic antiarrhythmic drugs include propafenone, atenolol, diltiazem and amiodarone. Examples of branded antiarrhythmic drugs include Tambocor (flecainide) produced by 3M Pharmaceuticals Co., Quinaglute (quinidine gluconate) and Betapace (sotalol) produced by Berlex Laboratories, Inc., and Tykosin (dofetilide) produced by Pfizer Inc. While side effects are a risk of all medication, those associated with existing antiarrhythmic drugs are especially hard to manage. These side effects include proarrhythmia, the more-frequent occurrence of pre-existing arrhythmias or the appearance of new arrhythmias as bad or worse than those being treated. We believe our atrial arrhythmia drug candidate will be able to compete with the aforementioned drugs on the basis of superior safety, however, our drugs are still in development. We need to conduct extensive additional pre-clinical studies and clinical trials to gain regulatory approvals for commercialization and face the risk that other promising drugs may be introduced to the market by our competitors ahead of us. Even if we are able to provide a safer antiarrhythmic drug relative to the aforementioned drugs and are successful in obtaining the required regulatory approvals for commercialization, we will face additional marketing risks such as competition on the basis of ease of use, adaptability to various modes of administration, acceptance by physicians, and coverage of our patent position relative to those of our competitors.

The competition within the congestive heart failure therapeutic area is even more extensive compared to that within the antiarrhythmia therapeutic area. There are more congestive heart failure drugs available in the market and many of these drugs have side effects that are easier to manage, compared to those of antiarrhythmic drugs. Examples of generic drugs for conventional treatment of congestive heart failure include spironolactone and digoxin, and for supplemental treatment of congestive heart failure include enalapril, isosorbide and metoprolol. Examples of branded drugs for supplemental treatment of congestive heart failure include Capoten (captopril) produced by Bristol-Myers Squibb Company, Coreg (carvedilol) produced by GlaxoSmithKline PLC and Norvasc (amlodipine) produced by Pfizer Inc. Competition also comes from new emerging therapies using angiotensin II receptor blockers, such as valsartan for use in patients with congestive heart failure currently being studied by Novartis Pharmaceuticals Corporation, and calcium channel blockers. We believe we can compete with the aforementioned drugs by introducing a new therapeutic approach, xanthine oxidase inhibitors, which we believe have the ability to increase the contraction strength of the heart in patients with congestive heart failure without increasing the oxygen consumed by the heart to the extent caused by some of the current medications. However, our drug candidate, oxypurinol, is still in the development stage. Other companies with greater resources may introduce alternative drugs or new therapies much faster than us. Even if we are able to establish oxypurinol as a safer and more effective alternative to other drugs and are successful in obtaining the required regulatory approvals for commercialization, we still have to overcome significant marketing risks and challenges in order to achieve commercial success.

We are dependent upon our key personnel, who are necessary for us to achieve our scientific and business objectives

As a technology driven company, intellectual input from key management and scientists is critical to achieve our scientific and business objectives. Consequently, our ability to retain these individuals and attract other qualified individuals is critical to our success. The loss of the services of key individuals might significantly delay or prevent achievement of our scientific or business objectives. In addition, because of a relative scarcity of individuals with the high degree of education and scientific achievement required for our business, competition among biotechnology and pharmaceutical companies for qualified employees is intense and, as a result, we may not be able to attract and retain such individuals on acceptable terms, or at all. In addition, because we do not maintain "key person" life insurance on any of our officers, employees or consultants, any delay in replacing such persons, or an inability to replace them with persons of similar expertise, would have a material adverse effect on our business, financial condition and results of operations.

We also have relationships with scientific collaborators at academic and other institutions, some of whom conduct research at our request or assist us in formulating our research and development strategy. These scientific collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, these collaborators may have arrangements with other companies to assist such other companies in developing technologies that may prove competitive to us.

We have employment contracts of varying lengths with all of our key executives, which include an incentive provision for the granting of stock options which vest over time, designed to encourage the individual to stay with us. However, a declining stock price, whether as a result of disappointing progress in our development programs or as a result of market conditions generally, could render such agreements of little value to our key executives. In such event, our key executives could be susceptible to being hired away by our competitors who could offer a better compensation package.

Our products will rely on licenses of proprietary technology owned by third parties

The manufacture and sale of any products developed by us will involve the use of processes, products, or information, the rights of which are owned by third parties. Specifically, our rights to the use of oxypurinol arise from our licenses from JHU and ILEX. Our license from JHU is an exclusive worldwide license to certain patent applications. In addition to license fees already paid, our license from JHU requires us to make royalty payments on the net sales of any product we develop with the licensed technology. Our obligation to make such payments and the license itself terminate on April 17, 2021. Our license from ILEX is an exclusive worldwide sublicense under an exclusive license ILEX has obtained from Burroughs Wellcome Co. and The Wellcome Foundation Ltd. In addition to initial fees and option fees already paid, our license from ILEX requires us to pay other milestone payments and royalties based on net sales of products we develop from the licensed technology. The license terminates upon the expiration of ILEX's obligation to pay royalties on its original license of the technology, determined on a country by country basis, at which time our license will convert into a fully-paid, non-exclusive royalty-free license or sublicense. Although we have obtained licenses or rights with regard to the use of certain of such processes, products, and information, because of the uncertainty regarding the length of time it may take for us to develop any marketable products with this technology, it is possible that such licenses or rights might be terminated or expire during critical periods. Furthermore, because we are at an early stage of product development, we cannot determine if additional licenses or other rights may be required in order to produce a marketable product. If such additional licenses or other rights are crucial for marketing purposes, and we are not able to obtain them on favourable terms, or at all, the commercial value of our product will be significantly impaired. In addition to the foregoing, our license from the University of British Columbia requires royalty payments on the net sales of certain antiarrhythmia products, not including RSD1235 or products related to our Kv1.5 technology, we develop with the licensed technology. The license from the University of British Columbia terminates upon expiration of the last patent obtained under it, which is September 23, 2014. Some of these licenses provide for limited periods of exclusivity that may be extended only with the consent of the licensor. If we experience delays in developing our products and extensions are not granted on any or all of such licenses, our opportunity to realize the benefits of our efforts may be limited.

We rely on proprietary technology, the protection of which can be unpredictable and costly

Our success will depend in part upon our ability to obtain patent protection or patent licenses. We have 1 patent application and have licensed 5 patents and patent applications and certain other rights relating to oxypurinol. The composition of matter patents for oxypurinol have expired. Our license from JHU provides for patent rights as they relate to the commercial use of xanthine oxidase inhibitors for cardiovascular disease via the sensitizing of muscle cells to calcium ions. However, at this point in time, it is not certain that this is the method of action of xanthine oxidase inhibitors. If it is not, the rights we have obtained may have limited value. In order to obtain additional patent protection surrounding oxypurinol, we will be required to file patent applications relating to novel processes for manufacturing, delivery, use, new formulations or other aspects of oxypurinol.

Currently, we have 53 patent and patent applications and have licensed certain rights under an additional 18 patents relating to RSD1235 and the related family of compounds for antiarrhythmia and local anaesthesia applications. We have 7 patent applications relating to Kv1.5. In addition, we have 3 additional patent applications relating to areas we are no longer actively pursuing, excluding the 30 patent applications assigned to UCB Farchim S.A. ("UCB") as a result of the sale of our anti-tussive program to UCB in September 2002.

We intend to file, when appropriate, additional patent applications with respect to inventions. However, because the patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions, it is uncertain that any patents will be issued

or that, if issued, they will be of commercial value. It is impossible to anticipate the breadth or degree of protection that patents will afford products developed by us or the underlying technology. There is also a risk that any patents issued covering our products or any patents licensed to us may be successfully challenged or that our products might infringe the patents of third parties. If our products infringe the patents of others, we may be required to design around such patents, potentially causing increased costs and delays in product development and introduction or precluding us from developing, manufacturing, or selling our planned products. The scope and validity of patents which may be obtained by third parties, the extent to which we may wish or need to obtain patent licenses, and the cost and availability of such licenses are currently unknown. If such licenses are obtained, it is likely they would be royalty-bearing which could reduce our income. If licenses cannot be obtained on an economical basis, delays in market introduction of our planned products could occur or introduction could be prevented, in some cases after the expenditure of substantial funds. If we defend or contest the validity of patents relating to our products or the products of a third party, we could incur substantial legal expenses with no assurance of success.

In certain instances, we may elect not to seek patent protection but instead rely on the protection of our technology through confidentiality agreements. The value of our assets could also be reduced to the extent that other persons obtain patents, or confidential measures are breached or become unenforceable. However, third parties may independently develop or obtain similar technology and such third parties may be able to market competing products and obtain regulatory approval through a showing of equivalency to one of our products which has obtained regulatory approval, without being required to undertake the same lengthy and expensive clinical studies that we would have already completed.

Litigation may also be necessary to enforce patents issued or licensed to us or to determine the scope and validity of a third party's proprietary rights. We could incur substantial costs if we are required to defend ourselves in patent suits brought by third parties, if we participate in patent suits brought against or initiated by our corporate collaborators or if we initiate such suits. Currently, we may not have the necessary resources to participate in or defend any such activities or litigation. Even if we did have the resources to vigorously pursue our interests in litigation, because of the complexity of the subject matter, it is impossible to predict at this point whether we would prevail in any such action. An adverse outcome in litigation or an interference to determine priority or other proceeding in a court or patent office could subject us to significant liabilities, require disputed rights to be licensed from third parties or require us to cease using certain technology or products, any of which may have a material adverse effect on our business, financial condition and results of operations.

The inability to manage our future growth could impair our operations and financial results

Our future growth, if any, may cause a significant strain on our management, and our operational, financial and other resources. Our ability to manage our growth effectively will require us to implement and improve our operational, financial, manufacturing and management information systems and to expand, train, manage and motivate our employees. These demands may require the addition of management personnel and the development of additional expertise by management. Any increase in resources devoted to research, product development and marketing and sales efforts without a corresponding increase in our operational, financial, manufacturing and management information systems could have a material adverse effect on our business, financial condition, and results of operations.

In particular, the combination of our business with Cardiome, Inc. (formerly Paralex, Inc.) and any future business combination, if any, required the integration of research and development and administrative operations. The transition to a combined company has required substantial attention from management, which has limited experience in integrating companies and managing the growth of the combined companies. The diversion of management attention and any difficulties encountered in

the ongoing transition process could have an adverse impact on our ability to successfully pursue the development of the drug candidates acquired by us. In addition, although Cardiome, Inc. incurred only limited expenses prior to our acquisition of it, as it had not conducted business activities other than entering into license agreements with JHU and ILEX, we expect to spend a significant amount of our resources on the development of oxypurinol. The risks associated with the additional expenses of managing Cardiome, Inc. and the additional ongoing cash requirements to fund its research and development projects increase the pressure on us to achieve offsetting synergistic cost reductions as rapidly as possible and, if we are unable to do so, our financial position may be impaired.

If we develop products with commercial potential, we have no experience in commercial manufacturing

We have no experience manufacturing commercial quantities of products and do not currently have the resources to manufacture any products that we may develop. Accordingly, if we were able to develop any products with commercial potential, we would either be required to develop the facilities to manufacture independently or be dependent upon securing a contract manufacturer or entering into another arrangement with third parties to manufacture such products. If we are unable to develop such capabilities or enter into any such arrangement on favourable terms, we may be unable to compete effectively in the marketplace.

We intend to continue to contract with our current vendors for the manufacture of oxypurinol and RSD1235. We may need to contract with additional manufacturers for the manufacture of oxypurinol or RSD1235. Because of the high degree of expertise necessary to produce chemical products, it is a time consuming process to arrange for an alternative manufacturer. We may not be able to identify and qualify any such manufacturers on a timely basis, which may cause significant delay in our development process. Even if we are able to identify and qualify an alternative manufacturer, we may not be able to obtain favourable terms on any manufacturing agreement we enter into with them. We have and will rely on contract manufacturers for the foreseeable future to produce quantities of products and substances necessary for research and development, pre-clinical trials, human clinical trials and product commercialization. It will be important to us that such products can be manufactured at a cost and in quantities necessary to make them commercially viable. At this point in time, we have not attempted to identify and do not know whether there will be any third party manufacturers which will be able to meet our needs with respect to timing, quantity and quality. If we are unable to contract for a sufficient supply of required products and substances on acceptable terms, or if we should encounter delays or difficulties in our relationships with manufacturers, our research and development, pre-clinical and clinical testing would be delayed, thereby delaying the submission of products for regulatory approval or the market introduction and subsequent sales of such products. Any such delay may have a material adverse effect on our business, financial condition and results of operations.

If we manufacture pharmaceutical products, the products will need to comply with good manufacturing practices in the U.S., Canada or other jurisdictions

The manufacturer of our pharmaceutical products, if any, will be subject to current good manufacturing practices or similar regulations prescribed by the Food and Drug Administration in the United States, the Therapeutic Products Directorate in Canada and similar authorities prior to the commercial manufacture of any such products in the countries where the products are manufactured. As we will be dependent on third parties, our ability to ensure that any entity manufacturing products on our behalf is able to comply with good manufacturing practices or satisfy certain regulatory inspections in connection with the manufacture of our proposed products will be limited. Failure or delay by any manufacturer of our products to comply with good manufacturing practices or similar regulations or satisfy regulatory inspections would have a material adverse effect on us.

We do not have the marketing expertise needed for the commercialization of our products

We do not currently have the resources to market the products that we may commercialize. Marketing of new products presents greater risks than are posed by the continued marketing of proven products. Accordingly, if we are able to commercialize any of our drug products, we would either have to develop a marketing capability (including a sales force) or attempt to enter into a joint venture, license, or other arrangement with third parties to provide the financial and other resources needed to market such products. We recently entered into an agreement pursuant to which, among other things, we licensed to Fujisawa the rights to market in North America the intravenous formulation of RSD1235, after it has been developed as a product. Our ability to develop our own marketing capability is untested. Our ability to negotiate favourable terms in connection with additional arrangements to market our product(s) through joint venture, license or other arrangements is unknown at this time. Extensive licensing or joint venture agreements will also result in less income than if we marketed the products ourselves.

Our success is dependent upon our ability to enter into, and successfully manage, corporate collaborations with third parties in connection with services we will need for the development and commercialization of our products

The success of our business is largely dependent on our ability to enter into corporate collaborations regarding the development of, clinical testing of, seeking regulatory approval for, and commercialization of, our current product candidates. We have recently entered into a collaboration and license agreement with Fujisawa with respect to the development and commercialization of the intravenous formulation of RSD1235 in North America. We also have a collaboration with UCB for a project we no longer own. In addition, we are currently seeking additional corporate collaborations or partnerships for the intravenous formulation of RSD1235 outside of North America and other current projects. There can be no assurance, however, that we will be able to establish any such corporate collaborations or partnerships on favourable terms, or at all or within any projected time frame. Even if we are successful in establishing such relationship, these collaborations may not result in the successful development of our product candidates or the generation of revenue.

Our success is highly reliant upon the performance of Fujisawa and our future corporate collaborators, if any. The amount and timing of resources to be devoted to activities by Fujisawa and future corporate collaborators, if any, are not within our direct control and, as a result, there can be no assurance that Fujisawa or our future corporate collaborators will commit sufficient resources to our research and development projects or the commercialization of our products. Fujisawa or our future corporate collaborators, if any, might not perform their obligations as expected and might pursue existing or other development-stage products or alternative technologies in preference to those being developed in collaboration with us. Disputes may arise with respect to ownership of technology developed under any such corporate collaborations.

Because the success of our business is largely dependent upon our ability to enter into corporate collaborations and to effectively manage issues that arise from such collaborations, management of these relationships will require significant time and effort from our management team and effective allocation of our resources. Because we are currently involved in only two collaborations, one of which relates to a project we no longer own, our ability to simultaneously manage a number of active corporate collaborations is untested.

The use of pharmaceutical products may expose us to product liability claims

The products we are developing and will attempt to develop will, in most cases, undergo extensive clinical testing and will require Food and Drug Administration and Therapeutic Products Directorate approval prior to sale in the United States and Canada, respectively. However, despite all reasonable

efforts to ensure safety, it is possible that we or our partners will sell products which are defective, to which patients react in an unexpected manner, or which are alleged to have side effects. The sale of such products may expose us to potential liability. Additionally, we may be exposed to product liability claims in the development of the products through administration of the drug candidates to volunteers and patients in clinical trials. Such liability might result from claims made directly by consumers or by pharmaceutical companies or others selling such products. It is impossible to predict the scope of injury or liability from such defects or unexpected reactions, or the impact on the market for such products of any allegations of these claims (even if unsupported), or the measure of damages which might be imposed as a result of any claims or the cost of defending such claims. Although our shareholders would not have personal liability for such damages, the expenses of litigation in connection with any such injuries or alleged injuries and the amount of any award imposed on us in excess of existing insurance coverage, if any, may have a material adverse impact on us. In addition, any liability that we may have as a result of the manufacture of any products could have a material adverse effect on our financial condition, business and operations, to the extent insurance coverage for such liability is not available. At present, we have secured product liability coverage in an amount of (i) U.S.$5 million per incident and U.S.$5 million annual aggregate for the Phase II/III clinical trials for oxypurinol in the treatment of congestive heart failure and a proof of concept trial for RSD1235, (ii) U.S.$5 million per incident and U.S.$5 million annual aggregate for the Phase II/III clinical trials for oxypurinol in the treatment of gout, and (iii) U.S.$10 million per incident and U.S.$10 million annual aggregate for the Phase III clinical trials of RSD1235. Currently, we have no other product liability insurance. Obtaining insurance of all kinds has recently become increasingly more costly and difficult and, as a result, such insurance may not be available at all, may not be available on commercial terms or, if obtained, may be insufficient to satisfy asserted claims.

We are subject to the risks associated with the use of hazardous materials in research and development conducted by us

Our research and development activities may involve the controlled use of hazardous materials and chemicals. Examples of hazardous materials and chemicals currently used in our facilities are acetopromazine, barium chloride and valproic acid. We are subject to federal, state, local and foreign laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Although we believe that safety procedures for handling and disposing of such materials will comply with the standards prescribed by federal, state, local and/or foreign regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages that result and any such liability could exceed our resources. We have secured a commercial general liability policy with coverage of up to $3.38 million per occurrence. We have also secured a blanket property insurance policy to cover up to $8.86 million for costs related to accidental damage to our properties and interruption of our business. If we are required to institute additional safety procedures because we are found not to be in compliance or if more stringent or additional regulations are adopted, we may be required to incur significant costs to comply with environmental laws and regulations, which might have a material and adverse effect on our business, financial condition and results of operations.

Our business may be materially adversely affected by the continuing efforts of governmental and third party payers to contain or reduce the costs of health care through various means

In recent years, federal, state, provincial and local officials and legislators have proposed, or are reportedly considering proposing, a variety of price-based reforms to the healthcare systems in the United States and Canada. Some proposals include measures that would limit or eliminate payments for certain medical procedures and treatments or subject the pricing of pharmaceuticals to government control. Further, in certain foreign markets the pricing or profitability of healthcare products is subject to government control and other measures have been prepared by legislators and government officials.

While we cannot predict whether any such legislative or regulatory proposals or reforms will be adopted, the adoption of any such proposals or reforms could adversely affect the commercial viability of our potential products. Significant changes in the healthcare system in the United States and Canada and abroad may have a substantial impact on the manner in which we conduct our business. Such changes also could have a material adverse effect on our ability to raise capital. Moreover, our ability to commercialize products may be adversely affected to the extent that such proposals have a material adverse effect on our business, financial condition and results of operations.

In addition, in both the United States, Canada and elsewhere, sales of healthcare products are dependent in part on the availability of reimbursement to the consumer from third party payors, such as government and private insurance plans. Third party payors are increasingly challenging the prices charged for medical products and services, and therefore uncertainty exists as to the reimbursement of existing and newly approved healthcare products. If we succeed in bringing one or more products to market, there can be no assurance that these products will be considered cost effective and that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive basis. Finally, given the potential market constraints on pricing, the availability of competitive products in these markets may further limit our flexibility in pricing and in obtaining adequate reimbursement for our potential products. If adequate coverage and reimbursement levels are not provided by government and third party payors for uses of our products, the market acceptance of our products would be adversely affected.

We may face exposure to adverse movements in foreign currency exchange rates when our products are commercialized, if at all

We intend to generate revenue and expenses internationally which are likely to be denominated in United States and other foreign currencies. Our intended international business will be subject to risks typical of an international business including, but not limited to, differing tax structures, myriad regulations and restrictions, and general foreign exchange rate volatility. A decrease in the value of such foreign currencies relative to the Canadian dollar could result in downward price pressure for our products in such jurisdictions or losses from currency exchange rate fluctuations. To date we have not generated sufficient revenues to warrant the necessity of hedging against risks associated with foreign exchange rate exposure. Although we may do so in the future, we cannot be sure that any hedging techniques we may implement will be successful or that our business, results of operations, financial condition and cash flows will not be materially adversely affected by exchange rate fluctuations.

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth consolidated financial data for the last three fiscal years of the Company:

		Year Ended
		December 31, 2003 (1)		November 30, 2002		November 30, 2001
		$		$		$
		(in thousands of dollars, except earnings per share)
Revenues		6,047		1,768		197
Net earnings (loss)		(19,866	)	(14,030	)	(7,158	)
Per share earnings (loss)
	—Basic	(0.63	)	(0.60	)	(0.69	)
	—Fully diluted	(0.63	)	(0.60	)	(0.69	)
Total assets		92,124		67,802		6,270
Long-term debt (2)		34		61		nil

(1): On December 31, 2003, we changed our fiscal year end from November 30 to December 31. As such, the data in this column reflects a 13 month period. In addition, we elected to prospectively adopt the recommendations of the C.I.C.A. new Handbook section 3870, Stock-based Compensation and other Stock-based Payments, effective December 1, 2002. This standard requires that all stock-based awards be measured and recognized using a fair value based method. For the thirteen months ended December 31, 2003, we recorded $1,991,865 and $67,188 of stock-based compensation for the stock options granted after December 31, 2002, to employees and non-employees, respectively.
(2): Amounts represent capital lease obligations.

Our selected consolidated financial data has been derived from, should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements and notes thereto prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") which conforms to United States generally accepted accounting principles ("U.S. GAAP") except as disclosed in Note 16 to the consolidated financial statements referenced herein and our "Management's Discussion and Analysis" referred to under the heading "Management's Discussion and Analysis and Financial Statements".

DIVIDEND RECORD AND POLICY

We have not declared or paid any dividends on our outstanding common shares since our inception and do not anticipate that it will do so in the foreseeable future. The declaration of dividends on our common shares is within the discretion of our board of directors and will depend on the assessment of, among other factors, our earnings, capital requirements and the operating and financial condition. At the present time our anticipated capital requirements are such that we intend to follow a policy of retaining earnings in order to finance the further development of our business.

MANAGEMENT'S DISCUSSION AND ANALYSIS AND FINANCIAL STATEMENTS

Our Management's Discussion and Analysis ("MD&A") and our comparative consolidated audited financial statements (the "Financial Statements") for the thirteen months ended December 31, 2003 are incorporated herein by reference. Our MD&A and Financial Statements are available on SEDAR at www.sedar.com under our company name, Cardiome Pharma Corp.

SHARE CAPITAL AND MARKET FOR SECURITIES

The authorized share capital of Cardiome consists of an unlimited number of common shares and an unlimited number of preferred shares, issuable in series. As of the date of this annual information form, 39,551,197 common shares and no preferred shares were issued and outstanding. All of the common shares are of the same class and, once issued, rank equally as to entitlement to dividends, voting powers (one vote per share) and participation in assets upon dissolution or winding-up. No common shares have been issued subject to call or assessment. The common shares contain no pre-emptive or conversion rights and have no provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds. Provisions as to the modification, amendment or variation of such rights or provisions are contained in the Company's articles and bylaws and in the Canada Business Corporations Act.

The preferred shares may be issued from time to time in one or more series. The terms of each series of preferred shares, including the number of shares, the designation, rights, preferences, privileges, priorities, restrictions, conditions and limitations will be determined at the time of creation of each such series by the Company's board of directors, without shareholder approval, provided that all preferred shares will rank equally within their class as to dividends and distributions in the event of the dissolution, liquidation or winding-up of the Company.

Our common shares are listed on the Toronto Stock Exchange in Canada (trading symbol: COM) and are quoted in the United States on the NASD OTC Electronic Bulletin Board (trading symbol: COMRF).

DIRECTORS AND OFFICERS

The following sets forth the names and municipalities of residence of the directors and executive officers of the Company, the offices held by them in the Company, their current principal occupations, their principal occupations during the last five years and, in the case of the directors, the month and year in which they became directors. The term of each director expires on the date of the next annual general meeting of the Company.

Name, Municipality of Residence and Present Position with the Company	Date Became a Director/Officer	Principal Occupation Last Five Years
Mark C. Rogers(3)(4) Chairman of the Board and Director	March 8, 2002	July 2003 to present—Retired; September 2002 to July 2003—Chief Executive Officer, Innovative Drug Delivery Systems, Inc; June 1998 to September 2002—President and Chief Executive Officer, Paramount Capital, Inc.
Robert W. Rieder President and Chief Executive Officer and Director	April 21, 1997 as Director and April 16, 1998 as Officer	March 1998 to present—President and Chief Executive Officer, Cardiome Pharma Corp.
Alan Mark Ezrin Chief Scientific Officer and Director and Director	January 15, 2001	January 2001 to present—Chief Scientific Officer, Cardiome Pharma Corp.: June 2000 to January 2001—Chief Scientific Officer, ConjuChem Inc.

Kenneth Galbraith(1)(2) Director	May 12, 2003	October 2000 to present—President, Gigha Consulting Ltd.; February 1988 to October 2000—Executive Vice President and Chief Financial Officer, QLT, Inc.
Tim Garson(2) Director	October 7, 2002	June 2002 to present—Vice President and Dean of School of Medicine, University of Virginia; 1995 to June 2002—Senior Vice President and Dean of Academic Operations, Baylor College of Medicine
Fred H. Mermelstein(1)(3)(4) Director	March 8, 2002	July 2003 to present—Chief Executive Officer, Innovative Drug Delivery Systems, Inc.("IDDS"); 1998 to present—President, IDDS; 1996 to July 2003—Director of Venture Capital, Paramount Capital Investments, Inc.
Kim Sun Oh(1)(2) Director	November 10, 1997	April 2003 to present—President, Iforce November 1994 to April 2003—Group Executive Director, Chemical Company of Malaysia Berhad
Ralph Snyderman(3)(4) Director	March 11, 2002	1998 to present—President and Chief Executive Officer, Duke University Health System; 1989 to Present—Chancellor for Health Affairs, Duke University Medical Center
Elizabeth Rogers Corporate Secretary	March 8, 2002	July 2003 to present—Retired; May 2001 to July 2003—President, Bradmer Biotech; November 1999 to August 2001—Chief of Staff, Vetaran's Administration Hospital

Doug Janzen Chief Financial Officer	January 6, 2003	January 2003 to present—Chief Financial Officer, Cardiome Pharma Corp; January 2002 to January 2003—Managing Director, Sprott Securities Inc.; July 1999 to September 2001—Head of Research and Senior Analyst, Loewen Ondaatje McCutcheon Limited
Alan Moore Executive Vice-President, Clinical Development & Regulatory Affairs	June 1, 2002	June 2002 to present—Executive Vice President of Clinical Development and Regulatory Affairs, Cardiome Pharma Corp; 1998 to June 2002—General Manager of Cardiac R&D, Procter & Gamble Pharmaceuticals
Gregory Beatch Vice-President, Scientific Affairs	May 31, 1997	March 2003 to present—Vice President, Scientific Affairs; July 2001 to March 2003—Vice President, External Scientific Affairs; May 1997 to July 2001—Vice President, Research
Sheila Grant Vice-President, Commercial Affairs	August 15, 2003	August 2003 to present—Vice President of Commercial Affairs; June 2000 to August 2003—Director of Business and Clinical Development; May 1998 to May 2000—Director of Finance and Administration

Christina Yip
Assistant Secretary and Vice-President, Finance & Administration

September 1, 2000

January 2003 to present—Vice President of Finance and Administration, Cardiome Pharma Corp;
May 2002 to present—Assistant Corporate Secretary;
Sep 2000 to May 2002—Corporate Secretary:
June 2000 to January 2003—Director of Finance and Administration, Cardiome Pharma Corp;
September 1998 to May 2000—Corporate Controller, Cardiome Pharma Corp.

(1): Member of the Audit Committee.
(2): Member of the Corporate Governance Committee.
(3): Member of the Compensation Committee.
(4): Member of the Nomination Committee.

As at April 12, 2004 the directors and executive officers of the Company owned, directly or indirectly, or exercised control of or direction over, less than 5% of the outstanding common shares of the Company.

Directors and Executive Officers

The following are short biographies of our directors and executive officers:

Mark C. Rogers, M.D., M.B.A.—Chairman and Director

Dr. Mark Rogers has been our Chairman of the Board and our director since March 2002. He is currently retired. Previous to his retirement, Dr. Rogers served as Chairman and Chief Executive Officer of Innovative Drug Delivery Systems, Inc. ("IDDS"). Previous to that, Dr. Rogers was the President of Paramount Capital, Inc. ("Paramount") and Paramount Capital Investments, LLC ("PCI"), and the President of Paramount Capital Asset Management, Inc. Dr. Rogers was also a member of Orion Biomedical GP, LLC, which served as the general partner to The Orion BioMedical Funds ("Orion"), which were closed-end, private equity funds focused in the biomedical sector. In addition, Dr. Rogers also served as a director of Genta Incorporated (Nasdaq NM: GNTA), Discovery Laboratories, Inc., as well as several public and privately held corporations. Dr. Rogers was also as an advisor to the New York City Biotechnology Emerging Industries Fund.

Dr. Rogers is a physician trained in four medical specialties, including cardiology. He is the author of 150 publications and 11 books and is a member of the National Academy of Sciences' Institute of Medicine. He was appointed Professor and Chairman of the Department of Anesthesiology and Critical Care Medicine at The John Hopkins University ("JHU"). While at JHU, Dr. Rogers was made Associate Dean, managing the clinical enterprises of the medical school and was involved in the formation of a number of biomedical companies now listed on NASDAQ. He subsequently became CEO of the Duke Hospital and Health Network. Dr. Rogers was then recruited to the Perkin-Elmer

Corporation, a New York Stock Exchange company specializing in analytical instruments, especially DNA sequencers, as Senior Vice President for Mergers and Acquisitions. He was involved in the restructuring of that business (now named Applera Corporation ("Applera")), which ultimately led to the creation of the Celera Genomics Group of Applera, the company that sequenced the human genome and is listed on the NYSE.

Dr. Rogers received his M.D. from Upstate Medical Center and his M.B.A. from The Wharton School of Business. He received his B.A. from Columbia University and held a Fulbright Scholarship. Dr. Rogers is married to Dr. Elizabeth Rogers who is also our current Corporate Secretary. Dr. Rogers is also the Chair of each of our Compensation Committee and Nomination Committee.

Robert W. Rieder, M.B.A.—President, Chief Executive Officer (CEO) and Director

Mr. Rieder has been our director since April 1997, and has been employed by us on a full-time basis as our President and CEO since April 1998. Mr. Rieder has extensive experience in venture capital and in operational management. He was most recently (1994 to 1998) Vice-President at MDS Ventures Pacific Inc., the Vancouver-based affiliate of MDS Capital Corp. Mr. Rieder was Chief Operating Officer for dba Telecom Inc. in 1994, and was a director of SFG Technology Inc., both Vancouver-based technology companies. Mr. Rieder currently serves as a director of Micrologix Biotech Inc. Mr. Rieder received his MBA from the University of Western Ontario.

Alan M. Ezrin, Ph.D.—Chief Scientific Officer (CSO) and Director

Dr. Ezrin has been our director and our Chief Scientific Officer since January 2001. Dr. Ezrin has extensive research and development and business experience in both the large pharmaceutical industry and in the biotechnology sector in the U.S. and Canada. Dr. Ezrin was with Sterling-Winthrop Research Group from 1982 to 1993. In 1993, Dr. Ezrin joined Glycomed Inc. as Assistant Vice-President of Development focusing on carbohydrate-based therapeutics. Following the successful merger of Glycomed into Ligand Therapeutics, he joined RedCell Inc. as Vice-President of Development in 1995. In 1997, he led the restructuring of RedCell through creating ConjuChem Inc. in Montreal. At ConjuChem, Dr. Ezrin was acting Chief Executive Officer and then Chief Scientific Officer. Under his leadership, ConjuChem completed several pharmaceutical partnerships, positioned two new drugs in clinical trials and extended the patent portfolio, resulting in a publicly traded, product driven company. Dr. Ezrin received his Ph.D. in Pediatric Cardiology and Cardiovascular Pharmacology from the University of Miami School of Medicine.

Kenneth Galbraith, C.A.—Director

Mr. Galbraith has been our director since May 12, 2003. Mr. Galbraith is currently the President of Gigha Consulting Ltd., a technology consulting and investment management company formed in October 2000. Previously, he was employed by QLT Inc., a biotechnology company where he progressed to the position of Executive Vice President and Chief Financial Officer during his 13 year tenure. Mr. Galbraith is a director of several private and public companies, including Angiotech Pharmaceuticals, Inc., Stressgen Biotechnologies Corporation, Micrologix Biotech Inc. and Neuro Discovery Inc. He is a former founding director and chairman of B.C. Biotechnology Alliance and founding director of BIRC Corporation, a provincially-funded organization formed to build healthcare infrastructure in the Province of British Columbia. Mr Galbraith is also former chair of the Canadian Bacterial Diseases Network, one of Canada's federally-funded Networks of Centers of Excellence. Mr. Galbraith is currently a director of The Michael Smith Foundation for Health Research and was formerly a director of the Fraser Health Authority. Mr. Galbraith received his Bachelor of Commerce (Honours) from the University of British Columbia in 1985 and was admitted as a Chartered Accountant in B.C. in 1988.

Mr. Galbraith is the Chair of our Corporate Governance Committee and a member of our Audit Committee.

Arthur (Tim) Garson, Jr., M.D., M.P.H.—Director

Dr. Garson has been our director since October 2002. Dr. Garson currently serves as Vice President and Dean for the School of Medicine at the University of Virginia. He is an internationally respected pediatric cardiologist and in 2000 served as president of the American College of Cardiology. A graduate of Princeton University in 1970, Dr. Garson received his M.D. from Duke University in 1974, remaining there for his pediatric residency. He completed a pediatric cardiology fellowship at Baylor College of Medicine and joined its faculty in 1985. In 1992, he received a masters degree in public health, specializing in health policy and health care finance, from the University of Texas in Houston, and was recruited to Duke to be Associate Vice Chancellor of Health Affairs. Three years later he returned to Baylor College of Medicine serving as Senior Vice President and Dean for academic operations and Vice President of Texas Children's Hospital.

Dr. Garson is a member of our Corporate Governance Committee.

Fred H. Mermelstein, Ph.D.—Director

Dr. Mermelstein has been our director since March 2002. Dr. Mermelstein currently serves as President and CEO of Innovative Drug Delivery Systems, Inc.. Previous to that, he served as Director of Venture Capital at Paramount Capital Investments, LLC., where he was involved in the founding of a number of biotechnology start-up companies, including PolaRx and IDDS. He also served as Director and Chief Scientific Officer of PolaRx and President of Androgenics Technologies, Inc. He serves on the Board of Directors of a research foundation, the Jordan Heart Foundation. Dr. Mermelstein is also a member of Orion. Dr. Mermelstein is the author of 14 publications in peer-reviewed scientific journals, three patents, and recipient of several research grants from both the U.S. Army and National Institutes of Health ("NIH"). Most recently, Dr. Mermelstein has been selected as advisor to both the New York Emerging Industries Fund and Technology Transfer Fund of the New York Economic Development Organization. Dr. Mermelstein received a Ph.D. joint degree in both pharmacology and toxicology at Rutgers University and University of Medicine and Dentistry of New Jersey-Robert Wood Johnson Medical School ("UMDNJ-RWJ"). He completed his post-doctoral training in transcription/gene regulation as a research fellow of the Howard Hughes Medical Institute located in the Department of Biochemistry at UMDNJ-RWJ.

Dr. Mermelstein is a member of our Audit Committee, Compensation Committee and Nomination Committee.

Kim Sun Oh, C.P.A.—Director

Mr. Oh was appointed to the Company's Board of Directors in November 1997, upon the closing of a private placement with the Chemical Company of Malaysia Berhad (CCM). Mr. Oh was the Group Executive Director of the CCM Group from August 1990 to April 2003. Mr. Oh, orchestrated the management buy-out of CCM from Imperial Chemical Industries Ltd. where he had held various senior executive positions from 1983 to 1990, before being appointed as the Group Executive Director. Mr. Oh currently serves as Chairman of Ideal Force Sdn Bhd, a private company in Malaysia and a director of IMPAX Laboratories Inc., a public company listed on NASDAQ. Mr. Oh qualified as a Chartered Accountant in United Kingdom in 1973. He is currently a member of the Malaysian Institute of Certified Public Accountants.

Mr. Oh is the Chair of our Audit Committee and a member of our Corporate Governance Committee.

Ralph Snyderman, M.D.—Director

Dr. Snyderman has been our director since March 2002. Dr. Snyderman currently serves as Chancellor for Health Affairs, Duke University and President and CEO of the Duke University Health System based in North Carolina. He plays a leadership role in the Association of American Physicians, the Institute of Medicine and the Association of American Medical Colleges ("AAMC") that represents all U.S. medical schools and teaching hospitals. He served as Chair of the AAMC in 2001-2002 and is currently the President of the Association of American Physicians. In 1987, Dr. Snyderman joined Genentech, the pioneering biomedical technology firm, as Vice President of Medical Research and Development, and a year later, he was promoted to Senior Vice President. While at Genentech, he led the development and licensing of several novel therapeutics and supervised approximately 300 staff members working in pharmacology, clinical research and regulatory affairs. A graduate of Washington College in Chestertown, Md. (1961), Snyderman received his M.D., magna cum laude, in 1965 from the Downstate Medical Center of the State University of New York. He served his internship and residency in medicine at Duke and later worked as a Public Health Officer doing research in immunology at the NIH (1967-72). Dr. Snyderman received his first faculty appointment at Duke in 1972 where he rose rapidly through Duke's academic ranks, becoming Chief of the Division of Rheumatology and Immunobiology. By 1984, Snyderman was also the Frederic M. Hanes Professor of Medicine and Immunology. Following his career at Genentech, he returned to Duke as the Chancellor of Health Affairs and the James B. Duke Professor of Medicine in 1989 and Executive Dean since 1999. In this position, he led the development of the Duke University Health System, one of the most successful academic health systems in the United States. He has written over 350 manuscripts as well as numerous books. Dr. Snyderman is a member of our Compensation Committee and Nomination Committee.

Elizabeth Rogers, M.D.—Corporate Secretary

Dr. Elizabeth Rogers has been our Corporate Secretary since May 2002. She was our director from March 2002 to May 2003. Dr. Rogers is currently retired. Dr. Elizabeth Rogers received her B.A. degree from Mt. Holyoke College in 1967 and her M.D. degree from Thomas Jefferson University in 1971 and is board certified in Internal Medicine, Gastroenterology and Geriatrics. Dr. Rogers trained in Internal Medicine at Duke University Medical Center and in Geriatrics at JHU prior to joining the faculty at University of Maryland at Baltimore in 1992 where she became Professor of Medicine. In 1993, Dr. Rogers became Associate Dean of Clinical Science at Duke University Medical Center and, in 1999, became Chief of Staff at Veteran's Administration Hospital, an affiliated program of Yale University Medical School where she was responsible for the coordination of all medical activities. For the past year, Dr. Rogers has been a clinical consultant to the New York City Emerging Industries Fund and a medical consultant to Innovative Drug Delivery Systems, Inc. Dr. Rogers is married to Dr. Mark Rogers, Chairman of the Board.

Douglas G. Janzen—Chief Financial Officer

Mr. Janzen joined us in the capacity of Chief Financial Officer in January 2003. Mr. Janzen has extensive experience in corporate banking and financing for Canadian biotechnology companies. From 2001 to 2002, Mr. Janzen was Managing Director—Health Sciences and Partner at Sprott Securities Inc. Prior to that, Mr. Janzen spent three years in corporate banking with Loewen Ondaatie McCutcheon Limited. Mr. Janzen received a Physiology Degree from the University of Saskatchewan and a Masters Degree in Biochemistry from the University of British Columbia.

Alan F. Moore, Ph.D.—Executive Vice President, Clinical Development and Regulatory Affairs

Dr. Moore joined us in the capacity of Executive Vice President of Clinical Development and Regulatory Affairs in May 2002. Dr. Moore has extensive clinical development experience and 23 years of senior management experience in pharmaceutical R&D. From 1977 to 1979 he was Assistant

professor of Pharmacology at the Institute for Cardiovascular Studies and department of Pharmacology at the University of Houston. From 1979 to 1982 he was Unit Leader, Pharmacology and Senior Research Scientist at Norwich Eaton Pharmaceuticals. Following the acquisition of Norwich Eaton by Procter & Gamble, Dr. Moore had increasing senior responsibilities as Section Chief, Director of Research, Director of New Drug Development before assuming his most recent role from 1998 to 2002 as General Manager, Cardiac R&D. Dr. Moore obtained his Ph.D. in pharmacology in 1974 from the University of Aston in Birmingham, England.

Gregory N. Beatch, Ph.D.—Vice President, Scientific Affairs

Dr. Beatch has been our Vice President, Scientific Affairs since March 2003. He was appointed as Vice President, Research in June 1997 and was re-titled Vice President, External Scientific Affairs in July 2001. Dr. Beatch joined us in September 1996 as Head of Pharmacology on a one year renewable exchange program from the TPD, Health Canada the equivalent of the U.S. FDA. Dr. Beatch was a Research Scientist for the Drugs Directorate of the TPD. In this capacity, Dr. Beatch was involved in the new drug submission and approval process. Dr. Beatch also held Assistant Professorships in Cardiology and Pharmacology, at the University of Ottawa Heart Institute. Dr. Beatch currently holds an Adjunct Professorship in Pharmacology in the Faculty of Medicine at the University of British Columbia and has published numerous papers proceeding from peer reviewed grants in the field of cardiovascular drug research.

Sheila M. Grant, Vice-President, Commercial Affairs

Ms. Grant has been our Vice President, Commercial Affairs since August 2003. She was appointed as Director of Finance and Administration in May 1998 and re-titled as Director of Business and Clinical Development in June 2000. Ms. Grant also served as our Corporate Secretary from May 1997 to September 2002. She joined us in September 1996 as the Director of Business.

Prior to joining us, Ms. Grant acted as business consultant to De Novo Enzyme Corporation and Coopers & Lybrand. Ms. Grant also worked in research and development, production, and quality assurance with Schering Agrochemicals U.K., Wellcome Biotechnologies U.K. and Serono Diagnostics U.K. respectively. Ms. Grant holds a B.Sc. (Hons) degree from Essex University, U.K. and an MBA degree from Simon Fraser University.

Christina Yip, CMA—Vice President, Finance & Administration and Assistant Corporate Secretary

Ms. Yip has been Vice President of Finance & Administration since January 6, 2003 and Assistant Corporate Secretary to the Board of Directors since May 17, 2002. Ms. Yip joined us as Financial Controller in September 1998 and was appointed as Director of Finance & Administration in June 2000. Ms. Yip also acted as Acting Chief Financial Officer from December 23, 2000 to January 5, 2003 and Corporate Secretary from September 13, 2000 to May 16, 2002. Prior to joining us, Ms. Yip acted as Chief Accountant to West African Minerals Group, a group of mining companies listed on the TSX Venture Exchange Inc. (formerly the Canadian Venture Exchange Inc.) and as an articling accountant to Cinnamon, Jang, Willoughby & Company, Chartered Accountants.

Scientific Advisory Board

We have formed a Scientific Advisory Board composed of scientists having professional experience and valuable expertise in various therapeutic or research fields that relate to our research and development programs. At our request, these scientific advisors review and provide us with advice regarding individual research and development projects. Advisors have all executed confidentiality agreements. The Scientific Advisory Board meets at least annually and makes its recommendations directly to management. Members of the Scientific Advisory Board are paid a fee for each meeting

attended plus travel expenses and each member has been awarded options under our incentive stock option plan. The following are brief biographies of the members of this advisory board:

Eduardo Marbán, M.D., Ph.D.

Dr. Marbán is a member of our Scientific Advisory Board and our consultant (see "Business Overview—Licenses and Collaborative Research Agreements—Marban Agreement"). Dr. Marbán currently serves as Professors of Medicine, Physiology and Biomedical Engineering at JHU. In addition, Dr. Marbán is the founder and Director of the Institute of Molecular Cardiobiology, is the Michel Mirowski, M.D. Professor of Cardiology and is the Vice-Chairman for Research, Department of Medicine, all at JHU. Dr. Marbán is an active full-time staff member of the Department of Medicine and is attending physician, Coronary Care Unit, The Johns Hopkins Hospital.

Dr. Marbán has received numerous awards and honours to this point in his career including the Research Achievement Award, International Society for Heart Research, the Basic Research Prize, American Heart Association, the Louis and Artur Lucian Award for Research in Cardiovascular Diseases and the MERIT Award from the National Heart, Lung and Blood Institute. He is currently a member of the Association of American Physicians, Program Director, SCOR in Sudden Cardiac Death, a member of the Association of University Cardiologists, a member of the American Society for Clinical Investigation and is a Fellow, American College of Cardiology. He chairs the Basic Cardiovascular Sciences Council of the American Heart Association and is President of the Cardiac Muscle Society.

Dr. Marbán has published or currently has in press a total of 220 scientific articles and is currently the Editor in Chief, Circulation Research, a Consulting Editor, Circulation and Journal of Molecular and Cellular Cardiology and is on the International Advisory Board, Japanese Circulation Journal. In addition, he is the invited referee for over 20 research journals including New England Journal of Medicine, Nature, and Science.

Dr. Marbán was a member of the Cardiac Research Advisory Panel, Procter and Gamble Pharmaceuticals, was a consultant and founder of Physiome Sciences, Inc., a consultant to Otsuka Pharmaceutical Co., Inc. and is a founder of Cardiome, Inc., our wholly-owned subsidiary.

Three patents have been issued and six patents are pending by Dr. Marbán.

Dr. Marbán received his B.S. in Mathematics, summa cum laude from Wilkes College, M.D. from Yale University in 1980 and his Ph.D from Yale University in Physiology in 1981. Dr. Marbán received his board certification from the American Board of Internal Medicine in 1984 and Cardiovascular Subspecialty in 1987.

Dr. Denis Roy, M.D.

Dr. Roy has been at the Montreal Heart Institute since 1982. He is a staff cardiologist and electrophysiologist, and also holds the position of President of the Council of Physicians at the Montreal Heart Institute. He has served as Chief of Electrophysiology and Head of the Department of Medicine at the Institute. He is past President of the Quebec Cardiology Association and is currently member of the Executive Committee of the Canadian Cardiovascular Society.

Dr. Roy has published over 80 papers in his areas of special interest, including mechanisms and management of arrhythmias, Sudden Cardiac Death, catheter ablation, pacemakers, implantable defibrillators and antiarrhythmic drugs. Dr. Roy was the principal investigator for the Canadian Trial of Atrial Fibrillation (CTAF) study, and is the current chairman of the Multicentre International Atrial Fibrillation and Congestive Heart Failure (AF-CHF) trial, which is funded by the Canadian Institute of Health Research.

Dr. Denis Roy is Professor of Medicine at the Faculty of Medicine, University of Montreal, Quebec. He received his M.D. from the Faculty of Medicine of the University of Montreal in 1976 and did his internship at the Royal Victoria Hospital and residency at the Montreal Heart Institute. Post graduate training in electrophysiology was done through a fellowship grant from the R. Samuel McLaughlin Foundation first at the University of Limburg, Maastricht, Netherlands and then at the Hospital of the University of Pennsylvania, Philadelphia.

Craig M. Pratt, M.D.

Craig M. Pratt is Professor of Medicine in the Department of Medicine, Section of Cardiology at Baylor College of Medicine. He is the Director of Research for the Methodist DeBakey Heart Center and Director of the Coronary Intensive Care Unit for The Methodist Hospital, Houston, Texas. His research has focused on the development of new drug and device therapies for the treatment of arrhythmias, heart failure, ischemia and hypertension. He has been the principal investigator of numerous NHLBI trials including BHAT, TIMI, CAPS, CAST, ESVEM, SOLVD and the recently published AFFIRM trial. He has published over 200 scientific journal articles, books and book chapters. He is a former consultant for the U.S. Food and Drug Administration (FDA) and served as Chairman of the Cardio-Renal Advisory Board for seven years.

Joshua M. Hare, M.D.

Dr. Hare is Associate Professor of Medicine and Director of the Cardiac Transplant and Heart Failure program at Johns Hopkins University School of Medicine. He received his medical degree from The Johns Hopkins University School of Medicine in 1988. He subsequently served an internship, residency and fellowship in Internal Medicine at The Johns Hopkins Hospital (1991) followed by a fellowship in Cardiovascular Medicine at The Brigham and Women's Hospital (1994). Dr. Hare has an extensive track-record of translational research, performing studies in both experimental systems and in humans with congestive heart failure and diseases of heart muscle. He is actively involved in clinical trials of new therapies for heart muscle disease, is an investigator in the Johns Hopkins Program in Genomic Applications (HOPGENE), and directs the cardiovascular section of the new Johns Hopkins Institute for Cell Engineering (ICE), where he is spearheading the application of new stem-cell based therapies to patients with diseases of the heart. Dr. Hare also has long-standing interests in how the cardiovascular system adapts to the aging process and in applications of genomic medicine.

Wilson S. Colucci, M.D.

Dr. Colucci is the Thomas J. Ryan Professor of Medicine, Chief of Cardiovascular Medicine at Boston University School of Medicine, and Co-Director of the Cardiovascular Center at Boston University Medical Center. He is also Director of the Myocardial Biology Unit at Boston University School of Medicine. He is the author of over 170 peer-review publications, as well as numerous reviews, chapters and books dealing with the pathophysiology of myocardial failure. He has received the Clinician-Scientist and Established Investigator Awards of the American Heart Association, the Medal of Merit from the International Society of Heart Research, and was elected to the American Society of Clinical Investigation. He is a member of several American Heart Association Councils including, Basic Science, High Blood Pressure and Circulation, and is a Fellow of the American College of Cardiology and a member of the Association of University Cardiologists. He is a member of the Executive Council of the Heart Failure Society of America, an organization of which he is a founding member. He has been a member of numerous peer-review groups and currently is the Chairman of the American Heart Association, Northeast Affiliate, Scientific Peer Review Committee, and a member of the National Institutes of Health Cardiovascular and Renal Study Section.

Peter R. Kowey, M.D.

Dr. Peter Kowey is a graduate of St. Joseph's University and the University of Pennsylvania School of Medicine, Philadelphia, Pennsylvania. He completed his residency training in Internal Medicine at Penn State University and was a Fellow in cardiovascular medicine and research at the Harvard University School of Public Health, the Peter Bent Brigham Hospital and the West Roxbury VA Hospital. After this training, he joined the faculty at the Medical College of Pennsylvania, as Director of the CCU and Arrhythmia Program, and rose to the rank of full Professor. He went on to become Chief of the Division of Cardiovascular Diseases at the Lankenau Hospital Main Line Health System and is President of the Main Line Health Heart Center. He is also Professor of Medicine and Clinical Pharmacology at Jefferson Medical College. He also holds professorships at MCP/Hahnemann University.

Dr. Kowey is a Fellow of several professional organizations including the Clinical Council of the American Heart Association, the American College of Cardiology, the American College of Physicians, the College of Physicians of Philadelphia, the American College of Chest Physicians, and the American College of Clinical Pharmacology. He was a founding member of the Philadelphia Arrhythmia Group and a charter member of the North American Society of Pacing and Electrophysiology. He has served on numerous committees for each of these organizations including program and abstract review committees for national and international programs. He spent nine years as a member of the Cardiorenal Drug Advisory Committee, four years on the Cardiovascular Devices Committee of the Food and Drug Administration, and is on the Expert Advisory Panel of the US Pharmacopeial convention.

Dr. Kowey's principal area of interest has been cardiac rhythm disturbances. He has been the recipient of over 100 grants and has authored or co-authored over 300 papers and scientific reports. He is the co-editor of the definitive textbook in his field, now in its second edition. He is a referee for manuscript review for 18 journals and an ad hoc grant reviewer for the VA system. While working with industry, he has pioneered the development of many antiarrhythmic drugs and antitachycardia devices that are used around the world for the treatment of patients with life-threatening cardiac rhythm problems. Dr. Kowey also maintains a consultative arrhythmia practice and has been recognized as a leader in his field in several publications.

ADDITIONAL INFORMATION

Executive Compensation

Additional information, including directors' and officers' remuneration and indebtedness, principal holders of the Company's securities, options to purchase securities and interests of insiders in material transactions, if applicable, is contained in the information circular for our annual and special general meeting held on May 12, 2003.

Undertaking to Provide Documents

The Company will, upon request to the Assistant Corporate Secretary of the Company, 6^th Floor, 6190 Agronomy Road, Vancouver, British Columbia, Canada V6T 1Z3, provide to any person or company, the documents specified below:

(a)

when the securities of the Company are in the course of a distribution under a preliminary short-form prospectus or a short-form prospectus:

(i): one copy of the Company's latest Annual Information Form, together with one copy of any document, or the pertinent pages of any document, incorporated therein by reference;

(ii): one copy of the comparative financial statements of the Company for its most recently completed financial year for which financial statements have been filed, together with the auditors' report thereon, and one copy of any interim financial statements of the Company for any period after its most recently completed financial year;
(iii): one copy of the Information Circular of the Company in respect of its most recent annual general meeting; and
(iv): one copy of any other documents that are incorporated by reference into the preliminary short-form prospectus or the short-form prospectus and are not required to be provided under (i) to (iii) above; or

(b): at any other time, one copy of any of the documents referred to in (a)(i), (ii) and (iii) above, provided that the Company may require the payment of a reasonable charge if the request is made by a person or company who is not a security holder of the Company.

Auditors' Report and Consolidated Financial Statements

Additional financial information is provided in the consolidated financial statements of the Company for the thirteen months ended December 31, 2003.

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CARDIOME PHARMA CORP. ANNUAL INFORMATION FORM FOR THE THIRTEEN MONTHS ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
REFERENCE INFORMATION
CAUTION REGARDING FORWARD LOOKING STATEMENTS
CORPORATE STRUCTURE
GENERAL DEVELOPMENT OF THE BUSINESS
NARRATIVE DESCRIPTION OF THE BUSINESS
RISK FACTORS
SELECTED CONSOLIDATED FINANCIAL INFORMATION
DIVIDEND RECORD AND POLICY
MANAGEMENT'S DISCUSSION AND ANALYSIS AND FINANCIAL STATEMENTS
SHARE CAPITAL AND MARKET FOR SECURITIES
DIRECTORS AND OFFICERS
ADDITIONAL INFORMATION
EX-2 4 a2134050zex-2.htm EX-2
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Exhibit 2

Consolidated Financial Statements

Cardiome Pharma Corp.
(Expressed in Canadian dollars)
December 31, 2003

AUDITORS' REPORT

To the Shareholders of
Cardiome Pharma Corp.

We have audited the consolidated balance sheets of Cardiome Pharma Corp. as at December 31, 2003 and November 30, 2002 and the consolidated statements of loss and deficit and cash flows for the thirteen months ended December 31, 2003 and for each of the years in the two year period ended November 30, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian and United States generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and November 30, 2002 and the results of its operations and its cash flows for the thirteen months ended December 31, 2003 and for each of the years in the two year period ended November 30, 2002 in accordance with Canadian generally accepted accounting principles.

As discussed in note 3 to the consolidated financial statements, the Company changed its policy for the method of accounting for stock-based compensation and income taxes.

Vancouver, Canada, February 26, 2004 (except as to
Note 19 [a] and [b] which are as of March 8, 2004).		Chartered Accountants

Cardiome Pharma Corp.
Continued under the laws of Canada
CONSOLIDATED BALANCE SHEETS
(expressed in Canadian dollars)

	December 31 2003 $		November 30 2002 $
			[Restated— note 4[b]]
ASSETS
Current
Cash and cash equivalents [note 6]	13,978,880		1,430,349
Short-term investments [notes 6 and 9]	30,604,031		18,306,028
Amounts receivable [note 5]	4,360,377		512,667
Prepaid expenses	798,004		71,199

Total current assets	49,741,292		20,320,243
Capital assets [note 7]	849,689		399,646
Intangible and other assets [note 8]	41,533,337		47,081,861

	92,124,318		67,801,750

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities [note 14]	4,343,118		2,882,789
Deferred revenue [note 12]	4,893,400		529,068
Current portion of capital lease obligations [note 11[b]]	27,045		25,220

Total current liabilities	9,263,563		3,437,077
Capital lease obligations [note 11[b]]	7,040		36,260
Deferred revenue [note 12]	8,304,168		925,865
Future income tax liability [note 13]	15,860,000		17,970,000

Total liabilities	33,434,771		22,369,202

Shareholders' equity
Share capital [note 10[b]]	119,645,857		88,582,098
Contributed surplus [note 3]	3,335,319		1,276,266
Deficit	(64,291,629	)	(44,425,816	)

Total shareholders' equity	58,689,547		45,432,548

	92,124,318		67,801,750

Commitments and contingencies [notes 11 and 15]

See accompanying notes

On behalf of the Board:

Director Director

Cardiome Pharma Corp.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(expressed in Canadian dollars)

	Thirteen months ended December 31 2003 $		Years ended November 30
	Thirteen months ended December 31 2003 $		2002 $		2001 $
			[Restated— note 4[b]]
REVENUE
Licensing fees [note 12]	1,350,366		1,480,641		166,580
Research collaborative fees [note 12]	4,696,827		287,768		30,448

	6,047,193		1,768,409		197,028

EXPENSES
Research and development	16,928,018		9,759,442		5,206,731
General and administration	5,631,050		3,760,006		1,945,163
Amortization	6,028,230		4,441,501		550,097

	28,587,298		17,960,949		7,701,991

Operating loss	(22,540,105	)	(16,192,540	)	(7,504,963	)

OTHER INCOME
Interest and other income	564,292		632,834		347,078

Loss before income taxes	(21,975,813	)	(15,559,706	)	(7,157,885	)
Future income tax recovery [note 13]	2,110,000		1,530,000		—

Net loss for the period	(19,865,813	)	(14,029,706	)	(7,157,885	)
Deficit, beginning of period	(44,425,816	)	(30,396,110	)	(22,810,225	)
Adjustment for future income taxes [note 3[b]]	—		—		(428,000	)

Deficit, end of period	(64,291,629	)	(44,425,816	)	(30,396,110	)

Basic and diluted loss per common share [note 10[g]]	(0.63	)	(0.60	)	(0.69	)

Weighted average number of common shares outstanding [note 10[g]]	31,470,279		23,560,044		10,304,579

See accompanying notes

Cardiome Pharma Corp.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(expressed in Canadian dollars)

		Thirteen months ended December 31 2003 $		Years ended November 30
		Thirteen months ended December 31 2003 $		2002 $		2001 $
				[Restated— note 4[b]]
OPERATING ACTIVITIES
Loss for the period		(19,865,813	)	(14,029,706	)	(7,157,885	)
Add items not affecting cash:
	Amortization	6,028,230		4,441,501		550,097
	Stock-based compensation	2,059,053		84,000		136,000
	Future income tax recovery	(2,110,000	)	(1,530,000	)	—
Changes in non-cash working capital items relating to operations:
	Amounts receivable	(3,847,710	)	(336,655	)	143,701
	Prepaid expenses	(726,805	)	—		—
	Accounts payable and accrued liabilities	948,087		1,741,108		(214,156	)
	Deferred revenue	11,742,635		106,559		(151,224	)

Cash used in operating activities		(5,772,323	)	(9,523,193	)	(6,693,467	)

FINANCING ACTIVITIES
Issuance of share capital		31,063,759		27,884,444		—
Issuance of special warrants		—		—		966,000
Payment on obligations under capital leases		(27,395	)	(15,937	)	(41,145	)
Repayment of long-term debt		—		(724,574	)	(50,161	)

Cash provided by financing activities		31,036,364		27,143,933		874,694

INVESTING ACTIVITIES
Acquisition of Cardiome, Inc. [note 4]		—		(1,382,606	)	—
Purchase of capital assets		(336,050	)	(203,375	)	(74,776	)
Patent costs capitalized		(81,457	)	(481,962	)	(125,090	)
Purchase of short-term investments		(38,553,131	)	(33,717,159	)	(8,675,780	)
Sale of short-term investments		26,255,128		18,212,961		12,845,611
Increase in deferred acquisition costs		—		—		(16,921	)

Cash provided by (used in) investing activities		(12,715,510	)	(17,572,141	)	3,953,044

Increase (decrease) in cash and cash equivalents during the period		12,548,531		48,599		(1,865,729	)
Cash and cash equivalents, beginning of period		1,430,349		1,381,750		3,247,479

Cash and cash equivalents, end of period		13,978,880		1,430,349		1,381,750

Supplemental cash flow information:
	Interest paid	3,439		3,039		5,369

See accompanying notes

Cardiome Pharma Corp.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 2003 and November 30, 2002
(expressed in Canadian dollars)

1. NATURE OF OPERATIONS

Cardiome Pharma Corp. (the "Company") was incorporated under the Company Act (British Columbia) on December 12, 1986 under the name Nortran Resources Ltd. The Company changed its name to Nortran Pharmaceuticals Inc. on June 24, 1992 and subsequently to Cardiome Pharma Corp. on June 20, 2001. On March 8, 2002, the Company was continued under the laws of Canada. The Company is a drug discovery and development company focused on developing proprietary drugs to treat or prevent cardiac diseases.

The Company has financed its cash requirements primarily from share issuances, payments from research collaborators and licensing fees. The Company's ability to realize the carrying value of its assets is dependent on successfully bringing its technologies to market and achieving future profitable operations, the outcome of which cannot be predicted at this time. It may be necessary for the Company to raise additional funds for the continuing development of its technologies.

The Company changed its fiscal year end from November 30 to December 31, effective December 31, 2003. Accordingly, for the 2003 fiscal period, the Company has reported its annual consolidated financial statements for the thirteen month period ended December 31, 2003.

2. SIGNIFICANT ACCOUNTING POLICIES

The Company prepares its accounts in accordance with Canadian generally accepted accounting principles. A reconciliation of amounts presented in accordance with United States generally accepted accounting principles is detailed in note 16. The following is a summary of significant accounting policies used in the preparation of these consolidated financial statements:

Principles of consolidation

These consolidated financial statements include the accounts of Cardiome Pharma Corp. and its wholly-owned subsidiaries, Rhythm-Search Developments Ltd. (incorporated in Canada) and Cardiome, Inc. (incorporated in the United States). Intercompany accounts and transactions have been eliminated on consolidation.

Use of estimates

The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts recorded in the consolidated financial statements. Significant areas requiring the use of estimates relate to the assessment of net recoverable value of technology licenses and patents, reporting of revenue recognition and stock-based compensation. The reported amounts and note disclosure are determined using management's best estimates based on assumptions that reflect the most probable set of economic conditions and planned course of actions. Actual results could differ from those estimates.

Foreign currency translation

The Company follows the temporal method of accounting for the translation of foreign currency amounts, including those of its integrated foreign subsidiary, into Canadian dollars. Under this method, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars using exchange rates in effect at the balance sheet date. All other assets and liabilities are translated at

the exchange rates prevailing at the date the assets were acquired or the liabilities incurred. Revenue and expense items are translated at the average exchange rate during the period. Foreign exchange gains and losses, both realized and unrealized, are included in the determination of the loss for the period.

Cash equivalents

The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents, which are carried at the lower of cost or market.

Short-term investments

The Company considers all highly liquid financial instruments with an original maturity greater than 90 days and less than one year to be short-term investments. Short-term investments are considered available-for-sale and are carried at the lower of cost and market value.

Capital assets

Capital assets are recorded at cost less accumulated amortization. Amortization is provided using the straight-line method over the following terms:

Laboratory equipment		5 years
Computer equipment		3 years
Office equipment		5 years
Laboratory equipment under capital lease		Term of lease
Leasehold improvements		Term of lease plus one renewal period
Web-site development costs		3 years

Technology licenses and patent costs

Technology licenses, which includes licenses and rights to technologies, are initially recorded at fair value based on consideration paid and amortized on a straight-line basis over the estimated useful life of the underlying technologies of ten years.

Patent costs associated with the preparation, filing, and obtaining of patents are capitalized and amortized on a straight-line basis over the estimated useful lives of the patents of ten years.

Management evaluates the recoverability of technology licenses and patents on a quarterly basis based on the expected utilization of the underlying technologies. If the estimated net recoverable value, calculated based on undiscounted estimated future cash flows, exceed the carrying value of the underlying technology, the excess amount is charged to operations. The amounts shown for technology licenses and patent costs do not necessarily reflect present or future values and the ultimate amount recoverable will be dependent upon the successful development and commercialization of products based on these rights.

Leases

Leases have been classified as either capital or operating leases. Leases which transfer substantially all the benefits and risks incidental to the ownership of assets are accounted for as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments are expensed as incurred.

Government grants

Government grants are recorded as a reduction of the related expenditure when there is reasonable assurance that the Company has complied with all conditions necessary to receive the grants, collectibility is reasonably assured, and the amounts are non-refundable. During the 13 months ended December 31, 2003, the Company recorded government grants of $76,000 [years ended November 30, 2002—$37,000; November 30, 2001—$88,137] as a reduction of research and development expenditures.

Revenue recognition

Research collaborative fees, which are non-refundable, are recorded as revenue as the related research expenses are incurred pursuant to the terms of the agreement and provided collectibility is reasonably assured.

Licensing fees comprise initial fees and milestone payments derived from collaborative licensing arrangements. Non-refundable milestone payments are recognized upon the achievement of the specified milestones when the milestone is substantive in nature, the achievement of the milestone was not reasonably assured at the inception of the agreement, and the Company has no further significant involvement or obligation to perform under the arrangement. Otherwise, non-refundable milestone payments and initial fees are deferred and amortized into revenue on a straight-line basis over the estimated period of the ongoing involvement of the Company.

Research and development costs

Research costs are expensed in the period incurred. Development costs are expensed in the period incurred unless the Company believes a development project meets generally accepted accounting criteria for deferral and amortization. At December 31, 2003 and November 30, 2002, no development costs have been deferred.

Stock-based compensation and other stock-based payments

The Company grants stock options to executive officers and directors, employees, consultants and clinical advisory board members pursuant to a stock option plan described in note 10[d]. Effective December 1, 2002, the Company adopted the fair value method of accounting for stock options granted, modified or settled since December 1, 2002 [note 3[a]].

Future income taxes

The Company accounts for income taxes using the liability method of tax allocation. Future income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are measured using substantively enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in rates is included in earnings in the period that includes the enactment date. Future income tax assets are recorded in the financial statements if realization is considered more likely than not.

Loss per common share

Loss per common share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period, excluding shares held in escrow or other contingently issuable common shares. Diluted loss per common share is equivalent to basic loss per share as the outstanding options and warrants are anti-dilutive.

3. CHANGE IN ACCOUNTING PRINCIPLES

[a] Stock-based compensation and other stock-based payments

The Company has elected to prospectively adopt the recommendations of the Canadian Institute of Chartered Accountants (the "CICA") new Handbook section 3870, Stock-Based Compensation and Other Stock-Based Payments, effective December 1, 2002. This standard requires that all stock-based awards be measured and recognized using a fair value based method.

The fair value of stock options is estimated at the date of grant using the Black-Scholes Option Pricing Model and is amortized over the vesting terms. Prior to the adoption of this standard no compensation expense was recognized for stock options issued. The change in this accounting policy did not result in any adjustment to the Company's opening deficit balance on December 1, 2002. For the thirteen months ended December 31, 2003, the Company recorded $1,991,865 and $67,188 of stock-based compensation for stock options granted after December 1, 2002, to employees and non-employees, respectively.

[b] Income taxes

Effective December 1, 2000, the Company adopted the recommendations of the CICA with respect to accounting for income taxes. This change was applied retroactively and resulted in a decrease in technology and an increase in the deficit at December 1, 2000 of $428,000.

4. BUSINESS COMBINATION AND ADJUSTMENT

[a]: On March 8, 2002, the Company acquired 100% of the outstanding common shares of Cardiome, Inc., a development stage enterprise. The acquisition provides the Company with certain intellectual property rights, under a license from the John Hopkins University, relating to the use of xanthine oxidase inhibitors for treatment of congestive heart failure (the "CHF technology"), other cardiovascular disorders and neuromuscular disease. The acquisition also provides the Company with the rights, under an exclusive worldwide sublicense from ILEX Oncology, Inc. ("ILEX"), to ILEX's rights under its license agreement with Burroughs Welcome Co. and The Wellcome Foundations, Ltd. to oxypurinol for the treatment of hyperuricemia (gout) in humans who are intolerant of allopurinol. ILEX also granted the Company an exclusive license to certain safety and efficacy clinical data, know-how and an option to acquire additional efficacy clinical data of oxypurinol for the treatment of gout. Oxypurinol is one of the known xanthine oxidase inhibitor. The Company expected that the combination of these licenses would potentially expedite the development of the CHF technology directly into Phase II clinical trial. The Company issued 8,203,396 common shares in exchange for all of the outstanding shares of Cardiome, Inc.

The acquisition has been accounted for using the purchase method of accounting and accordingly the results of operations have been included in the consolidated statement of loss and deficit from the date of acquisition.

The purchase price has been allocated to the fair value of Cardiome, Inc.'s identifiable net assets and liabilities in accordance with the purchase method as follows:

		$
Assets acquired:
Cash		624
Other assets		560,368
License technology		48,897,408

Total assets acquired		49,458,400

Less liabilities assumed:
Accounts payable and accrued liabilities		355,502
Long-term debt		723,111
Future income tax liability		19,500,000

Total liabilities assumed		20,578,613

Net assets acquired		28,879,787

Consideration given:
8,203,396 common shares		27,480,261
Transaction costs		1,399,526

Total consideration		28,879,787

The purchase price allocation reflects the fair value, at the acquisition date, of the assets acquired and liabilities assumed based upon the Company's evaluation of such assets and liabilities following the closing of the acquisition. The value of the common shares issued was determined to be $3.36 per share using the three-day average quoted market price of the Company's common shares on the Toronto Stock Exchange for the period from December 20 to 22, 2001. December 21, 2001 was the date on which the terms of the acquisition were agreed to and announced. The amount allocated to the common shares of $27,480,261 is net of costs of registering the shares of $83,149.

[b]: The Company has retroactively restated its 2002 consolidated financial statements to reflect a reduction to the amount of future income tax assets recognized upon the acquisition of Cardiome, Inc. because the more likely than not criteria was not met. Accordingly, the value allocated to license technology was increased by $19,400,000 with a corresponding increase to future income tax liability. This adjustment resulted in an increase in amortization expense for the year ended November 30, 2002 of $1,430,000 with a corresponding increase in future income tax recovery. Net loss and net loss per share for the year ended November 30, 2002 were not affected.

5. FINANCIAL INSTRUMENTS AND RISK

For certain of the Company's financial instruments, including cash equivalents, short-term investments, amounts receivable, and accounts payable, the carrying amounts approximate fair value due to their short-term nature. The obligations under capital leases bear interest at rates which, in management's opinion, approximate the current interest rates and therefore, approximate their fair value.

Financial risk is the risk to the Company's results of operations that arises from fluctuations in interest rates and foreign exchange rates and the degree of volatility of these rates. Interest rate risk arises as the Company's investments bear fixed interest rates. Foreign exchange risk arises as the Company's investments which finance operations are substantially denominated in Canadian dollars and a significant portion of the Company's expenses are denominated in United States dollars and Euro dollars.

As at December 31, 2003, included in amounts receivable is an amount of $3,687,645 (US$2,844,308) due from one research collaborator.

6. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents include approximately $6,472,000 [November 30, 2002—$1,280,000] of commercial papers, bankers' acceptances and term deposits with an average interest rate of 2.55% at December 31, 2003 [November 30, 2002—1.88%] including $nil [November 30, 2002—$782,000 (US$500,000)] denominated in U.S. dollars.

Short-term investments mainly comprise commercial papers and term deposits with an average interest rate of 2.31% at December 31, 2003 [November 30, 2002—3.17%] and maturities to December 2004 [November 30, 2002—August 2003] including $6,461,043 (US$4,983,450) [November 30, 2002—$nil] denominated in U.S. dollars.

At December 31, 2003, the fair value of the short-term investments was approximately $30,624,000 [November 30, 2002—$18,376,000], based on quoted market prices.

7. CAPITAL ASSETS

	Cost $	Accumulated amortization $	Net book value $
December 31, 2003
Laboratory equipment	885,960	721,544	164,416
Computer equipment	576,215	446,436	129,779
Office equipment	266,843	120,017	146,826
Laboratory equipment under capital lease	77,418	45,161	32,257
Leasehold improvements	412,036	37,898	374,138
Web-site development costs	13,640	11,367	2,273

	2,232,112	1,382,423	849,689

November 30, 2002
Laboratory equipment	808,783	635,053	173,730
Computer equipment	476,360	374,794	101,566
Office equipment	129,187	86,470	42,717
Laboratory equipment under capital lease	77,418	17,204	60,214
Leasehold improvements	39,065	24,845	14,220
Web-site development costs	13,640	6,441	7,199

	1,544,453	1,144,807	399,646

Included in leasehold improvements at December 31, 2003, is an amount of $371,126 of leasehold improvements under construction for which no amortization has been charged [note 11[a]].

8. INTANGIBLE AND OTHER ASSETS

	Cost $	Accumulated amortization $	Net book Value $
December 31, 2003
Technology licenses	53,365,070	12,282,502	41,082,568
Patents	1,049,010	598,241	450,769

Total	54,414,080	12,880,743	41,533,337

	[Restated—note 4[b]]
November 30, 2002
Technology licenses	53,365,070	6,600,695	46,764,375
Patents	806,920	489,434	317,486

Total	54,171,990	7,090,129	47,081,861

During the period ended December 31, 2003, the Company recorded additional amortization expense of $42,693 [years ended November 30, 2002—$227,584; November 30, 2001—$nil] with respect to patents no longer directly related to the Company's current focus.

9. CREDIT FACILITY

At December 31, 2003 and November 30, 2002, the Company had available a corporate credit card facility and an unused operating line of credit of $30,000 bearing interest at the bank's prime rate and payable on demand. A cashable certificate of $100,000 [November 30, 2002—$100,000] included in short-term investments is pledged as security against these facilities.

10. SHARE CAPITAL

[a] Authorized

On May 12, 2003, the shareholders of the Company approved the creation of a class of preferred shares, issuable in series, having the rights and restrictions determined by the board of directors of the Company at the time the series is created.

The authorized common share capital of the Company consists of an unlimited number of common shares without par value, and an unlimited number of preferred shares without par value issuable in series of which none are currently issued and outstanding.

[b] Issued

Common shares	Number of shares #	Amount $
Balance, November 30, 2000	10,303,962	32,235,393
Issued pursuant to a technology assignment agreement [v]	5,000	16,000

Balance, November 30, 2001	10,308,962	32,251,393
Issued upon conversion of special warrants [iv]	458,583	864,927
Issued for cash upon public offering [iii]	9,309,657	27,908,517
Issued for cash upon exercise of options	27,500	77,000
Issued for the acquisition of Cardiome, Inc. [note 4]	8,203,396	27,480,261

Balance, November 30, 2002	28,308,098	88,582,098
Share issuance cost related to a prior share offering	—	(34,100	)
Issued upon conversion of special warrants [ii]	3,810,000	7,133,752
Issued for cash upon public offering and exercise of over-allotment option [i]	4,381,500	21,389,367
Issued for cash upon exercise of options	196,026	600,569
Issued for cash upon exercise of warrants	594,484	1,974,171
Issued pursuant to exercise of warrants on cashless basis [iii]	25,601	—

Balance, December 31, 2003	37,315,709	119,645,857

[i]: On September 23, 2003, the Company closed a public offering of common shares pursuant to which the Company issued 3,810,000 common shares at a price of $5.25 per common share, resulting in gross proceeds of $20,002,500. In addition, the Company granted the underwriters an over-allotment option to purchase up to 571,500 common shares at $5.25 per share, exercisable not later than 30 days after the closing of the offering. On October 23, 2003, the full over-allotment option was exercised and the Company issued 571,500 common shares at a price of $5.25 per share for gross proceeds of $3,000,375. In connection with the public offering, including the exercise of over-allotment option, the Company paid a cash commission of $1,265,158 and incurred total legal and professional fees of $348,350.
[ii]: On April 10, 2003, the Company completed a private placement of 3,810,000 special warrants for total gross proceeds of $8,010,600, of which 3,762,000 were issued at a price of $2.10 per special warrant and 48,000 were issued at a price of $2.30 per special warrant. Each special warrant entitled the holder to acquire, upon exercise, one common share of the Company and one half of one share purchase warrant, for no additional consideration. Pursuant to a receipt for a final prospectus qualifying the common shares and share purchase warrants on June 5, 2003, the Company issued 3,810,000 common shares and 1,905,000 share purchase warrants upon the automatic exercise of the special warrants. Each whole share purchase warrant entitles the holder to acquire one common share at $2.75 expiring April 10, 2004. In connection with the private placement, the Company paid a cash commission of $480,636 and incurred total legal and professional fees of $396,212.
[iii]: On March 8, 2002, the Company completed a public offering of 9,309,657 units (the "Units") of the Company at a price of $3.32 per unit for total gross proceeds of $30,908,061 (the "Offering"). Each Unit was converted into one common share in the capital of the Company and one quarter of one common share purchase warrant (a "Warrant") of the Company. One whole Warrant entitles the holder to purchase one common share of the Company at $6.64 expiring March 7, 2004. In connection with the public offering, the Company paid a cash commission of $2,163,564 and legal and professional fees of $835,980. In addition, the Company granted brokers' warrants

("Brokers' Warrants") to purchase 930,966 Units at a price of $3.80 per Unit until March 8, 2004 to the lead agents of the public offering. During the period ended December 31, 2003, 105,596 Broker Warrants were exercised pursuant to a "cashless" exercise provision resulting in the issuance of 25,601 common shares.

[iv]: On October 10, 2001, the Company completed a private placement of 458,583 special warrants at a price of $2.40 each for total gross proceeds of $1,100,600. Each special warrant was convertible into one common share of the Company and one half of one common share purchase warrant, for no additional consideration. Each full purchase warrant entitled the holder to acquire one common share at $3.20 expiring October 5 or 10, 2003. In connection with the private placement, the Company paid a cash commission of $28,042 and legal and professional fees of $207,631, and granted 16,691 agent's warrants to the agent of this financing. Each agent's warrant entitled the holder to purchase one common share at $2.40 per share until October 10, 2003. On January 30, 2002, pursuant to a prospectus qualifying the underlying common shares and common share purchase warrants, the 458,583 special warrants were converted to 458,583 common shares and 229,292 common share purchase warrants. During the period ended December 31, 2003, the share purchase warrants were exercised for an amount of $707,126.

[v]: On October 15, 2001, the Company issued 5,000 common shares in settlement of an accounts payable balance of $16,000 with respect to a technology assignment agreement.
[vi]: As of February 26, 2004, the Company had 37,738,091 common shares issued and outstanding for a total share capital amount of $120,815,510.

[c] Common share purchase warrants

As at December 31, 2003 common shares issuable upon exercise of common share purchase warrants and brokers' warrants were outstanding as follows:

Date of expiry	Exercise price	Number of warrants
March 8, 2004 [note 19 [a]]	$3.80	600,370
March 8, 2004 [note 19 [b]]	$6.64	2,540,157
April 10, 2004	$2.75	1,792,500
February 9, 2007	US $2.40	101,500
February 9, 2007	US $4.80	37,500
February 9, 2007	US $8.00	37,500

Balance as at December 31, 2003		5,109,527

[d] Stock options

On May 28, 2001, the shareholders approved a new stock option plan ("2001 Plan") for which up to 1,500,000 common shares can be reserved for issuance to executive officers and directors, employees, consultants and clinical advisory board members of the Company. On May 27, 2002, the shareholders of the Company approved amendments to the 2001 Plan which increased the number of the common shares issuable under the plan to 5,500,000. The shares available for issuance under the 2001 Plan generally vest over periods up to 5 years with a term of six years. At December 31, 2003, the Company has 745,390 [November 30, 2002—1,863,062] common shares available for future issuance under the 2001 Plan.

At December 31, 2003, stock options to executive officers and directors, employees, consultants and clinical advisory board members were outstanding as follows:

	Options outstanding December 31, 2003			Options exercisable December 31, 2003
Range of exercise price $	Number of common shares issuable	Weighted average remaining contractual life (years)	Weighted average exercise price $	Number of common shares issuable	Weighted average exercise price $
$2.80-$2.92	202,500	3.15	2.91	202,500	2.91
$3.00-$3.82	3,346,084	4.83	3.28	1,976,375	3.26
$4.20-$5.05	582,500	5.34	4.99	47,500	4.27
$5.08-$5.96	395,000	3.07	5.52	318,750	5.58
$6.32-$7.24	32,500	0.77	6.71	32,500	6.71

	4,558,584	4.64	3.70	2,577,625	3.58

Subsequent to December 31, 2003, 110,000 options at an exercise price of $3.43 per common share were exercised, resulting in a balance of 4,453,584 stock options outstanding (of which 2,577,625 are exercisable) at a weighted average exercise price of $3.58 as at February 26, 2004.

Stock options activities are summarized as follows:

	Number of common shares under option #		Weighted average exercise price $
Balance, November 30, 2000	919,688		5.16
Options granted	391,250		2.92
Options forfeited	(221,250	)	5.04
Options cancelled	(10,000	)	4.20

Balance, November 30, 2001	1,079,688		4.37
Options granted	2,784,125		3.28
Options exercised	(27,500	)	2.80
Options forfeited	(84,375	)	4.23
Options expired	(142,500	)	4.68

Balance, November 30, 2002	3,609,438		3.53
Options granted	1,650,750		4.28
Options exercised	(196,026	)	3.06
Options forfeited	(355,578	)	4.10
Options expired	(150,000	)	5.96

Balance, December 31, 2003	4,558,584		3.70

[e] Commitment to issue shares

Under the terms of a licensing agreement, the Company has agreed to issue 50,000 common shares to the licensor upon the achievement of certain milestones. At December 31, 2003, these milestones had not been achieved as the Company no longer pursues this licensed technology.

[f] Stock-based compensation

The estimated fair value of options granted to officers, directors, employees, clinical advisory board members and consultants during the period ended December 31, 2003 is amortized to expense over the vesting period resulting in compensation expense of $2,059,053. This compensation expense is allocated between research and development expenses ($646,405) and general and administration expenses ($1,412,648) on the same basis as cash compensation. The weighted average fair value of stock options granted during the period ended December 31, 2003 was $2.65 per share. The estimated fair value of the stock options granted was determined using the Black-Scholes option pricing model with the following weighted-average assumptions: dividend yield—0%; expected volatility—85%; risk-free interest rate—3.95% and expected average life of the options—6 years.

[g] Loss per common share

			Years ended November 30
	Thirteen months ended December 31 2003 $		Years ended November 30
	Thirteen months ended December 31 2003 $		2002 $		2001 $
Numerator
Loss for the period	(19,865,813	)	(14,029,706	)	(7,157,885	)

Denominator
Weighted average number of common shares outstanding	31,470,279		23,560,044		10,304,579

Basic and diluted loss per common share	(0.63	)	(0.60	)	(0.69	)

11. COMMITMENTS

[a] Operating leases

On September 3, 2003, the Company entered into a lease agreement for new office and laboratory space. The term of the lease will be 10 years commencing on March 15, 2004. Annual lease payments will be $301,000 per annum in the first year, increasing by $8,000 each year until the fifth year at which time the annual lease payments will be $333,000 per annum. For each remaining year of the term after the fifth year, the annual lease payments will be $357,000 per annum. The Company may, at its option, extend the term of the lease for three additional two-year periods. The Company's current lease will expire on March 31, 2004 and requires the Company to make monthly rental payments of approximately $29,000 per month.

Rent expense for the period ended December 31, 2003 amounted to $374,510 [November 30, 2002—$263,891; November 30, 2001—$256,020].

In relation to the new premises, the Company has entered into a construction agreement for certain leasehold improvements totaling approximately $1.7 million, of which $371,126 has been incurred improvementsas of December 31, 2003. Pursuant to the lease agreement, the Company will be entitled to a cash tenant improvement allowance of approximately $792,000 from the landlord for leasehold improvements as well as a rent free period. These leasehold inducements will be recorded as received in fiscal 2004 and amortized over the term of the lease.

[b] Capital leases

The Company leases laboratory equipment under capital lease obligations. Future minimum lease payments under the capital leases are as follows:

	$
2004	28,464
2005	7,115

	35,579
Less: amount representing interest	(1,495	)

	34,085
Less: current portion of capital lease obligations	(27,045	)

Long term portion of capital lease obligations	7,040

Interest expense during the period ended December 31, 2003 amounted to $3,439 [years ended November 30, 2002—$3,039; November 30, 2001—$nil].

[c] Clinical research agreements

The Company has entered into various collaborative clinical research agreements requiring it to fund fixed research expenditures of approximately $5.1 million for various periods ending fiscal 2005.

[d] License agreements

[i]: Pursuant to a license agreement, the Company is responsible for payment of royalties based on a percentage of revenue, subject to certain minimum annual royalties, of the licensed technology. The Company is no longer developing this licensed technology. As at December 31, 2003, no royalties were payable. The license agreement may be terminated by the licensor if certain development milestones are not met. Unless otherwise terminated, the agreement expires on the expiry date of the last issued patent.
[ii]: Pursuant to a service agreement, the Company is responsible for payment of $500,000 upon commencement of Phase III clinical trials and a further $2,000,000 upon filing a New Drug Application in the United States or Canada for the licensed technology. The Company also has an obligation to pay royalties based on future net sales. The Company is no longer developing this licensed technology. As at December 31, 2003, no amounts were payable. The agreement expires on the expiry date of the last patent relating to certain technology.
[iii]: Pursuant to a license agreement, the Company is responsible for the payment of royalties based on a percentage of revenue and subject to certain minimum annual royalties commencing at US$5,000 and increasing over the next four years to US$100,000 per annum. The Company also has an obligation to develop and introduce certain licensed products into commercial markets as soon as it is practicable. The agreement sets out certain milestones that need to be met in ensuring that this occurs. The license agreement may be terminated if either party fails to perform or breaches any of its obligations under the agreement. Furthermore, the Company may terminate the agreement for any reason upon giving 60 days' written notice. Unless otherwise terminated, the agreement expires upon the expiration of the last issued patent.
[iv]: Pursuant to a license and option agreement, the Company paid US$250,000 in May 2002 upon the exercise of the option to purchase certain clinical data. The acquisition cost has been included in intangible and other assets. The Company is responsible for milestone payments of up to US$3 million based on the successful completion of first phase II clinical trials and FDA approval of the first new drug application and FDA approval for marketing and commercialization of the product in a cardiovascular indication. The Company is also responsible for milestone payments of up to US$6 million based on FDA approval for marketing and commercialization of the product in a hyperuricemic indication of the product and achievement of certain net sales of the product. The Company also has an obligation to pay royalties based on future net sales. At December 31, 2003, no amounts were payable. Unless otherwise terminated, the license agreement will terminate upon the expiration of the licensor's obligation to pay royalties under its original license agreement with a third party.

12. COLLABORATIVE AGREEMENTS

[a]: On September 18, 2002, the Company entered into a development and transfer agreement with UCB Farchim S.A. ("UCB") under which UCB purchased from the Company the exclusive rights to an anti-tussive program. Concurrently, the Company acquired a perpetual, worldwide exclusive license, with the right to grant sublicenses, to all cardiovascular applications associated with the technology. Consideration for the disposition includes royalties on future net sales of products arising from this technology, upfront payments, and milestone payments of up to US$8 million on the first product developed by UCB and an additional US$3 million for each subsequent product developed. Also, UCB agreed to pay the Company for research services to be provided over an initial period of 12 months, extendable to up to 36 months at a rate of US$600,000 per annum. The Company agreed to pay a royalty to UCB for any cardiovascular products developed and sold which utilize technology patented subsequent to September 18, 2002.

The Company received an initial payment of US$1,000,000 in fiscal year ended November 30, 2002. This initial payment was amortized as licensing revenue on a straight-line basis over the maximum 36-month term of the service agreement. During the thirteen months ended December 31, 2003, the Company received research service fees of US$650,000 (November 30, 2002—US$150,000), which were included in research collaborative fees. Subsequent to December 31, 2003, the Company received notification from UCB that it would not extend the service agreement beyond March 2004. Accordingly, the unamortized deferred revenue balance of $881,777 will be recorded as revenue during the first quarter ending March 31, 2004.

[b]: On October 16, 2003, the Company entered into a collaboration and license agreement with Fujisawa Healthcare, Inc. ("Fujisawa") for the co-development and commercialization of RSD1235 as an intravenous formulation for the treatment of atrial fibrillation and atrial flutter. Pursuant to this agreement, effective October 28, 2003, the Company has granted Fujisawa an exclusive license to RSD1235 and its related technology to develop, make and sell intravenous drugs in North America, including a right to sublicense to third parties. The Company retains the rights to the intravenous formulation of RSD1235 for markets outside North America and worldwide rights to the oral formulation of RSD1235 for chronic atrial fibrillation. Under the terms of the agreement, the Company received an up-front payment of $13.093 million (US$10 million) and will be entitled to milestone payments of up to $71 million (US$54 million) based on achievement of specified development and commercialization milestones, as well as royalties based on future net sales and sublicense revenue. Fujisawa has also agreed to make further milestone payments with respect to any subsequent drugs developed under the agreement.

Under the terms of the agreement, Fujisawa is responsible for 75% and the Company is responsible for 25% of eligible costs associated with the development of intravenous formulation of RSD1235. Fujisawa is also responsible for 100% of the marketing costs for the intravenous application of RSD1235 in North America.

In addition, the Company has the right to require Fujisawa to acquire $5.2 million (US$4 million) of its common shares at a 25% premium to the average closing price of its common shares on the Toronto Stock Exchange over a 30 calendar day period at any time within the twelve-month period after the Effective Date.

This agreement can be terminated entirely, or on a country by country basis, by either party if certain development or commercialization milestones are not met. Unless the agreement is otherwise terminated, the royalty payment period for each country will expire on the later of the expiration of the last valid claim of the patent rights or the date upon which sales by other parties exceed a certain percentage of the market in the country for a certain period of time.

The initial upfront payment is recorded as licensing revenue on a straight-line basis over the estimated development period of 36 months. During the thirteen months ended December 31, 2003, the Company charged Fujisawa $647,400 (US$482,774) for project management and $3,126,542 (US$2,361,534) for research and development cost recoveries, which were included in research collaborative fees.

13. INCOME TAXES

At December 31, 2003, the Company has investment tax credits of $4,746,000 [November 30, 2002—$3,623,000] available to reduce future income taxes otherwise payable. The Company also has loss carryforwards of $21,457,000 [November 30, 2002—$22,323,000] available to offset future tax income in Canada ($10,919,000) and the United States ($10,538,000). The investment tax credits and non-capital losses for income tax purposes expire as follows:

	Investment tax credits $	Non-capital losses $
2004	4,000	1,101,000
2005	62,000	24,000
2006	111,000	—
2007	261,000	—
2008	520,000	1,142,000
2009	402,000	8,652,000
2010	559,000	—
2011	786,000	—
2012	954,000	—
2013	1,087,000	—
2022	—	2,883,000
2023	—	7,655,000

	4,746,000	21,457,000

Significant components of the Company's future tax assets and liabilities are shown below:

		December 31 2003 $		November 30 2002 $
Future tax assets:
	Tax loss carryforwards	8,093,000		7,964,000
	Research and development deductions and credits	9,482,000		7,338,000
	Tax values of depreciable assets in excess of accounting values	793,000		720,000
	Revenue unearned for accounting purposes	4,701,000		518,000
	Share issue costs	747,000		1,088,000
	Other items	3,000		3,000

Total future tax assets		23,819,000		17,631,000
Valuation allowance		(23,708,000	)	(17,408,000	)

Total future tax assets		111,000		223,000

Future tax liabilities:
	Accounting value of technology in excess of tax value	(15,971,000	)	(18,193,000	)

Total future tax liabilities		(15,971,000	)	(18,193,000	)

Net future tax liabilities		(15,860,000	)	(17,970,000	)

The potential income tax benefits relating to these future tax assets have not been recognized in the accounts as their realization did not meet the requirements of "more likely than not" under the liability method of tax allocation. Accordingly, no future tax assets were recorded at December 31, 2003 and November 30, 2002.

The reconciliation of income tax computed at the statutory tax rates to income tax expense (recovery), using a 37.75% [2002—40.04%; 2001—44.62%] statutory tax rate, is:

			Years ended November 30
	Thirteen months ended December 31 2003 $		Years ended November 30
	Thirteen months ended December 31 2003 $		2002 $		2001 $
Tax provision at combined statutory income tax rate	(8,296,000	)	(6,230,000	)	(3,193,900	)
(Utilization of losses) / occurrence of losses	(208,000	)	3,490,000		1,784,000
Amortization in excess of capital cost allowance for tax	135,000		248,000		245,500
Research and development expenses not deducted for tax purposes	1,412,000		1,297,000		1,383,100
Share issue costs	(557,000	)	(394,000	)	(158,300	)
Non-deductible expenses	777,000		—		—
Revenue unearned for accounting purposes	4,433,000		43,000		(67,400	)
Other	194,000		16,000		7,000

Future income tax recovery	(2,110,000	)	(1,530,000	)	—

14. RELATED PARTY TRANSACTIONS

The Company has incurred expenses for services provided to related parties as follows:

			November 30
		December 31 2003 $	2002 $	2001 $
Companies with a common director for:
	- contract research services	—	—	16,838
Directors for:
	- research consulting services	—	20,833	113,732
	- administrative consulting services	—	2,500	16,500
Law firm in which an officer is a partner for:
	- legal services	—	100,159	—

All transactions are recorded at their exchange amounts and accounts payable are subject to normal trade terms. The amount noted for legal services relates to services provided since the appointment of the individual as an officer.

Included in accounts payable and accrued liabilities at December 31, 2003 is $nil [November 30, 2002—$27,355; November 30, 2001—$84,709] owing to related parties for services provided as described above.

15. CONTINGENCIES

[a]: The Company may, from time to time, be subject to claims and legal proceedings brought against it in the normal course of business. Such matters are subject to many uncertainties. Management believes that adequate provisions have been made in the accounts where required and the ultimate resolution of such contingencies will not have a material adverse effect on the consolidated financial position of the Company.

[b]: The Company entered into indemnification agreements with all officers and directors. The maximum potential amount of future payments required under these indemnification agreements is unlimited. However, the Company maintains appropriate liability insurance that limits the exposure and enables the Company to recover any future amounts paid, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material.
[c]: The Company entered into license and research agreements with third parties that include indemnification provisions that are customary in the industry. These guarantees generally require the Company to compensate the other party for certain damages and costs incurred as a result of third party claims or damages arising from these transactions. In some cases, the maximum potential amount of future payments that could be required under these indemnification provisions is unlimited. These indemnification provisions may survive termination of the underlying agreement. The nature of the indemnification obligations prevents the Company from making a reasonable estimate of the maximum potential amount it could be required to pay. Historically, the Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

16. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The Company prepares the consolidated financial statements in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") which as applied in these consolidated financial statements conform in all material respects to United States generally accepted accounting principles ("U.S. GAAP"), except as follows:

[a]: As described in note 3, the Company adopted the liability method of accounting for income taxes. As a result of differences in the transition rules between the recommendations of The Canadian Institute of Chartered Accountants with respect to accounting for income taxes and SFAS 109, there is a $111,280 difference in technology and deficit under U.S. GAAP for the period ended December 31, 2003 [November 30, 2002—$222,560; November 30, 2001—$325,280].
[b]: For reconciliation purposes to U.S. GAAP for the years ended November 30, 2002 and 2001, the Company has elected to follow Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25) and related interpretations, in accounting for stock options granted to executive officers, directors and employees. Compensation expense is calculated based on the difference, on the date of grant, between the fair market value of the Company's stock and the exercise price and is recorded over the vesting period of the options. For purposes of reconciliation to U.S. GAAP, the Company recorded compensation expense in respect of options granted to executive officers, directors and employees below fair market value amounted to $10,000 for the year ended November 30, 2002 [2001—$44,100].
[c]: Under U.S. GAAP, stock based compensation to non-employees must be recorded at the fair value of the options granted on the earlier of the date at which a performance commitment is reached or the vesting date of the options. This compensation is expensed over the vesting periods of each option grant. The fair value of the stock options was estimated using the Black-Scholes option pricing model and the following weighted-average assumptions for the years ended November 30, 2002 and 2001 respectively: dividend yield 0.0%; expected volatility 93% and 99%; risk-free interest rate 3.0% and 5.0%; and expected average option life of 3.8 and 4.5 years. For purposes of reconciliation to U.S. GAAP, the Company recorded additional compensation expense of $76,799 for the year ended November 30, 2002 [2001—$35,000] in respect of options earned by non-employees.
[d]: Under U.S. GAAP, short-term investments are classified as available-for-sale and carried at market values with unrealized gains or losses reflected as a component of accumulated other comprehensive income.
[e]: For purposes of Canadian GAAP, the effect of the change in accounting principle for revenue recognition applied in fiscal 2001 was applied retroactively and all prior years were restated. For purposes of U.S. GAAP, this change in accounting principle was applied as a cumulative effect adjustment to the fiscal 2001 reported net loss.

The effect of the above on the Company's consolidated financial statements is set out below:

Consolidated statements of loss and deficit

				Years ended November 30
		Thirteen months ended December 31 2003 $		Years ended November 30
		Thirteen months ended December 31 2003 $		2002 $		2001 $
Loss for the period, Canadian GAAP		(19,865,813	)	(14,029,706	)	(7,157,885	)
Amortization of other assets [note 16[a]]		(111,280	)	(102,720	)	(102,720	)
Adjustment for stock-based compensation
	- employees [note 16[b]]	—		(10,000	)	(44,100	)
	- non-employees [note 16[c]]	—		(76,799	)	(35,000	)

Loss for the period, U.S. GAAP before cumulative effect of change in accounting policy		(19,977,093	)	(14,219,225	)	(7,339,705	)
Cumulative effect of change in accounting policy [note 16[e]]		—		—		(1,499,598	)

Loss for the period, U.S. GAAP		(19,977,093	)	(14,219,225	)	(8,839,303	)
Reclassification adjustment for unrealized gains on short-term investments		(72,509	)	(29,591	)	(117,662	)
Unrealized gains on investments [note 16[d]]		19,973		72,509		29,591

Comprehensive loss for the period, U.S. GAAP		(20,029,629	)	(14,176,307	)	(8,927,374	)

Loss for the period, U.S. GAAP		(19,977,093	)	(14,219,225	)	(8,839,303	)

Weighted average number of common shares outstanding, U.S. GAAP		31,470,279		23,560,044		10,304,579

Basic and diluted loss per common share, U.S. GAAP:
	Before change in accounting policy	(0.63	)	(0.60	)	(0.71	)
	Change in accounting policy	—		—		(0.15	)

Basic and diluted loss per common share, U.S. GAAP		(0.63	)	(0.60	)	(0.86	)

Balance sheets

Material variations in balance sheet accounts under U.S. GAAP are as follows:

	December 31 2003 $		November 30 2002 $
Cash and cash equivalents [note 16[d]]	13,978,880		1,432,392
Short-term investments [note 16[d]]	30,624,004		18,376,494
Intangible and other assets [note 16[a]]	41,644,617		47,304,421
Accumulated other comprehensive income [note 16[e]]	19,973		72,509
Contributed surplus [notes 16[b], [c] and [d]]	4,256,368		2,197,315
Deficit	(65,101,398	)	(45,124,305	)

17. SEGMENTED INFORMATION

The Company operates primarily in one business segment with all of its assets and operations located in Canada. All of the Company's revenues are generated in Canada. During the period ended

December 31, 2003, 25% and 75% of total revenue are derived from one collaborator in Switzerland and two collaborators in the United States respectively [years ended November 30, 2002—76%, 21% and 3% from three collaborators in Sweden, Switzerland and United States; November 30, 2001—92% and 8% from two collaborators in Sweden and United States].

18. COMPARATIVE FIGURES

Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period and the adjustment described in note 4[b].

19. SUBSEQUENT EVENTS

[a]: Subsequent to December 31, 2003, 600,370 warrants were exercised at a price of $3.80.
[b]: On March 8, 2004, 2,540,157 warrants expired unexercised.

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Exhibit 2

AUDITORS' REPORT
Cardiome Pharma Corp. Continued under the laws of Canada CONSOLIDATED BALANCE SHEETS (expressed in Canadian dollars)
Cardiome Pharma Corp. CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT (expressed in Canadian dollars)
Cardiome Pharma Corp. CONSOLIDATED STATEMENTS OF CASH FLOWS (expressed in Canadian dollars)
Cardiome Pharma Corp. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003 and November 30, 2002 (expressed in Canadian dollars)
EX-3 5 a2134050zex-3.htm EX-3
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Exhibit 3

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The following information should be read in conjunction with our audited consolidated financial statements and related notes included thereto. We changed our fiscal year end from November 30 to December 31, effective December 31, 2003. Accordingly, the following is a discussion of the consolidated financial position, results of operations and cash flows of the thirteen month period ended December 31, 2003 ("fiscal 2003"). All amounts are expressed in Canadian dollars unless otherwise indicated.

OVERVIEW

Cardiome Pharma Corp. is a drug discovery and development company focused on developing proprietary drugs to treat or prevent cardiac diseases. We have two programs focused on arrhythmia, one on congestive heart failure ("CHF"), and one on the treatment of allopurinol intolerant hyperuricemia (gout).

The following table summarizes our product candidates, their therapeutic focus and their stage of development:

Product Candidate	Therapeutic Focus	Stage of Development
RSD1235	Atrial Arrhythmia (intravenous)	Phase III clinical trial initiated
RSD1235	Atrial Arrhythmia (oral)	Pre-clinical
Oxypurinol	Congestive Heart Failure	Phase II/III clinical trial initiated
Oxypurinol	Allopurinol Intolerant Hyperuricemia (gout)	New Drug Application Filed

CORPORATE DEVELOPMENT

Following the successful completion of its Phase II clinical trial on the intravenous application of RSD1235 and acquisition of Cardiome, Inc. (formerly Paralex, Inc.) in 2002, we continued to focus on the execution of its business strategy. We accomplished the following significant milestones during fiscal 2003:

•: Initiation of a Phase II/III clinical trial, called OPT-CHF, on the oral application of oxypurinol to CHF. OPT-CHF will study 400 patients with moderate to severe symptomatic heart failure (rated by the New York Heart Association as class III-IV) and will demonstrate the level of safety and effectiveness of oxypurinol.
•: Initiation of a Phase III clinical trial, called ACT 1, on the intravenous application of RSD1235. This is the first of the three Phase III clinical trials we plan to conduct to support the application for regulatory approval of RSD1235 in the United States and Canada. ACT 1 will

involve studies in 420 patients and will provide data on the level of safety and efficacy of RSD1235 in the acute treatment of atrial fibrillation and atrial flutter.

•: Submission of a New Drug Application ("NDA") to the U.S. Food and Drug Administration ("FDA") seeking marketing approval for oxypurinol for the treatment of gout.
•: Completion of two equity financings, resulting in gross proceeds of $31 million. We closed a private placement of special warrants for total gross proceeds of $8 million and a public offering of common shares for total gross proceeds of $23 million in April 2003 and September 2003, respectively. The details of these transactions are described in note 10 to the audited consolidated financial statements.
•: Completion of a US$68 million (Cdn $90 million) North American collaborative partnership agreement with Fujisawa Healthcare, Inc. ("Fujisawa"), for the co-development and commercialization of RSD1235 as an intravenous formulation for the treatment of atrial fibrillation and atrial flutter. The financial terms of the partnership are described in note 12 to the consolidated financial statements.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). A reconciliation of amounts presented in accordance with United States generally accepted accounting principles ("U.S. GAAP") is described in note 16 to the audited consolidated financial statements for the period ended December 31, 2003. These accounting principles require us to make certain estimates and assumptions. We believe that the estimates and assumptions upon which we rely are reasonable based upon information available at the time that these estimates and assumptions are made. Actual results could differ from these estimates. Areas of significant estimates include the assessment of net recoverable value of technology licenses and patents, reporting of revenue recognition and stock-based compensation.

The significant accounting policies that we believe are the most critical in fully understanding and evaluating the reported financial results include the following:

•: Revenue recognition
•: Research and development costs
•: Intangible assets
•: Stock-based compensation

Revenue recognition

Revenue to date has primarily been derived from research collaborative fees and licensing fees, which are comprised of initial fees and milestone payments from collaborative licensing arrangements. Research collaborative fees, which are non-refundable, are recorded as revenue as the related research expenses are incurred pursuant to the terms of the agreement and provided collectibility is reasonably assured. Non-refundable milestone payments are fully recognized upon the achievement of the milestone event when we have no further involvement or obligation to perform under the arrangement. Initial fees and milestone payments which require our ongoing involvement are deferred and amortized into income over the estimated period of our ongoing involvement. A significant change in this estimate could have a material impact on earnings.

Research and development costs

Research and development costs consist of direct and indirect expenditures related to our research and development programs. Research and development costs are expensed as incurred unless they meet generally accepted accounting criteria for deferral and amortization. We assess whether these costs have met the relevant criteria for deferral and amortization at each reporting date.

Intangible assets

Intangible assets are comprised of purchased technology licenses and patent costs. Technology licenses, including those acquired in exchange for the issuance of equity instruments issued by us, are amortized on a straight-line basis over the estimated useful life of the underlying technologies of ten years. We determine the estimated useful lives for intangible assets based on a number of factors such as legal, regulatory or contractual limitations; known technological advances; anticipated demand; and the existence or absence of competition. A significant change in the above factors may require a revision of the expected useful life of the intangible asset, resulting in accelerated amortization or an impairment charge, which could have a material impact on earnings. We evaluate the recoverability of technology licenses on a quarterly basis based on the expected utilization of the underlying technologies. If the estimated net recoverable value, calculated based on undiscounted estimated future cash flows, exceed the carrying value of the underlying technology, the excess amount is charged to operations. The amounts shown for technology licenses and patent costs do not necessarily reflect present or future values and the ultimate amount recoverable will be dependent upon the successful development and commercialization of products based on these rights. Patent costs associated with the preparation, filing, and obtaining of patents are capitalized and amortized on a straight-line basis over the estimated useful lives of the patents of ten years.

Stock-based compensation and other stock-based payments

Effective December 1, 2002, we have elected to prospectively adopt the recommendations of the Canadian Institute of Chartered Accountants (the "CICA") new Handbook section 3870, Stock-Based Compensation and Other Stock-Based Payments. This standard requires that all stock-based awards be measured and recognized using a fair value based method.

The fair value of stock options is estimated at the date of grant using the Black Scholes Option Pricing Model and is amortized over the vesting terms. Prior to the adoption of this standard, no compensation expense was recognized for stock options issued. The change in this accounting policy did not result in any adjustment to our opening deficit balance on December 1, 2002. For fiscal 2003, we recorded approximately $2.0 million and $0.1 million of stock-based compensation for stock options granted after December 1, 2002, to employees and non-employees respectively.

RESULTS OF OPERATIONS

For the thirteen months ended December 31, 2003 ("fiscal 2003"), we recorded a net loss of $19.9 million ($0.63 per common share) compared to a net loss of $14.0 million ($0.60 per common share) and $7.2 million ($0.69 per common share) for the years ended November 30, 2002 ("fiscal 2002") and November 30, 2001 ("fiscal 2001"), respectively. Since our formation in 1986, we have incurred a cumulative deficit of $64.3 million. The increase in net loss in fiscal 2003, as compared to fiscal 2002, was mainly due to the inclusion of an additional month of operating expenditures as a result of the change of fiscal year-end, the adoption of the new accounting policy for stock-based compensation and the expanded research and development activities as described below. Stock based compensation increased the loss and loss per share for fiscal 2003 by $2.1 million and $0.06 per common share, respectively. The increased research and development activities were the primary factors for the increase in operating loss in fiscal 2002, as compared to fiscal 2001. The results of operations were in line with management's expectations.

We expect losses to continue for at least two fiscal years as we invest in our product research and development, including pre-clinical studies, clinical trials and regulatory compliance.

Revenues

Total revenue for fiscal 2003 increased to $6 million, compared to $1.8 million and $0.2 million for fiscal 2002 and fiscal 2001, respectively.

Licensing fees represent the amortization of deferred revenue related to upfront payments from our collaborative partners. We generated $1.4 million of licensing fees for fiscal 2003, compared to $1.5 million and $0.2 million for fiscal 2002 and fiscal 2001, respectively. The current year decrease was mainly due to the recognition of the remaining balance of unamortized deferred revenue related to the upfront payment from our former collaborative partner, AstraZeneca A.B. in fiscal 2002, as the licensing agreement between the two parties was terminated in June 2002. This was offset by the amortization of deferred revenue related to the $13.1 million (US$10 million) of upfront payment from our new collaborative partner, Fujisawa, in fiscal 2003. The recognition of the unamortized balance of deferred revenue related to the upfront payment from AstraZeneca A.B. was the primary reason for the increase in licensing fees for fiscal 2002 compared to fiscal 2001.

Research collaborative fees were $4.7 million for fiscal 2003, compared to $0.3 million and $30,448 for fiscal 2002 and 2001, respectively. The current year increase was mainly attributable to the research and development cost recovery from Fujisawa of $3.1 million ($Nil for fiscal 2002), $0.7 million for project management services provided to Fujisawa ($Nil for fiscal 2002), and the increase of $0.6 million for research services provided to UCB Farchim S.A. The increase in fiscal 2002, as compared to fiscal 2001, was primarily due to the fees charged for research services provided to UCB Farchim S.A. ($Nil for fiscal 2001).

Subsequent to December 31, 2003, we received notification from UCB indicating that UCB had no intention to extend its research service contract beyond March 2004. UCB is evaluating if it will advance any compound from our previous anti-tussive program to clinical trial. We will recognize the remaining balance of $0.9 million of deferred revenue associated with this contract in the first quarter of fiscal 2004.

We expect to continue receiving project management fees and development cost reimbursements from Fujisawa. We will continue to recognize as revenue the amortization of deferred revenue related to the upfront payment from our collaboration and license agreement with Fujisawa. We may also receive a milestone payment from Fujisawa in fiscal 2004. Depending on the FDA's decision on the commercialization of oxypurinol for the treatment of gout, we may generate some product revenue or royalties from oxypurinol for the treatment of gout. We are evaluating our strategy for the distribution of oxypurinol for the treatment of gout, considering whether to sell oxypurinol directly or enter into other marketing arrangements. We may also earn revenue from new licensing and collaborative research and development agreements with other pharmaceutical companies. However, there can be no assurance that we will maintain our existing agreements or close a new licensing or collaborative research and development agreement.

Research and Development Expenditures

Research and development expenditures were $16.9 million for fiscal 2003, compared to $9.8 million and $5.2 million for fiscal 2002 and fiscal 2001, respectively. The increase of $7.1 million in research and development expenditures in fiscal 2003, as compared to fiscal 2002, was primarily due to the inclusion of an additional month of operating expenditure as a result of the change of fiscal year-end, stock-based compensation of $0.7 million and the expanded activities in the following projects:

1): RSD1235 Intravenous Project

During fiscal 2001, we initiated and completed a Phase I clinical study and started its preparation work for a Phase II clinical trial, called CRAFT. We successfully completed the CRAFT trial in fiscal 2002. We began its work on two Phase III clinical studies, ACT 1 and ACT 2, in fiscal 2003. Patient recruitment for ACT 1 initiated in August 2003 while preparation work for ACT 2 started in November 2003. As a result of these expanded activities, we incurred an additional operating expenditure of $1.4 million and $1.2 million in this project for fiscal 2003 and fiscal 2002 respectively, as compared to those incurred for the immediate preceding fiscal period. In accordance with our collaboration and licensing agreement with Fujisawa, we would recover $3.1 million of expenditures related to ACT 1 and ACT 2, from Fujisawa. These expense recoveries were recorded as research collaborative fees.

2): RSD1235 Oral Project

We started development of RSD1235 as an oral drug candidate and initiated our proof of concept study, oral absorption study in fiscal 2002. In fiscal 2003, we continued to work on the oral absorption study and initiated our oral formulation work in fiscal 2003. The expanded activities resulted in an additional operating expenditure of $0.2 million in this project for both fiscal 2003 and fiscal 2002, as compared to those incurred for the immediate preceding fiscal period.

3): Oxypurinol CHF Project

Following the acquisition of this project in March 2002, we initiated OPT-CHF, a Phase II/III clinical study, and worked on three proof-of-concept studies, called EXOTIC, EXOTIC-EF and LaPlata in fiscal 2003. OPT-CHF and LaPlata study the oral application of oxypurinol for the treatment of CHF, while EXOTIC and EXOTIC-EF test the intravenous application of oxypurinol for the treatment of CHF. We reported a favourable result from our EXOTIC study in September 2003. During fiscal 2002, we focused our operation in obtaining regulatory work to advance this project directly to Phase II clinical study, bypassing a usual Phase I safety study. The expanded activities resulted in an additional operating expenditure of $1.2 million and $2.1 million in this project for fiscal 2003 and fiscal 2002 respectively, as compared to those incurred for the immediate preceding fiscal period.

4): Oxypurinol Gout Project

Following the acquisition of this project in fiscal 2002, we reanalyzed the clinical data generated by ILEX Oncology, Inc., and focused our operation on the regulatory work for marketing approval of oxypurinol. We completed our regulatory work and submitted an NDA to the FDA in December 2003. The expanded activities resulted in an additional operating expenditure of $3.6 million and $0.8 million in this project for fiscal 2003 and fiscal 2002, respectively.

5): Other Pre-clinical Projects

In fiscal 2003, we continued to support our pre-clinical projects including the services provided to UCB. These activities incurred an additional operating expenditure of $0.9 million and $0.4 million in this project for fiscal 2003 and fiscal 2002 respectively, as compared to those incurred for the immediate preceding fiscal period.

We expect the research and development expenditures for the year ending December 31, 2004 ("fiscal 2004") to be higher than those incurred in fiscal 2003. A significant portion of the research and development expenditures in fiscal 2004 will be incurred in the following activities:

1): RSD1235 Intravenous Project

We will continue our work on ACT 1 and ACT 2 and begin work on ACT 3. We expect to initiate patient dosing for ACT 2 in the first quarter of 2004, complete ACT 1 in the second half of 2004, complete ACT 2 in the first half of 2005 and initiate ACT 3 in the second half of 2004.

2): RSD1235 Oral Project

We will continue our oral formulation work and begin our regulatory work for initiation of a Phase I clinical study in the fourth quarter of 2004.

3): Oxypurinol CHF Project

We will continue our work on OPT-CHF, EXOTIC-EF and LaPlata; studies in patients with heart failure. We expect to complete patient recruitment for OPT-CHF in the fourth quarter of 2004, to report on the results for EXOTIC-EF and LaPlata in the second and third quarters of 2004 respectively, with results for OPT-CHF in mid 2005.

4): Oxypurinol Gout Project

The six-month review date for the NDA submission is June 23, 2004. We are evaluating our strategy for the distribution of oxypurinol, considering whether to sell oxypurinol directly or enter into other marketing arrangements.

General and Administration Expenditures

General and administration expenditures for fiscal 2003 were $5.6 million as compared to $3.8 million and $1.9 million for fiscal 2002 and fiscal 2001, respectively. The increase of $1.8 million in general and administration expenditures for fiscal 2003, as compared to fiscal 2002, was primarily due to the recognition of stock-based compensation expense of $1.4 million ($Nil for fiscal 2002), the inclusion of an additional month of operating expenditures as a result of the change of fiscal year-end, and increased business development activities related to licensing of RSD1235 Intravenous Project. The increase of $1.9 million in general and administration expenditures for fiscal 2002, as compared to fiscal 2001, was attributed to the increased expenditures of $1.7 million and $0.2 million associated with the expanded corporate development activities, and business development activities respectively.

We expect the general and administration expenditures for the twelve months ending December 31, 2004 to be lower than those incurred in fiscal 2003 covering thirteen months of operations.

Amortization

We recorded $6.0 million of amortization for fiscal 2003, compared to $4.4 million and $0.6 million for fiscal 2002 and fiscal 2001, respectively. The increase of $1.6 million in amortization for fiscal 2003, as compared to fiscal 2002 was due to the additional four months of amortization of the acquired technology licenses as a result of the acquisition of Cardiome, Inc. in March 2002. The increase of $3.8 million in amortization for fiscal 2002, as compared to fiscal 2001, was primarily due to the amortization of the acquired technology licenses as a result of the acquisition of Cardiome, Inc. The remaining increase was attributed to the capital assets and intellectual property rights acquired during fiscal 2002.

Other Income

Interest and other income was $0.5 million for fiscal 2003, compared to $0.6 million and $0.3 million for fiscal 2002 and fiscal 2001 respectively. The decline of interest income of $0.1 million for fiscal 2003, as compared to fiscal 2002, was mainly due to the lower market interest rate in fiscal 2003, as compared to fiscal 2002. This impact was offset by the higher average cash and short-term investment balances and the inclusion of an additional month of interest income as a result of the change of fiscal year-end. The increase in fiscal 2002, as compared to fiscal 2001, was the result of the increase in interest income of $0.2 million due to the higher average cash and short-term investment balances and the gain on the disposition of short-term investments of $0.1 million.

Future income tax recovery

The future income tax recovery results from the amortization of the intangible assets acquired from Cardiome, Inc. The increase for fiscal 2003, compared to fiscal 2002, reflects the additional amortization.

QUARTERLY FINANCIAL DATA

Set forth below is the selected unaudited consolidated financial data for each of the last eight quarters:

2003	Four months ended December 31			Three months ended August 31(1)			Three months ended May 31(1)			Three months ended February 28(1)
Total revenue	$	4,986,808		$	342,522		$	340,736		$	377,127
Research and development expenses		7,747,825			3,439,002			2,485,027			3,256,164
General and administration		2,105,198			1,173,754			1,407,816			944,282
Net loss		(5,852,747	)		(5,057,868	)		(4,376,240	)		(4,578,958	)
Net loss per common share		(0.16	)		(0.16	)		(0.15	)		(0.16	)

2002	Three months ended November 30			Three months ended August 31			Three months ended May 31			Three months ended February 28
Total revenue	$	378,172		$	1,314,627		$	37,805		$	37,805
Research and development expenses		3,361,583			2,726,638			2,447,361			1,223,860
General and administration		1,214,222			943,987			1,115,653			486,144
Net loss		(5,108,584	)		(3,096,792	)		(4,062,499	)		(1,761,831	)
Net loss per common share		(0.17	)		(0.11	)		(0.15	)		(0.17	)

(1)

Adjusted to reflect the prospective adoption of the CICA new Handbook Section 3870, Stock-Based Compensation and Other Stock Based Payments, as of the adoption occurred December 1, 2002. The impact of this adoption were as follows:

i.: increase of research and development expenses for first, second and third quarter by $39,529, $82,168, and $120,243 respectively;
ii.: increase of general and administration expenses for first, second and third quarter by $221,735, $490,448, and $258,151 respectively; and
iii.: increase of net loss for first, second and third quarter by $261,264, $572,616, and $378,394 respectively.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations, capital expenditures and technology acquisition primarily through public offering and private placement of common shares, collaborative research and licensing fees, interest income and grant income. Since we changed our business to research and development in 1992, we have received net proceeds of approximately $81 million through public offering and private placement of common shares. Approximately $29 million of these net proceeds were provided by the issuance of common shares pursuant to the two financings completed in fiscal 2003. The terms of these financing are detailed in notes 10 [b] [i] and [ii] of the consolidated financial statements. In addition, we collected $13.1 million (US$10 million) upon the closing of our collaboration and licensing agreement with Fujisawa as described in note 12 [b].

Capital expenditures paid by cash during fiscal 2003 were $0.4 million, comprising $0.3 million in capital assets and $0.1 million in intellectual property rights.

At December 31, 2003, we had working capital of $40.5 million as compared to $16.9 million at November 30, 2002. We had available cash reserves, comprised of cash, cash equivalents and short-term investments of $44.6 million at December 31, 2003 as compared to $19.7 million at November 30, 2002.

We are exposed to market risks related to changes in interest rates and foreign currency exchange rates. We invest our cash reserves in fixed rate, highly liquid and highly rated financial instruments such as treasury bills, commercial papers and banker's acceptances. We have not entered into any forward currency contracts or other financial derivatives to hedge foreign exchange risk. We are subject to

foreign exchange rate changes that could have a material effect on future operating results or cash flow.

We believe that our cash position, together with the anticipated cash inflows from our collaborative partner and interest income should be sufficient to finance our operational and capital needs for the next two fiscal years. However, our future cash requirements may vary materially from those now expected due to a number of factors, including the costs associated with the completion of the clinical trials, collaborative and license arrangements with third parties, and opportunities to in-license complementary technologies. We will continue to review our financial needs and seek additional financing as required from sources that may include equity financing, and collaborative and licensing arrangements. However, there can be no assurance that such additional funding will be available or if available, whether acceptable terms will be offered.

RISKS AND UNCERTAINTIES

In addition to the financial risks mentioned above, we are subject to a number of other risks and uncertainties that are inherent to the development of any new technology and to the biotechnology industry. The risks and uncertainties include: (i) our ability to successfully complete pre-clinical and clinical development of our products, (ii) our ability to complete corporate alliances relating to the development and commercialization of our technologies and products, (iii) decisions and the timing of decisions made by health regulatory agencies regarding approval of our products, (iv) our ability to obtain or the timeliness of obtaining patent and other intellectual property protection for our technologies and products, (v) market acceptance of our technologies and products, (vi) the competitive environment and impact of technological change, (vii) the continued availability of capital to finance our activities, and (viii) our ability to manage future growth effectively. These risks and uncertainties should be considered carefully and readers are cautioned if any of such risks actually occur, the financial condition or results of operations could be materially adversely affected. To the extent possible, management implements strategies to reduce or mitigate these risks and uncertainties associated with our business.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles and have been approved by the Board of Directors. The integrity and objectivity of these consolidated financial statements are the responsibility of management. In addition, management is responsible for all other information in this report and for ensuring that this information is consistent, where appropriate, with the information contained in the consolidated financial statements.

In support of this responsibility, management maintains a system of internal controls to provide reasonable assurance as to the reliability of financial information and the safeguarding of assets. The consolidated financial statements include amounts that are based on the best estimates and judgements of management.

The Board of Directors is responsible for ensuring that management fulfils its responsibility for financial reporting and internal control. The Board of Directors exercises this responsibility principally through the Audit Committee. The Audit Committee consists of three directors not involved in the daily operations of the Company. The Audit Committee meets with management and the external auditors to satisfy itself that management's responsibilities are properly discharged and to review the consolidated financial statements prior to their presentation to the Board of Directors for approval.

The external auditors, Ernst & Young LLP, conduct an independent examination, in accordance with Canadian and United States generally accepted auditing standards, and express their opinion on the consolidated financial statements. The external auditors have free and full access to the Audit

Committee with respect to their findings concerning the fairness of financial reporting and the adequacy of internal controls.

"Bob Rieder"		"Doug Janzen"
Robert Rieder President and Chief Executive Officer		Doug Janzen Chief Financial Officer

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Exhibit 3

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EX-4 6 a2134050zex-4.htm EX-4
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Exhibit 4

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS EXHIBIT, WHICH PORTIONS HAVE BEEN OMITTED AND REPLACED WITH "REDACTED" AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

COLLABORATION AND LICENSE AGREEMENT

BY AND BETWEEN

CARDIOME PHARMA CORP.

AND

FUJISAWA HEALTHCARE, INC.

DATED: OCTOBER 16, 2003

COLLABORATION AND LICENSE AGREEMENT

TABLE OF CONTENTS

			Page
Article 1 DEFINITIONS			1
	1.1	Definitions	1
Article 2 PRODUCT DEVELOPMENT			10
	2.1	Objectives	10
	2.2	Collaboration Guidelines; Amendments to the Development Plan	10
	2.3	Development	10
	2.4	Joint Development Management Committee	13
	2.5	No Obligation to Develop or Commercialize other Indications	14
	2.6	Replacement of Lead Compound	14
	2.7	Alternative Synthetic Route	15
	2.8	Changes to Phase IIB Study	15
	2.9	Post Development Studies and Commitments	15
Article 3 LICENSE			15
	3.1	License Terms	15
	3.2	Ownership of Intellectual Property	15
	3.3	Ownership of Collaboration Data	15
	3.4	License to Cardiome	16
	3.5	Notice of Collaboration Data and Improvements	16
	3.6	Cardiome's Reservation of Rights	16
	3.7	Sublicenses	16
	3.8	Certain Improvements Post Development	17
Article 4 PAYMENTS			18
	4.1	Initial Fees and Consideration	18
	4.2	Product Milestone Payments	18
	4.3	Royalties	18
	4.4	Backup Compounds	18
	4.5	Reduction in (and Deductions From) Royalties and Milestones	19
	4.6	Payment Terms	19
Article 5 COMMERCIALIZATION OF THE PRODUCT			20
	5.1	Marketing Efforts	20
	5.2	Consequence of No Sales	21
	5.3	Marketing Update	21
	5.4	Manufacturing	22
	5.5	Cost of Goods	22
	5.6	Patent Marking	22
Article 6 REGULATORY COMPLIANCE			23
	6.1	Ownership and Maintenance of Governmental Approvals	23
	6.2	Adverse Drug Event Reporting and Post Marketing Surveillance	23
	6.3	Assistance	24
	6.4	Compliance	24
	6.5	General Regulatory Matters	25

Article 7 PATENTS AND TRADEMARKS			26
	7.1	Maintenance of Cardiome Patents	26
	7.2	Maintenance of Fujisawa Patents and Fujisawa Marks	28
	7.3	Prosecution and Maintenance of Joint Patents	29
	7.4	Cooperation and Procedures Relative to Actions Brought Under Sections 7.5 and 7.6	29
	7.5	Prosecution of Infringement in the Territory in the Field	30
	7.6	Infringement Claimed by Third Parties in the Territory in the Field	31
	7.7	Prosecution of Infringement Outside the Territory or Outside the Field	32
	7.8	Co-operation with Other Licensees	32
Article 8 CONFIDENTIALITY			33
	8.1	Confidentiality	33
	8.2	Publicity Review	34
	8.3	Protocol for Scientific Publications	34
Article 9 REPRESENTATIONS, WARRANTIES AND COVENANTS			34
	9.1	Corporate Power	34
	9.2	Due Authorization	35
	9.3	Binding Obligation/No Conflict	35
	9.4	Ownership of Cardiome Technology	35
	9.5	Ownership of Fujisawa Technology	35
	9.6	Patent and Other Intellectual Property Rights Proceedings of Cardiome	36
	9.7	Pre-Clinical and Clinical Studies Prior to Signing Date	37
	9.8	Debarment	37
	9.9	Limitation on Warranties	37
Article 10 INDEMNIFICATION AND INSURANCE			37
	REDACTED		37
Article 11 ADDITIONAL COVENANTS OF THE PARTIES			37
	11.1	Cardiome Covenant Not To Compete	37
	11.2	Launch of Competitive Product by Fujisawa	37
	11.3	Filing of Certain Patent Applications and Obtaining Inventor Assignments	38
	11.4	Limitation To The Territory	38
	11.5	Records and Audits	38
	11.6	Marketing Expenses	40
	11.7	Further Actions	40
Article 12 PRODUCT RECALL			40
	12.1	Product Recalls or Withdrawal	40
	12.2	Recall Costs	40
	12.3	Notification Of Complaints	41
	12.4	Notification Of Threatened Action	41
Article 13 TERM AND TERMINATION			41
	13.1	Term	41
	13.2	Termination by Either Party	41
	13.3	Termination by Fujisawa	42
	13.4	Termination by Cardiome	42
	13.5	Effect of Termination	42
	13.6	Remedies	42
	13.7	License Following Expiration	42

Article 14 DISPUTE RESOLUTION/DAMAGES			42
	14.1	Disputes	42
	14.2	Determination of Patents and Other Intellectual Property	43
	14.3	Injunctive Relief	43
	14.4	No Consequential Damages	43
	14.5	Attorney's Fees	44
Article 15 Conditions			44
	15.1	Conditions to Agreement	44
	15.2	Efforts Prior to Effectiveness of the Agreement	44
	15.3	Conditions Not Satisfied	44
Article 16 MISCELLANEOUS			44
	16.1	No Solicitation	44
	16.2	Assignment; Binding Effect	45
	16.3	Force Majeure	45
	16.4	Governing Law	45
	16.5	Waiver	45
	16.6	Severability	45
	16.7	No Right to Use Names	45
	16.8	Notices	46
	16.9	Independent Contractors	46
	16.10	Rules of Construction	46
	16.11	Entire Agreement; Amendment	47
	16.12	Counterparts; Facsimile	47
	16.13	Interpretation	47
EXHIBIT 1.1(h) Backup Compound(s)			49
EXHIBIT 1.1(a) CARDIOME PATENTS			50
EXHIBIT 1.1(bb) DEVELOPMENT PLAN			51
EXHIBIT 1.1(dd) EXECUTIVE SUMMARY			52
EXHIBIT 1.1(cccc) CHEMICAL STRUCTURE OF RSD1235			53
EXHIBIT 4.1(b) STOCK PURCHASE AGREEMENT			54
EXHIBIT 8.2 PRESS RELEASE			78

iii

COLLABORATION AND LICENSE AGREEMENT

This Collaboration and License Agreement (this "Agreement") is made as of October 16, 2003 (the "Signing Date")

BETWEEN:

CARDIOME PHARMA CORP., a Canadian corporation having its offices at 3650 Wesbrook Mall, Vancouver, BC, Canada V6S 2L2

("Cardiome")

AND:

FUJISAWA HEALTHCARE, INC., a Delaware corporation having its offices at Three Parkway North, Deerfield, IL, USA 60015-2548

("Fujisawa").

Cardiome and Fujisawa are sometimes referred to collectively herein as the "Parties" or singly as a "Party".

R E C I T A L S

A. WHEREAS, Cardiome has developed and owns or controls certain proprietary technology, patents, patent applications, and know-how relating to Cardiome's proprietary compound known as RSD1235 (as defined below);

B. WHEREAS, Cardiome wishes to grant to Fujisawa, and Fujisawa wishes to obtain from Cardiome, an exclusive license under the Cardiome Technology to use, market, advertise, promote, distribute, offer for sale, sell, manufacture, have manufactured, export and import, develop and co-develop (with or in addition to Cardiome), the Product in the Territory for use in the Field, (as such terms are defined herein) or have the foregoing done on its behalf, subject to the terms and conditions set forth herein;

C. WHEREAS, Fujisawa wishes that Cardiome conduct certain research and development related to the Cardiome Technology and the Product and perform the other duties as described herein, and Cardiome wishes to perform the foregoing, subject to the terms and conditions herein; and

D. WHEREAS, Cardiome and Fujisawa desire to determine in accordance with the terms of this Agreement which Party will conduct certain other research and development related to the Cardiome Technology and the Product, subject to the terms and conditions herein; and

E. WHEREAS, Cardiome wishes that Fujisawa perform certain other duties as described herein, and Fujisawa wishes to perform the foregoing, subject to the terms and conditions herein;

NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants and agreements contained herein, the Parties hereby agree as follows:

ARTICLE 1 DEFINITIONS

As used in this Agreement, the following terms shall have the meanings set forth below:

1.1 Definitions

	(a)		"Act" means the Federal Food Drug and Cosmetic Act (21 U.S.C. Section 301 et seq.) in the United States and any other comparable, applicable legislation in any other country in the Territory.

	(b)		"Affiliate" means any company or entity controlled by, controlling or under common control with a Party. As used in this Section 1.1(b), "control" means (a) that an entity or company owns, directly or indirectly, fifty percent (50%) or more of the voting stock of another entity, or (b) that an entity, person or group has the actual ability to control and direct the management of the entity, whether by contract or otherwise.
	(c)		"Alternate Synthetic Route" shall mean REDACTED
	(d)		"Applicable Law(s)" means the Act, Regulations and all other applicable laws, rules, regulations and guidelines within the Territory that apply to the import, export, research and development, use, manufacture, marketing, promotion, distribution, sale or commercialization of RSD1235 or the Product in the Field in the Territory or the performance of either Party's obligations under this Agreement (including disclosure obligations as required by the United States Securities and Exchange Commission, Toronto Stock Exchange or other comparable exchange or securities commission having authority over a Party) to the extent applicable and relevant to such Party.
	(e)		"Approval Letter" means a letter issued by the FDA indicating approval of a product for commercialization, as defined in 21 CFR § 314.105 in the United States, or equivalent letter issued by the applicable Competent Authority in any other country in the Territory, pursuant to Applicable Laws in each country in the Territory.
	(f)		"Atrial Fibrillation" means an arrhythmia of the upper chambers of the heart characterized by irregular and rapid atrial contraction producing variable R-R intervals with undulating baseline and no regular P-waves.
	(g)		"Atrial Flutter" means an arrhythmia of the upper chambers of the heart characterized by flutter waves of constant morphology with a constant beat-to-beat cycle length of approximately 200 msec. R-R intervals may be equal or variable.
	(h)		"Backup Compound(s)" means the chemical structure(s) described in Exhibit 1.1(h).
	(i)		"Books and Records" means, in whatever media, any and all books and records, documents, reports and accounts in connection with or relative to: the Development Costs; any costs Fujisawa or Cardiome is obligated to reimburse or pay to the other Party under this Agreement; the Development; the Development Plan; as well as any other books and records as may be required from time to time by Applicable Laws or this Agreement. Books and Records shall not include any market research and competitive reports, marketing reports and data.
	(j)		"Cardiome Know-How" means REDACTED
			"Cardiome Patent Rights" or "Cardiome Patent" means ***
	(k)		REDACTED
	(l)		"Cardiome Technology" means the Cardiome Patent Rights and the Cardiome Know-How.
	(m)		"CFR" means the United States Code of Federal Regulations in the United States and any other comparable, applicable code of regulations in any other country in the Territory.

(n)	"COGS" or "Cost of Goods Sold" means:
	(i)	when Fujisawa (or a Fujisawa Affiliate) manufactures commercial supplies of RSD1235 drug substance for the Indication, the actual cost of the manufacture of RSD1235 (including the related quality assurance and quality control activities) which actual cost shall include direct labor, direct material (including raw materials and components), direct overhead (e.g. overhead solely dedicated to the manufacture of RSD1235), and the allocable portion of indirect overhead. Indirect overhead however, shall exclude selling and marketing, general and administrative, research and development, and any other costs not related to the manufacture of RSD1235. The determination of RSD1235 Cost of Goods Sold shall be determined on an annual basis in accordance with Generally Accepted Accounting Principles (GAAP); or
	(ii)	in the event that a Third Party manufactures commercial supplies of RSD 1235 drug substance for the Indication on Fujisawa's behalf, the actual out of pocket cost to Fujisawa of such commercial supplies.
(o)	"Collaboration" means the activities of the Parties carried out in performance of, and the relationship between the Parties established by, this Agreement.
(p)	"Collaboration Data" means any and all clinical data, information, reports, and documentation (or analyses thereof) resulting from the Development, including any and all clinical and pre-clinical data, manufacturing scale-up and process improvement data arising after the Signing Date, including all results arising from the Phase III Studies and any Phase IV Commitments. Collaboration Data shall not include any of the foregoing in connection with SAL Studies or Post Marketing Commitments.
(q)	"Commercially Reasonable Efforts" means, except as otherwise explicitly set forth in this Agreement, those diligent efforts consistent with the exercise of prudent scientific and business judgment, as applied to products having comparable market potential and otherwise in accordance with generally accepted practices in the pharmaceutical industry. "Comparable market potential" shall be fairly determined based upon relevant factors, including market size, price, competition, patent rights, product liability issues and general marketing parameters.
(r)	"Competent Authority(ies)" means collectively the entities in each country in the Territory responsible for: (i) the regulation of medicinal products intended for human use, including the FDA; or (ii) the establishment, maintenance or protection of rights related to patent rights or any other successor entities thereto.
(s)	"Competitive Product" means REDACTED
(t)	"Confidential Information" means any and all information (including the Cardiome Technology and Fujisawa Technology) of a Party relating to any trade secret, Development Costs, Books and Records, process, method, compound, research project, work in process, future development, scientific, engineering, manufacturing, marketing, sales, business plan, financial or personnel matter relating to the disclosing Party, its present or future products, sales, suppliers, customers, employees, investors or business, whether in oral, written, graphic or electronic form. Confidential Information shall not include any information which the receiving Party can prove by competent evidence:
	(i)	is now, or hereafter becomes, through no act or failure to act on the part of the receiving Party, generally known or available;

	(ii)	is known by the receiving Party at the time of receiving such information, as evidenced by its written records maintained in the ordinary course of business;
	(iii)	is hereafter furnished to the receiving Party by a Third Party, as a matter of right and without restriction on disclosure;
	(iv)	is independently developed by the receiving Party, as evidenced by its written records, without knowledge of, and without the aid, application or use of, the disclosing Party's Confidential Information; or
	(v)	is the subject of a written permission to disclose provided by the disclosing Party.
(u)	"Consumer Price Index" means the Consumer Price Index for all Urban Consumers (CPI-U)—U.S. City Average. All Items (1982-1984 = 100), as published by the United States Bureau of Labor Statistics, or if such index is no longer published, then the index most comparable thereto.
(v)	"Control" means the possession of the ability to grant a license or sublicense as provided for herein without violating the terms of any agreement or other arrangement with any Third Party.
(w)	"Costs" means any and all costs, expenses, fees (including attorneys fees and costs), charges, monies, license fees, upfront fees and royalties paid in connection with any proceeding, action, suit or claim made by any Third Party.
(x)	"Current Formulation" means REDACTED
(y)	"CTA" means Clinical Trial Application in Canada.
(z)	"Development" means, in respect of each country in the Territory, work conducted under the Development Plan and as set out in Section 2.3 for the Indication up to the issuance of an Approval Letter in each such country for a Product in the Field.
(aa)	"Development Costs" means REDACTED
(bb)	"Development Plan" means the detailed plan(s) related to the research and the development (including work to obtain Governmental Approvals, including Marketing Authorizations), for RSD1235 in its Current Formulation for the Indication in the Field in the Territory, including the Phase III Studies and all supporting pre-clinical work, chemistry and manufacturing necessary to conduct the Phase III Studies, the technical transfer and manufacturing scale up and approval of a commercial manufacturing process, and to secure NDA Approval and the budget therefor as amended from time to time by the JDMC pursuant to which the Parties shall conduct the Development under the terms of this Agreement. The Development Plan for the United States and Canada is attached hereto as Exhibit 1.1(bb).
(cc)	"Effective Date" means the date whereupon all the requirements of Sections 15.1(a), 15.1(b), 15.1(c) and 15.1(d) have been met, provided that neither Party has terminated this Agreement prior to such requirements being met pursuant to Section 15.3.
(dd)	"Executive Summary" shall mean a report containing the information related to a Phase III Study that is described in Exhibit 1.1(dd).
(ee)	"FDA" means the United States Food and Drug Administration in the United States and any other comparable, applicable administrative agency in any other country in the Territory, or any successor entity thereto.
(ff)	"FHI Know How" means REDACTED

	(gg)		"FHI Patent Rights" or "FHI Patent" means REDACTED
	(hh)		"FHI Technology" means the FHI Patent Rights and the FHI Know-How.
	(ii)		"Field" means the use of the Product in an injectable or intravenous formulation for any and all indications, including the Indication.
	(jj)		"First Commercial Sale" means (a) with respect to a country in the Territory, the first sale for use, consumption or resale of a Product by Fujisawa, its sublicensees or its Affiliates after all Governmental Approval(s) have been granted by the Competent Authority(ies) of such country (excluding any sales for clinical trials or other non-commercial purposes) and (b) with respect to the Territory, the First Commercial Sale in any country within the Territory (as defined in subsection (a) above). A sale to a sublicensee or an Affiliate shall not constitute a First Commercial Sale unless the sublicensee or Affiliate is the end user of the Product.
	(kk)		"First Phase III Study" means the Phase III Study entitled "A Phase III Prospective, Randomized, Double-Blind, Placebo-Controlled Dose Ranging, Multi-Centred Tolerance and Efficacy Study of RSD1235 in Patients with Atrial Fibrillation" and "A Phase II/III Prospective, Randomized, Double-Blind, Placebo-Controlled Dose Ranging, Multi-Centred Tolerance and Efficacy Study of RSD1235 in Patients with Atrial Flutter" with the protocol # 1235-0703 and protocol # 1235-0703B, respectively.
	(ll)		"FTE" or full time equivalent, means a notional scientific, regulatory or clinical person employed by a Party and assigned to work on the Development with such time and effort to constitute the equivalent of one (1) person working on the Development on a full time basis consistent with normal business and scientific practice (e.g., at least thirty-seven and one half (37.5) hours per week of dedicated effort for at least forty eight (48) weeks per year).
	(mm)		"FTE Costs" means REDACTED
	(nn)		"Fujisawa Japan" means Fujisawa Pharmaceutical Co., Ltd. 4-7, Doshomachi 3-Chome, Chuo-Ku, Osaka 541-8514 Japan.
	(oo)		"Fujisawa Japan Know How" means REDACTED
	(pp)		"Fujisawa Japan Patent Rights" or "Fujisawa Japan Patent" means REDACTED
	(qq)		"Fujisawa Japan Technology" means the Fujisawa Japan Patent Rights and the Fujisawa Japan Know-How.
	(rr)		"Fujisawa Know How" means the FHI Know How and the Fujisawa Japan Know-How.
	(ss)		"Fujisawa Marks" means any and all trademarks selected by Fujisawa for the Product in the Field in the Territory and marked on the packaging or labelling of the Product and on no other product of Fujisawa, alone or accompanied by any logo or design, service marks, trade names and any foreign language equivalents in sound or meaning, whether registered or not, associated therewith.
	(tt)		"Fujisawa Patent Rights" means the FHI Patent Rights and the Fujisawa Japan Patent Rights.
	(uu)		"Fujisawa Technology" means the FHI Technology and the Fujisawa Japan Technology.
	(vv)		"GAAP" means United States generally accepted accounting principles, as consistently applied in the Territory.

	(ww)		"Good Clinical Practices" means good clinical practices as defined in 21 CFR §50 et seq., §56 et seq., and §312 et seq. in the United States or other comparable, applicable regulations in other countries in the Territory.
	(xx)		"Governmental Approval(s)" means any and all permits, licenses and authorizations, including Marketing Authorizations required by any Competent Authority as a prerequisite to the development, manufacturing, marketing and selling of the Product and RSD1235 in the Field in the Territory; excluding however import permits.
	(yy)		"HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder.
	(zz)		"Improvements" means any and all developments, derivative works, technology, enhancements, modifications, inventions or discoveries relating to the Product or RSD1235 arising after the Signing Date, whether patentable or not, and shall include developments, inventions or discoveries arising after the Signing Date intended to enhance the formulation, stability, safety or efficacy of the Product or RSD1235.
	(aaa)		"IMS" means IMS America Ltd. of Plymouth Meeting, Pennsylvania or any successor thereto.
	(bbb)		"Indication" means Atrial Fibrillation and Atrial Flutter.
	(ccc)		"IND(s)" means an investigational new drug application as defined in 21 C.F.R. Section 312 et seq for the FDA in the United States or equivalent application to the Competent Authorities of other countries in the Territory (including a CTA), to commence clinical testing of a drug in humans, as defined by the FDA in the United States, or other applicable Competent Authority, as the same may be amended, supplemented or replaced from time to time.
	(ddd)		"IND Transfer Date" has the meaning set out in Section 6.5(b).
	(eee)		"Intellectual Property" means Patent Rights, trade names, trademarks, copyright, trade secrets, trade dress, industrial and other designs, trade secrets, or Know-How, and other forms of intellectual property, all whether or not registered or protected, or capable of such registration or protection.
	(fff)		"JDMC" has the meaning as set out in Section 2.4(a).
	(ggg)		"Jointly Owned Patents" has the meaning set out in Section 7.3(a).
	(hhh)		"Know-How" means any and all know-how, trade secrets, inventions, data, processes, techniques, procedures, compositions, devices, methods, formulas, protocols, any and all pre-clinical and clinical data, and information, whether or not patentable, including any and all chemical, biochemical, toxicological, and scientific research information, whether in written, electronic, graphic or video form or any other form or format.
	(iii)		"knowledge" or "best of its knowledge" means, with respect to each Party, the actual knowledge of the senior officers of such Party, without the duty of inquiry. Specifically, with regard to Fujisawa, senior officers shall mean only the Senior Vice President of Finance, Chief Executive Officer, Senior Vice President of New Product Planning and Licensing, Executive Vice President and Vice President and General Counsel. Specifically with regard to Cardiome, senior officers shall mean only the Director of Intellectual Property, Chief Financial Officer, Vice President of Commercial Affairs, Chief Executive Officer, and Chief Scientific Officer and Executive Vice President Clinical Development and Regulatory Affairs.

(jjj)	"Labeled" or "Labeling" means any and all labels and other written, printed or graphic matter, including artwork, upon (a) the Product or any container utilized with the Product; or (b) packaging.
(kkk)	"manufacture(d)," or "manufacturing" means the storage, handling, assembly, production, processing, Labeling, testing, disposition, packaging and quality control of the Product and the raw materials and components therefor.
(lll)	"Marketing Authorization" means all necessary and appropriate regulatory approvals, including NDAs, Approval Letters, Pricing and Reimbursement Approvals, where applicable, to allow the Product to be marketed and sold in the Field in a particular country in the Territory.
(mmm)	"NDA" means a New Drug Application, and all amendments and supplements thereto, for regulatory approval by the FDA as defined in 21 CFR §314.50 et seq., as such act or Regulations may be amended, supplemented or replaced from time to time, to commence commercial sale of the Product in the United States and any other comparable term and act as applicable with regard to a new drug application and all amendments, supplements or replacements to such act or Regulations in any other country in the Territory.
(nnn)	"NDA Submission" means notification from the FDA indicating acceptance for the filing of the NDA in the United States for the Product for use in the Indication.
(ooo)	"Net Sales" means collectively, the gross amount invoiced by Fujisawa or its Affiliates or by sublicensees granted a sublicense pursuant to Section 3.7(b) for sales of the Product in the Field to a Third Party for use in the Territory (other than sales of Products by Sublicensees in Mexico), less the following as they pertain to the Product:
	(i)	any and all normal and customary trade and quantity discounts and customary allowances actually granted to purchasers of a Product for returns or credits, recalls (whether in the form of a credit or free replacement actually given in place of a returned or recalled Product), allowances to end users, which are reasonable and customary in accordance with generally accepted practices in the pharmaceutical industry (whether in the form of a credit or free Product), taxes (the legal incidence of which is on the purchaser and is shown separately on a Party's invoices) and transportation, insurance and postage charges (if billed on a Party's invoices as a separate item), and payments and rebates (including Medicaid rebates given pursuant to an agreement with U.S. Department of Health and Human Services and other rebates given pursuant to a government based rebate program, including local and state rebate programs), accrued, paid or deducted pursuant to agreements (including managed care agreements and group purchasing agreements) or Applicable Laws, chargebacks and reporting rebates paid to wholesalers and other distributors.
	(ii)	Excise and value added taxes applicable to sales of the Product which a Party has to pay or absorb on such sales.
	The Product shall be considered "sold" when billed out or invoiced.
	No deductions shall be made from Net Sales for items (i) and (ii) above except to the extent of amounts for such items actually granted or paid with respect to the Product; provided that a Party may reconcile such amounts within a given calendar quarter.

			No deductions shall be made from Net Sales for commissions paid to individuals whether they are with independent sales agencies or are regularly employed by a Party or its Affiliates or sublicensees and are on its or their payroll, or for the cost of collections.
			Components of Net Sales shall be determined in the ordinary course of business using the accrual method of accounting in accordance with GAAP, provided that a Party may reconcile such amounts within a given calendar quarter.
			In the event a Party transfers Product to a Third Party in a bona fide arm's length transaction, for consideration, in whole or in part, other than cash or to a Third Party in other than a bona fide arm's length transaction, the Net Sales price for such Product shall be deemed to be the standard invoice price then being invoiced by a Party in an arm's length transaction with similar customers, subject to the deductions set forth in subsection (i) above.
	(ppp)		"packaging" means any and all containers, cartons, shipping cases, inserts, package insert(s) or other similar material used in packaging
	(qqq)		"Patent Rights" means any and all rights under patents and patent applications (including Jointly Owned Patents), and any and all patents issuing therefrom (including utility, model, process, formulation and design patents and certificates of invention), together with any and all substitutions, extensions (including supplemental protection certificates), registrations, confirmations, reissues, divisionals, continuations, continuations-in-part, re-examinations, renewals, and foreign counterparts of the foregoing and all supplements and modifications thereto.
	(rrr)		"Phase III Studies" shall mean collectively the First Phase III Study, the Second Phase III Study and the Third Phase III Study.
	(sss)		"Phase IV Commitment" means, as applicable, any study or program, other than an SAL Study or Post Marketing Commitment, designed to fulfill any post-approval commitments required by the FDA in the United States or by any other Competent Authority in any other country in the Territory as a condition to receiving an Approval Letter for the Product.
	(ttt)		"Post Marketing Commitments" mean any post-approval commitments which are not SAL Studies or Phase IV Commitments.
	(uuu)		"Pricing and Reimbursement Approvals" means any pricing and reimbursement approvals which must be obtained before placing the Product on the market in the Field in any country in the Territory in which such approval is required.
	(vvv)		"Prime Rate of Interest" means the prime rate of interest published from time to time in The Wall Street Journal as the prime rate; provided, however that if The Wall Street Journal does not publish the Prime Rate of Interest, then the term "Prime Rate of Interest" shall mean the rate of interest publicly announced by Bank of America, N.A., as its prime rate, base rate, reference rate or the equivalent of such rate, whether or not such bank makes loans to customers at, above, or below said rate.
	(www)		"Product" means finished pharmaceutical preparations for human use in all injectable or intravenous dosage forms containing RSD1235 as an active ingredient.
	(xxx)		"Producer Price Index" or "PPI" means the Producer Price Index for the Pharmaceutical Industry, as published by the United States Bureau of Labor Statistics, or if such index is no longer published, then the index most comparable thereto.

	(yyy)		"raw materials and components" means any and all raw materials and components (such as bulk drug, chemicals, containers, closures, packaging, Labeling, etc.) needed to manufacture clinical or commercial supplies of the Product.
	(zzz)		"Regulations" means regulations, statutes, rules, guidelines and procedures promulgated by the FDA or other Competent Authority pursuant to the Act or other Applicable Laws, including current Good Clinical Practices, current Good Manufacturing Practices, as well as those regulations currently contained in Title 21 of the CFR.
	(aaaa)		"Representatives", in respect of a Party, means the Party, its Affiliates, licensees, sublicensees, and their respective employees, agents, consultants, Subcontractors, and other representatives.
	(bbbb)		"Royalty Term" means REDACTED
	(cccc)		"RSD1235" means the chemical structure described in Exhibit 1.1(cccc).
	(dddd)		"SAL Study" means a Phase IV study not required by the FDA or other Competent Authority in order to obtain any Government Approval. Such SAL Studies shall be conducted by (or on behalf of) Fujisawa's Scientific Affairs Liaison group.
	(eeee)		"Second Phase III Study" means the Phase III Study, summarized in Exhibit 1.1(bb), entitled "A Phase III Prospective, Randomized, Double-blind, Placebo-controlled, Multi-Centred Tolerance and Efficacy Study of RSD1235 in Post-Cardiac Surgery Patients with Atrial Arrhythmia."
	(ffff)		"Subcontractors" means Third Parties engaged to perform obligations or assist in the enjoyment of the rights of the Parties as permitted by this Agreement.
	(gggg)		"Sublicense" means a sublicense granted by Fujisawa pursuant to Section 3.7(b) to promote, market, distribute, offer for sale, or sell Products in Mexico.
	(hhhh)		"Sublicensee" means a Third Party to whom Fujisawa or its Affiliates has granted a Sublicense.
	(iiii)		"Sublicense Revenue" means the all amounts received by Fujisawa or its Affiliates from a Sublicensee under a Sublicense, including all amounts received for sales of Product to the Sublicensee.
	(jjjj)		"Successful Completion", as used in Section 4.2(a), means the JDMC's decision to continue Development of the Product in the United States within ninety (90) days of receiving the Executive Summary of the First Phase III Study.
	(kkkk)		"Term" has the meaning set out in Section 13.1.
	(llll)		"Territory" means the United States of America and its territories and possessions, Canada and Mexico.
	(mmmm)		"Third Party" means any entity, other than Cardiome or Fujisawa or Affiliate of Cardiome or Fujisawa.
	(nnnn)		"Third Phase III Study" means the Phase III Study, summarized in Exhibit 1.1(bb), entitled "Evaluation of the safety and efficacy of RSD1235 IV against placebo and/or standard drug therapies to convert patients with atrial fibrillation or atrial flutter to normal sinus rhythm."
	(oooo)		"U.S. PTO" means the Unites States Patent and Trademark Office or any successor entity thereto.

(pppp)

"Valid Claim" means a claim of an issued and unexpired patent that, with respect to a specific country in the Territory: (i) has not been allowed to lapse, or has not been abandoned, withdrawn, revoked, declared unenforceable or unpatentable, or held invalid by a court or other governmental agency of competent jurisdiction that is unappealable or unappealed within the time allowed for appeal, and (ii) has not been admitted to be rendered invalid or unenforceable through reissue, disclaimer or otherwise.

ARTICLE 2 PRODUCT DEVELOPMENT

2.1 Objectives

Pursuant to the Development Plan and under the oversight of the JDMC, the Parties, as described below and in the Development Plan, shall conduct all activities necessary to obtain Marketing Authorizations for the Product for the Indication in the Territory. Specifically, with regard to the United States and Canada, such efforts will begin promptly upon execution of this Agreement. With respect to Mexico and any territories and possessions of the United States, such efforts may take place in accordance with Section 2.3(l).

2.2 Collaboration Guidelines; Amendments to the Development Plan

The Development Plan may only be modified by the JDMC. The Development Plan and any modifications thereto, as each may be approved by the JDMC in accordance with this Section 2.2, shall be incorporated into this Agreement as though fully set forth herein and without requiring formal or additional amendment to this Agreement.

2.3 Development

(a)

The Parties shall have responsibility for the Development as set forth and otherwise in accordance with the Development Plan for the Product and RSD1235 for use in the Indication in the Field in the Territory including: process development, safety and toxicology studies, the Phase III Studies and any Phase IV Commitments and the clinical supplies for Development, but excluding both SAL Studies and Post Marketing Commitments. All Development Costs associated with the Development of Product and RSD1235 for the Indication in the Territory shall be divided as follows: 75% to Fujisawa and 25% to Cardiome under the oversight and based on the timeline and budget as approved by the JDMC and otherwise in accordance with the Development Plan. The Parties acknowledge that, subject to applicable Regulations, the clinical studies for the Development can be conducted in any country in the world.

(b)

Specifically, with respect to each Party's respective Development activities under this Agreement, the Parties shall, under the oversight of the JDMC:

(i): use Commercially Reasonable Efforts to balance the legitimate interests and concerns of the Parties and to realize the economic potential of the Product;
(ii): maintain laboratories, offices or other facilities and sufficient, capable and qualified personnel, reasonably necessary to carry out the activities to be performed by the Parties pursuant to the Development;
(iii): use Commercially Reasonable Efforts to conduct research and development activities necessary to develop the Product in accordance with the Development Plan and otherwise in accordance with the terms and conditions of this Agreement;
(iv): use Commercially Reasonable Efforts to ensure the adequate supply of (A) RSD1235 drug substance necessary for all pre-clinical studies and (B) the Product necessary for all clinical studies described in the Development Plan;

(v): use Commercially Reasonable Efforts to complete the Development in a timely manner in accordance with the timelines and other terms and conditions of this Agreement and the Development Plan;
(vi): maintain Books and Records in connection with the Development and the Development Plan, in accordance with Applicable Laws and otherwise in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes, including to obtain Governmental Approvals, and shall properly reflect all work done and results achieved in the performance of the Development. The Parties shall keep such Books and Records as necessary to document the inclusion of the out-of-pocket and internal costs within the Development Costs including time sheets, invoices, FTE Costs, etc. Pursuant to Section 11.5, a Party has the right to inspect such Books and Records of the other Party upon request and during normal business hours; and
(vii): cooperate in the preparation of an Executive Summary as soon as practical after the completion of the First Phase III Study.

(c)

In addition to the requirements of Section 2.3(b), Cardiome, under the oversight of the JDMC, shall, in accordance with the Development Plan and the terms and conditions of this Agreement:

(i): have primary responsibility to conduct the First Phase III Study and the Second Phase III Study and, if the JDMC determines that Cardiome shall perform the Third Phase III Study, then the Third Phase III Study as well; and
(ii): use Commercially Reasonable Efforts to identify, select, qualify, and enter into definitive agreement(s) with Third Party(ies) to manufacture pre-clinical and clinical supplies of Product for the Indication in the Field in the Territory, and supply of raw materials and components for such supplies.

(d)

In addition to the requirements of Section 2.3(b), Fujisawa, under the oversight of the JDMC, shall, in accordance with the Development Plan and the terms and conditions of this Agreement:

(i): except for the First Phase III Study, the Second Phase III Study, and the Third Phase III Study, if the JDMC determines that Cardiome shall perform such Phase III Study, have primary responsibility for all Development of the Product for the Indication in the Field in the Territory;
(ii): use Commercially Reasonable Efforts to secure the Marketing Authorizations;
(iii): use Commercially Reasonable Efforts to conduct process development, technical transfer and manufacturing scale up activities and other and scale-up work to develop a commercial process for the manufacture and supply of the Product for use in the Field in the Territory, including related analytical and stability work (or identify, select, qualify, and enter into definitive agreement(s) with Third Party(ies) therefor); and
(iv): from and after the IND Transfer Date, Fujisawa shall have primary regulatory responsibility for the Indication in the Field in the Territory.

(e)

The Development Costs related to manufacturing the validation batches of a Product, which batches are manufactured for the purpose of obtaining the Approval Letter for a Product in the Field in the United States shall be divided as follows: REDACTED

(f)

Subject to direction from the JDMC, each Party will commit the number of FTEs required to perform the Development as contemplated by this Agreement.

(g): Each Party shall pay the other Party for its respective proportionate share of Development Costs REDACTED
(h): Fujisawa acknowledges that: (i) on the Signing Date, Cardiome is using certain Representatives to perform certain obligations of Cardiome hereunder; and (ii) during the term of this Agreement, Cardiome shall be permitted to engage certain Representatives to perform certain obligations of Cardiome hereunder; provided, however, the Parties agree that any such Representative engaged after the Effective Date shall be engaged only subject to the prior written consent of the JDMC. Further, in respect of all Representatives engaged after the Effective Date, Cardiome shall cause each such Representative to comply with and be bound by those terms and conditions of Cardiome under this Agreement which by their terms are intended to obligate Cardiome or its Representative(s) when providing services hereunder to the extent that such terms apply to such Representative, including Sections 2.3, Article 3, Article 6, Article 7, Article 8, Article 9, Article 10, and Article 12. With respect to those Representatives engaged by Cardiome prior to the Effective Date, Cardiome shall use its Commercially Reasonable Efforts to cause each such Representative to comply with and be bound by those terms and conditions of Cardiome under this Agreement which by their terms are intended to obligate Cardiome or its Representative(s) when providing services hereunder to the extent that such terms apply to such Representative, including Sections 2.3, Article 3, Article 6, Article 7, Article 8, Article 9, Article 10, and Article 12. Notwithstanding the foregoing, Cardiome shall remain primarily responsible to Fujisawa for complying with such applicable terms and conditions. Cardiome shall further use Commercially Reasonable Efforts to ensure that all Cardiome Representatives that provide any services to Cardiome in connection with the Development or otherwise participate in the Development execute appropriate agreements with Cardiome, in accordance with Applicable Law, that will accord to Cardiome the right to grant to Fujisawa the license rights set forth in Section 3.1 to all Improvements arising in connection with such services.
(i): Cardiome acknowledges that during the term of this Agreement, Fujisawa shall be permitted to engage certain Representatives to perform certain obligations and enjoy certain rights of Fujisawa hereunder; provided, however, the Parties agree that any such Representative engaged after the Effective Date shall be engaged only subject to the prior written consent of the JDMC. Further, in respect of all Representatives engaged after the Effective Date, Fujisawa shall cause each such Representative to comply with and be bound by those terms and conditions of Fujisawa under this Agreement which by their terms are intended to obligate Fujisawa or its Representative(s) when providing services or enjoying rights hereunder to the extent that such terms apply to such Representative, including Sections 2.3, Article 3, Article 6, Article 7, Article 8, Article 9, Article 10, and Article 12. Notwithstanding the foregoing, Fujisawa shall remain primarily responsible to Cardiome for complying with such applicable terms and conditions. Fujisawa shall further use Commercially Reasonable Efforts to ensure that all Fujisawa Representatives that provide any services to Fujisawa in connection with the Development or otherwise participate in the Development execute appropriate agreements with Fujisawa, in accordance with Applicable Law, that will accord to Fujisawa the right to grant to Cardiome the license rights set forth in Section 3.4 to all Improvements arising in connection with such services (to the extent such Improvements would otherwise be licensed under Section 3.4).
(j): Fujisawa shall be permitted to subcontract obligations of Fujisawa under this Article 2 to Fujisawa Affiliates without the prior consent of the JDMC, provided Fujisawa remains primarily responsible to Cardiome for complying with the terms and conditions herein.

(k): Fujisawa shall have the right, which shall be exercised in good faith and in accordance with prudent scientific judgment and under the oversight of the JDMC, during the Development to substitute the Current Formulation with another formulation of RSD1235. REDACTED
(l): REDACTED
(m): Other than with respect to the JDMC's continued oversight and coordination of any Phase IV Commitment, Development for a Product in the Field for each particular country in the Territory will continue until the issuance of an Approval Letter for a Product in the Field in such country in the Territory,

2.4 Joint Development Management Committee

(a)

Within ten (10) days after the Effective Date, the Parties will form a Joint Development Management Committee ("JDMC"), which shall coordinate and direct the Development under the Development Plan and otherwise under the terms and conditions of this Agreement. Any changes to any Development Plan shall be approved in advance by the JDMC. The JDMC may delegate certain responsibilities to the Parties. Other than the oversight and coordination of any Phase IV Commitment, the JDMC shall no longer have any responsibilities with respect to a particular country in the Territory upon the issuance of an Approval Letter for a Product in the Field in such country.

(b)

The JDMC shall be responsible for coordinating the Parties' respective duties and efforts with regard to:

(i): developing and overseeing the Development, including responsibility for all regulatory strategies involving Marketing Authorizations, meetings with the FDA and other Competent Authorities, as well as shelf-life and other manufacturing issues arising prior to an Approval Letter being issued for a Product in the Field in each country in the Territory;
(ii): making all decisions related to development, clinical trials and budgets in connection with the Development and the Development Plans, including determining the responsibilities of each Party in the performance of the Third Phase III Study;
(iii): managing the Development conducted under the Development Plans;
(iv): the Parties' respective obligations under Sections 2.3(a), 2.3(b), 2.3(c) and 2.3(d);
(v): managing any Phase IV Commitment;
(vi): coordinating the Parties' respective responsibilities regarding regulatory matters; and
(vii): monitoring the progress and results of such work, all based on the principles of prompt, diligent and commercially reasonable development of Products consistent with generally accepted practices in the pharmaceutical industry.

(c)

The JDMC shall not have any responsibilities in connection with:

(i): in respect of each country in the Territory, any clinical study after an Approval Letter is issued for a Product in the Field in such country, including any SAL Studies and Post Marketing Commitments;
(ii): any commercialization or marketing activities in connection with a Product;
(iii): in respect of each country in the Territory, any regulatory responsibility with respect to and relative to a Product in the Field in the Territory from and after an Approval Letter is issued for a Product in the Field in such country; or

(iv): in respect of each country in the Territory, any manufacturing of commercial supplies of Product after an Approval Letter is issued for a Product in the Field in such country.

Any such post Approval Letter clinical study(ies), commercialization, manufacturing, marketing and regulatory activities, shall be the sole right and responsibility of Fujisawa.

(d): The JDMC shall be comprised of two (2) voting representatives of each of Cardiome and Fujisawa. Each Party may change its representatives on the JDMC at any time upon written notice to the other Party. Fujisawa shall select one (1) member of the JDMC to act as the chairperson of the JDMC and Cardiome shall select one member of the JDMC to act as the secretary of the JDMC.
(e): REDACTED
(f): REDACTED
(g): REDACTED
(h): REDACTED
(i): REDACTED

2.5 No Obligation to Develop or Commercialize other Indications

Fujisawa shall have full freedom and flexibility in its decisions concerning the development and commercialization of all other indications in the Field in the Territory other than the Indication, including the decision of whether or not to obtain Marketing Approvals therefor. Fujisawa shall have no obligations, express or implied, to pursue such other indications. In the event Fujisawa determines to pursue any such other indications, then Fujisawa, at its cost and expense shall develop and commercialize any such other indications and shall have sole right and decision making authority with respect thereto.

2.6 Replacement of Lead Compound

(a): The Parties acknowledge and agree that RSD1235 is the lead development compound in the Collaboration. In the event of the failure of RSD1235 (as determined by the JDMC) prior to First Commercial Sale, Fujisawa may replace RSD1235 with a Backup Compound within 180 days of such failure by providing Cardiome with written notice thereof, which notice shall include the reason(s) for making any such replacement and the identity of the particular Backup Compound replacing RSD1235. If Fujisawa delivers such notice to Cardiome, Fujisawa shall have license rights with respect to such Backup Compound, and the right to proceed with the development and commercialization thereof, under the terms and conditions set out in this Agreement, as if such Backup Compound were RSD1235, and the JDMC will then promptly and expeditiously prepare a Development Plan for such Backup Compound, which will include an allocation of responsibilities for the Parties. Subject to Section 2.6(b), Fujisawa shall be responsible for the Development Costs in connection with any Backup Compound. The Parties acknowledge and agree that Fujisawa shall have no responsibility to conduct in parallel development activities with respect to any Backup Compound. This Section shall apply to each of the Backup Compounds mutatis mutandis. Cardiome shall be prohibited from granting any rights with respect to any Backup Compounds during the Term that would affect Fujisawa's ability to exclusively develop and commercialize (under the terms herein) any Backup Compound upon Fujisawa's selection thereof.
(b): In the event that any milestones or royalties are payable by Fujisawa to Cardiome in respect of a Backup Compound that has replaced RSD1235, Fujisawa may recover from Cardiome up to 25% of the Development Costs for such Backup Compound solely as set out in this Section 2.6(b). Cardiome's sole obligation in respect of such Development Costs shall be that

Fujisawa may credit 25% of such Development Costs against any such royalties and milestone payments in accordance with Section 4.5.

2.7 Alternative Synthetic Route

REDACTED

2.8 Changes to Phase IIB Study

REDACTED

2.9 Post Development Studies and Commitments

Fujisawa shall use Commercially Reasonable Efforts to (or identify, select, qualify, and enter into definitive agreement(s) with Third Party(ies) to) conduct any SAL Study or any other Post Marketing Commitment.

ARTICLE 3 LICENSE

3.1 License Terms

Cardiome hereby grants to Fujisawa an exclusive (even as to Cardiome), royalty-bearing license under the Cardiome Technology to:

(a): develop and manufacture Products for use in the Territory in the Field (and have Products made by Fujisawa's Representatives on Fujisawa's behalf); and
(b): use, promote, market, distribute, offer for sale, sell, export and import Products in the Territory for use in the Field (and to have Fujisawa's Representatives market and promote Products in the Territory for use in the Field on Fujisawa's behalf);

with the right to sublicense (as provided in Section 3.7 below), and assign (as provided Section 16.2 below) the foregoing.

3.2 Ownership of Intellectual Property

(a): Fujisawa acknowledges that it shall have no right, title or interest in or to the Cardiome Technology except as set forth in this Agreement. Nothing in this Agreement shall be construed to grant Fujisawa any rights or license to any Intellectual Property of Cardiome other than as expressly set forth in this Agreement.
(b): Cardiome acknowledges that it shall have no right, title or interest in or to the Fujisawa Technology except as set forth in this Agreement. Nothing in this Agreement shall be construed to grant Cardiome any rights or license to any Intellectual Property of Fujisawa other than as expressly set forth in this Agreement.

3.3 Ownership of Collaboration Data

Notwithstanding Sections 3.2(a) and 3.2(b), Fujisawa shall own all Collaboration Data. Accordingly, Cardiome hereby assigns and agrees to assign to Fujisawa all right, title and interest, including rights to Intellectual Property in and to such data, and Cardiome shall execute all documents as may be reasonably necessary to accomplish same. Collaboration Data shall be deemed Fujisawa Confidential Information and shall be subject to the terms set forth in Article 8.

3.4 License to Cardiome

Fujisawa hereby grants to Cardiome:

(a)

an exclusive (even as to Fujisawa and its Affiliates), royalty-free and perpetual license under the FHI Technology, to:

(i): develop and manufacture pharmaceutical products containing RSD1235 or the Backup Compounds as an active ingredient (and to have such products made by Cardiome's Representatives on Cardiome's behalf); and
(ii): use, promote, market, distribute, offer for sale, sell, export and import such products outside the Territory and inside the Territory but outside the Field (and to have Cardiome Representatives market and promote such products outside the Territory and inside the Territory but outside the Field on Cardiome's behalf); and

(b)

a non-exclusive, royalty-free and perpetual license under the Fujisawa Japan Technology, to:

(i): develop and manufacture pharmaceutical products containing RSD1235 or the Backup Compounds as an active ingredient (and to have such products made by Cardiome's Representatives on Cardiome's behalf); and
(ii): use, promote, market, distribute, offer for sale, sell, export and import such products outside the Territory and inside the Territory but outside the Field (and to have Cardiome Representatives market and promote such products outside the Territory and inside the Territory but outside the Field on Cardiome's behalf);

with the right to sublicense (as provided in Section 3.7 below), and assign (as provided Section 16.2 below) the foregoing.

3.5 Notice of Collaboration Data and Improvements

Each Party shall give the other Party notice and a copy of any Improvement or Collaboration Data licensed to the other Party hereunder periodically, but no less than semi-annually and provide to such other Party copies of any and all documentation in connection with same, including any patents and patent applications.

3.6 Cardiome's Reservation of Rights

Except as otherwise licensed to Fujisawa hereunder and subject to Section 11.1, Cardiome may exploit the Cardiome Technology for any purpose, including to use, develop, market, promote, distribute, offer for sale, sell, manufacture, export and import the Product:

(a): outside the Territory; and
(b): inside the Territory but outside the Field.

3.7 Sublicenses

(a): Each Party shall have the right to sublicense rights granted in Sections 3.1 and 3.4 respectively to its Affiliates. Such Party shall cause its Affiliates to comply with and be bound by those terms and conditions of such Party under this Agreement that by their terms are intended to obligate such Party or its Affiliates commercializing the Product (or other RSD1235 products in the case of Cardiome) as permitted hereunder, including (as applicable to each Party) Sections 3.2, 3.8, Article 5, Article 6, Article 7, Article 8, Article 9, Article 10, Article 11 and Article 12. Notwithstanding the foregoing, such Party shall remain primarily responsible for complying with such applicable terms and conditions. A breach by any such Affiliate of any such obligation shall constitute a breach by such Party of this Agreement and shall entitle the

other Party to exercise its rights hereunder, in addition to any other rights and remedies to which such other Party may be entitled.

(b): Fujisawa shall have the right to sublicense rights granted in Sections 3.1 only to Third Parties in Mexico without the prior consent of Cardiome, and to Third Parties in countries in the Territory other than Mexico with Cardiome's approval, such approval not to be unreasonably withheld or delayed, in each case subject to the following: Fujisawa shall give Cardiome prompt notice of the execution of any sublicense. Within thirty (30) calendar days after execution of a sublicensing agreement, Fujisawa shall provide Cardiome with a copy thereof (provided that, except in respect of a Sublicense, Fujisawa shall be permitted to redact the financial terms of such agreement). All sublicenses granted by Fujisawa shall be personal to the sublicensee and shall not be further sublicensable or assignable without Fujisawa's prior written consent, which consent shall not be unreasonably withheld. Such sublicenses shall terminate upon the termination of Fujisawa's rights granted herein. Each sublicense shall contain covenants by the sublicensee for the benefit of Cardiome and Fujisawa for such sublicensee to observe and perform materially the same terms and conditions as those set out for Fujisawa in this Agreement to the extent applicable. In the event Fujisawa grants sublicenses to others to sell Product outside of Mexico, such sublicenses shall include an obligation for the sublicensee to account for and report its Net Sales on the same basis as if such sales were Net Sales by Fujisawa, and Cardiome shall receive royalties from Fujisawa in the same amounts as if the Net Sales of the sublicensee were Net Sales of Fujisawa. In the event that Fujisawa becomes aware of a material breach of any such sublicense by the sublicensee, Fujisawa shall promptly notify Cardiome of the particulars of same and use its Commercially Reasonable Efforts to enforce the terms of such sublicense.
(c): Cardiome shall have the right to sublicense rights granted in Sections 3.4 to Third Parties with Fujisawa's approval, such approval not to be unreasonably withheld or delayed, in each case subject to the following: Cardiome shall give Fujisawa prompt notice of the execution of any sublicense. Within thirty (30) calendar days after execution of a sublicensing agreement, Cardiome shall provide Fujisawa with a copy thereof (provided that Cardiome shall be permitted to redact the financial terms of such agreement). Such sublicenses shall terminate upon the termination of Cardiome's rights granted herein. Each sublicense shall contain covenants by the sublicensee for the benefit of Fujisawa and Cardiome for such sublicensee to observe and perform materially the same terms and conditions as those set out for Cardiome in this Agreement to the extent applicable. In the event that Cardiome becomes aware of a material breach of any such sublicense by the sublicensee, Cardiome shall promptly notify Fujisawa of the particulars of same and use its Commercially Reasonable Efforts to enforce the terms of such sublicense.

3.8 Certain Improvements Post Development

(a): When either Party enters into any agreement or other arrangement with a Third Party or Representative that may result in the development, creation or acquisition of Improvements, such Party will use Commercially Reasonable Efforts not to limit or otherwise restrict its ability to grant a license or sublicense to such Improvements to the extent provided for herein without violating the terms of any such agreement or other arrangement.
(b): If either Party Controls any Improvements to which it is obligated to grant a license pursuant to the terms of this Agreement, where the grant of a license or sublicense to same as provided for herein requires the payment of material licensing fees or royalties to any Third Party or Representative, then such Party shall in a timely fashion offer to the other Party in writing a license or sublicense to the rights to such Improvements. Within a reasonable period of time (but not to exceed sixty (60) days (or such longer time as mutually agreed to by the Parties in

writing) after receipt of an offering Party's offer), the other Party shall either accept the license or sublicense of same and pay to the offering Party the amount of such material licensing fees or royalties, or advise the offering Party that it does not wish to obtain such rights.

(c)

In the event that:

(i): a Party, using Commercially Reasonable Efforts, fails to obtain the ability to grant a license or sublicense as provided for in Section 3.8(a) without violating the terms of any such agreement or other arrangement, then the rights to any such Improvements shall be excluded from the applicable grant(s) of license to the other Party set out in this Agreement; or
(ii): either Party advises other Party that it does not wish to obtain the rights referred to in Section 3.8(b), or if such Party fails to notify the other Party within a reasonable period of time (not to exceed sixty (60) days (or agreed upon longer period) as noted above) that it accepts such license or sublicense, then such rights shall be excluded from the applicable grant(s) of license to the other Party set out in this Agreement; or
(iii): either Party advises the other Party that such Party does wish to obtain the rights referred to in Section 3.8(b) within a reasonable period of time (not to exceed sixty (60) days (or agreed upon longer period) as noted above), then such rights shall be included in the applicable grant(s) of license to the other Party set out in this Agreement.

ARTICLE 4 PAYMENTS

4.1 Initial Fees and Consideration

(a): Fujisawa shall pay to Cardiome a one-time, non-refundable payment of Ten Million Dollars ($10,000,000) on the Effective Date.
(b): Fujisawa and Cardiome shall enter into the Stock Purchase Agreement as of the Effective Date, the form of which is attached hereto as Exhibit 4.1(b).

4.2 Product Milestone Payments

Fujisawa shall pay to Cardiome, as licensing fees, the following milestone payments:

REDACTED

4.3 Royalties

During the Royalty Term, Fujisawa shall owe and pay to Cardiome a royalty of Net Sales and Sublicense Revenue during each calendar year in the following, incremental manner:

REDACTED

4.4 Backup Compounds

If development of RSD1235 is replaced with a Backup Compound in accordance with Section 2.6 prior to the occurrence of one or more milestone(s) described in Section 4.2, Fujisawa will be obligated to pay such milestone payments only upon the occurrence of such milestones in respect of the Backup Compound replacing RSD1235. Subject to Section 2.6(b), Fujisawa will make the milestone payment for that and each subsequent milestone achieved by the Backup Compound and shall pay the royalties respecting such Backup Compound in accordance with the terms and conditions of this Agreement as if such Backup Compound were RSD1235.

4.5 Reduction in (and Deductions From) Royalties and Milestones

(a): REDACTED
(b): The maximum amount of any such deduction(s) arising pursuant to such Sections from any royalty and milestone payments due Cardiome hereunder in a given quarter shall be REDACTED
(c): REDACTED
(d): REDACTED
(e): REDACTED
(f): Notwithstanding the rest of this Section 4.5, Fujisawa may set off against any royalties or milestones due to Cardiome under this Agreement any Losses unrecovered by Fujisawa due to Cardiome's failure to pay amounts as required under Section 10.2 (Indemnity of Disclosed Matters).
(g): Subject to Section 4.5(f), and except as otherwise permitted in this Section 4.5, Fujisawa shall pay Cardiome the payments due Cardiome under this Agreement without withholding, deduction, offset or setoff.
(h): After the expiration of the Royalty Term for a Product with respect to any relevant country, Fujisawa shall have no further obligation to pay royalties to Cardiome in such country for such Product.

4.6 Payment Terms

(a): Within forty-five (45) days of the end of each calendar quarter following the First Commercial Sale, Fujisawa shall provide Cardiome with a written report, in a form to be agreed between the Parties, acting reasonably, accompanied by full payment of all royalties accrued and owing to Cardiome during such quarter, of: (i) Net Sales and Sublicense Revenue during such quarter; (ii) withholding taxes, if any, required by Applicable Laws to be deducted with respect to such sales; (iii) the dates of the First Commercial Sale of the Product in any country in the Territory during the reporting period; (iv) the exchange rates, if any used to determine the amount of United States dollars; and (v) the calculation of Sublicense Revenue, Net Sales and the royalties owed (collectively, the "Royalty Statement"). The Royalty Statement shall be in reasonably specific detail, on a country-by-country basis, and segmented according to sales by Fujisawa, each Affiliate and each sublicensee. If Fujisawa intends to disclose publicly any information regarding Sublicense Revenue or Net Sales, Fujisawa will provide to Cardiome the written report set out in this Section 4.6(a) including such Sublicense Revenue or Net Sales (whichever is applicable) at least five (5) days prior to such public disclosure.
(b): All payments hereunder shall be payable in United States dollars and shall be made net of any withholding tax and without deduction, except as expressly set forth herein. With respect to each month in each calendar quarter, whenever conversion of payments from any foreign currency shall be required, such conversion shall be made at the rate of exchange reported in The Wall Street Journal on the last business day of such month within the applicable calendar quarter. All payments owed under this Agreement shall be made by wire transfer to a bank account designated in writing by the receiving Party.
(c): In the event that any payments due hereunder are not made when due, each such payment shall accrue interest from 10 days after the date due until paid at the Prime Rate of Interest plus 3%. The payment of such interest shall not limit or otherwise be deemed to be in

satisfaction of a Party exercising any other rights it may have under this Agreement arising from the other Party's failure to make such payment when due.

(d): Each Party will comply with all applicable tax filing requirements (e.g., W8-BEN filings, etc.) in order to maintain the benefits of the Tax Treaty between the United States and Canada. In the event that Applicable Law requires the withholding of taxes of any type with respect to any royalty, indemnification or other amounts due and payable under this Agreement by either Party, both Parties shall use commercially reasonable efforts in claiming exemption from such withholdings under any double taxation or similar agreement or treaty from time to time in force. In the event a Party is so required to withhold, such paying Party shall pay the relevant taxation authority the amount necessary to comply with the Applicable Law, and the amount payable to payee Party hereunder shall be increased as may be necessary so that after the paying Party makes all required deductions or withholdings, the payee Party shall receive an amount equal to the amount it would have received had no such deductions or withholdings been made (i.e. "grossed-up"). However, in the event that, at the time of any such payment by the paying Party or at any time thereafter, the payee Party utilizes any tax credits that resulted from the paying Party's withholding deposits, the payee Party shall remit all such amounts to the paying Party immediately upon the payee Party's utilization thereof. The payee Party shall use commercially reasonable efforts to preserve and utilize as a tax credit any amounts so paid by the paying Party as soon as possible in a manner consistent with the payee Party's other tax attributes, taking into consideration expiry of such tax attributes and exercising all elections available to the payee Party under the Applicable Law (including capitalization of qualified research and development expense and capitalization of expiring foreign tax credits into future net operating loss carryforwards). Notwithstanding the foregoing, in the event the payee Party changes its form of corporate organization, and such change causes the payee Party to lose its ability to enjoy the protection of existing Applicable Law relative to the withholding of taxes, the paying Party shall have the right to withhold from any royalty or payment due and payable to the payee Party under this Agreement any taxes required to be withheld under Applicable laws (i.e. not "grossed-up").
(e): Notwithstanding any other provision of this Agreement, if either Party is prevented from paying any payments by virtue of the Applicable Laws of the country from which the payment is to be made, then such payment may be paid by depositing funds in the currency in which it accrued to the Receiving Party's account in a bank acceptable to the Receiving Party in the country whose currency is involved.
(f): In the event Fujisawa, its Affiliate(s) or sublicensees (other than Sublicensees) receive any non-monetary consideration in connection with the sale of the Product, the Net Sales of such Product shall be calculated based on the fair market value of such other consideration. Fujisawa shall disclose the terms of such arrangement to Cardiome and the Parties shall endeavour in good faith to agree on such fair market value as promptly as possible.

ARTICLE 5 COMMERCIALIZATION OF THE PRODUCT

5.1 Marketing Efforts

(a): Fujisawa shall: (i) have the exclusive right, at its cost, to promote, market, distribute, offer for sale, sell, import and export the Product in the Field in the Territory; (ii) be solely responsible for using Commercially Reasonable Efforts, for the promotion, marketing, distribution, offering for sale, selling, importing and exporting the Product in the Field in the Territory; and (iii) have the sole responsibility and decision making authority using Commercially Reasonable Efforts with regard to any and all aspects of the promotion, marketing, distribution, offering for sale, selling, importing and exporting of the Product in the Field in the Territory, including

all Labeling, marketing plans, marketing strategy, pricing decisions, and the nature and type of advertising and marketing materials, including all Promotional Materials (as defined in Section 6.4(a)).

(b): Subject to the terms of this Agreement, including Sections 2.3(l) and 2.5, Fujisawa agrees to use Commercially Reasonable Efforts to manufacture, promote, market, distribute, offer for sale, sell, and import and export the Product in the Indication in the Field in the United States. Without limiting the generality of Section 2.5, Fujisawa shall have no obligation to manufacture, promote, market, distribute, offer for sale, sell, or import and export the Product for any other indication.
(c): Fujisawa shall promptly advise Cardiome of any issues of which Fujisawa becomes aware that materially and adversely affect Fujisawa's ability to develop, manufacture, promote, market, distribute, offer for sale, sell, export or import the Product in the Territory. In such event, senior executives of Fujisawa and Cardiome shall meet and in good faith discuss what actions should be taken in light of such issues. If the Parties cannot resolve any such issue, either Party may invoke the dispute resolution procedure in Section 14.1.
(d): Fujisawa shall provide Cardiome prompt notice of the following events during the Term: (i) the First Commercial Sale of a Product in the Field in each country in the Territory, if and when such occurrence takes place; (ii) when the milestones as provided in Section 4.2 have occurred; and (iii) any written publications generated from a SAL Study(ies) or Post Marketing Commitment(s) prior to publication, on the terms set out in Section 8.2.

5.2 Consequence of No Sales

Fujisawa shall be deemed to have breached its obligation to use Commercially Reasonable Efforts in conducting marketing of a Product in any country in the Territory if, for a continuous period of REDACTED at any time following First Commercial Sale of the Product in any such country, no sales of the Product are made by Fujisawa or its Affiliates or sublicensees in the Field in the ordinary course of business in such country, unless Fujisawa is prevented, restricted, interfered with or delayed in making such sales by reason of: (i) Force Majeure (as defined in Section 0); or (ii) due to any breach of this Agreement by Cardiome. In such event, this Agreement shall terminate with respect to any such country. No termination pursuant to this Section shall terminate this Agreement with respect to any other country in the Territory.

5.3 Marketing Update

(a): Following receipt of an Approval Letter from the FDA for the Product or an equivalent letter from a Competent Authority, Fujisawa shall provide Cardiome on a semi-annual basis during the Term (every February 1 and August 1) with reports in reasonable detail describing Fujisawa's material marketing efforts with respect to the Product in the Territory during the immediately preceding six (6) month period and all existing marketing plans for the Product for the immediately following twenty-four (24) month period. Such reports and plans will be provided to Cardiome commencing ninety (90) days after receipt of such Approval Letter with the next such report to be provided on the February 1 or August 1 deadline next following the initial report (provided that if this would result in the second report being provided within less than six (6) months, Fujisawa may deliver the second report at the next applicable deadline). The Parties shall meet once annually to review all such reports. The Chief Executive Officer, or the designee of the Chief Executive Officer, of Cardiome and a senior marketing executive of Fujisawa shall attend such meeting.
(b): Fujisawa agrees to consider Cardiome's input and comments that Cardiome may provide related to any such report for any applicable period; provided, however, Fujisawa shall have the right to either accept or reject such input and comments in whole or in part in Fujisawa's

sole discretion for any reason whatsoever, and Fujisawa shall have the final and sole right and responsibility and decision-making authority for all matters related to any such report(s).

5.4 Manufacturing

(a)

Unless Fujisawa is prevented, restricted, interfered with or delayed in making such efforts by reason of: (i) Force Majeure; or (ii) otherwise due to any breach of this Agreement by Cardiome; Fujisawa shall use Commercially Reasonable Efforts, at its own expense, to:

(i): supply raw materials and components for the commercial supply of the Product, including RSD1235; and
(ii): manufacture or have manufactured adequate supplies of the Product for use in the Field in the Territory;

(or identify, select, qualify, and enter into definitive agreement(s) with Third Party(ies) therefor).

(b): Fujisawa shall use its Commercially Reasonable Efforts to resolve any shelf-life, regulatory and other manufacturing issues respecting the Product.
(c): Fujisawa agrees that: (i) Cardiome and its Representatives shall be entitled to contract directly with any Third Party with whom Fujisawa has entered into such definitive agreement(s) under Section 5.4(a) and (ii) such definitive agreement(s) shall not contain any contractual provision that would prohibit Cardiome and its Representatives from contracting directly or otherwise having access to any such Third Party(ies) as part of either manufacturing any product for use outside the Territory or any product for use inside the Territory, but outside the Field.
(d): If Fujisawa manufactures the Product itself or through Third Part(ies), Fujisawa will provide reasonable technical assistance for a reasonable period of time, at Cardiome's cost and expense, to provide Cardiome and its Representatives with the information regarding the Fujisawa Technology licensed to Cardiome under Section 3.4 reasonably necessary to exploit such license.
(e): Without limiting the generality of Section 3.4, for use outside the Territory or any product containing RSD1235 or a Backup Compound as an active ingredient for use inside the Territory, but outside the Field, Cardiome and its Representatives shall have the right to reference and use and have full access at no cost to all regulatory documents filed with Competent Authorities by Fujisawa, its Representatives or manufacturers to the extent relating to the Product, including the NDA and drug master file ("DMF") whether as an independent document or as part of the NDA, and all chemistry, manufacturing and controls information contained in any DMF or otherwise contained or referred to in any NDA owned or controlled by Fujisawa for the Product in the Field in the Territory. Notwithstanding the foregoing if the DMF is held by any of the Representatives and Fujisawa is only allowed the right to cross-reference such DMF, then Cardiome's right to such DMF shall similarly be limited to cross-reference rights.

5.5 Cost of Goods

REDACTED

5.6 Patent Marking

Fujisawa shall use Commercially Reasonable Efforts to ensure that where legally permissible in any country in the Territory and provided there is adequate space available, Fujisawa shall identify any applicable Cardiome Patent Rights with any reasonable patent marking notification(s) on any packaging.

ARTICLE 6 REGULATORY COMPLIANCE

6.1 Ownership and Maintenance of Governmental Approvals

(a): Fujisawa will own all Marketing Authorizations for each country in the Territory for use in the Field. Without limiting the generality of the foregoing, Fujisawa shall prepare and submit in its own name the NDA with the FDA in the U.S. and any other equivalent application with the Competent Authorities in other countries in the Territory. Without acting as a limitation to any other provision under this Agreement, Fujisawa shall maintain a current and valid DMF on the Product, whether as an independent document or as part of the NDA, which it shall keep up to date at all times during the Term or shall cause a Representative to similarly maintain the same or grant the Representative reference rights to Fujisawa's DMF for the Product.
(b): Other than those required to be maintained by Cardiome under Section 6.5(b), Fujisawa shall secure and maintain, at its sole cost and expense (except for those expenses specifically included as Development Costs under this Agreement), any and all Governmental Approvals (including Marketing Authorizations, licenses, permits and consents, facility licenses and permits required by Applicable Laws or by the applicable Competent Authorities) necessary or required for Fujisawa to perform its obligations under this Agreement and use Commercially Reasonable Efforts at its cost and expense (except for those expenses specifically included as Development Costs under this Agreement) to secure and maintain any variations and renewals thereof.
(c): Excluding Marketing Authorizations and subject to Section 6.5(b), Cardiome shall secure and maintain, at its sole cost and expense (except for those expenses specifically included as Development Costs under this Agreement), any and all Governmental Approvals (including licenses, permits and consents, facility licenses and permits required by Applicable Laws or by the applicable Competent Authorities) necessary or required for Cardiome to perform its obligations under this Agreement and use Commercially Reasonable Efforts, at its cost and expense (except for those expenses specifically included as Development Costs under this Agreement) to secure and maintain any variations or renewals thereof.

6.2 Adverse Drug Event Reporting and Post Marketing Surveillance

(a): Each Party, on behalf of itself, its Affiliates and any permitted sublicensees, shall advise the other Party, by telephone or facsimile, promptly but in no event later than five (5) calendar days after a Party, its Affiliates or sublicensees becomes aware of any serious adverse drug experience (as defined in 21 CFR §312.32(a) or its equivalent under Applicable Law(s) as the same may be amended, supplemented or replaced from time to time (a "SADE") involving the Product. Such advising Party shall provide the other Party with a written report delivered by confirmed facsimile of any SADE, stating the full facts known to such Party, including investigator name, site details, if any, customer name, if any, address, telephone number, batch, lot and serial numbers, and other information as required by Applicable Laws. After receipt by the Parties of an Approval Letter in any country, Fujisawa shall have full responsibility in such country (along with the assistance and cooperation of Cardiome) for: (i) monitoring all adverse experiences, including SADEs (collectively, "AEs"); (ii) data collection activities that occur between Fujisawa and the patient or medical professional, as appropriate, including any follow-up inquiries which Fujisawa deems necessary or appropriate; and (iii) meeting the requirements of the Competent Authorities, including the submission of AE individual reports and periodic reports. As the holder of the Marketing Authorizations, any reporting (and follow-up thereto) to the Competent Authorities shall remain the responsibility of Fujisawa.

(b): In the event either Party requires information regarding AEs with respect to reports required to be filed by it in order to comply with Applicable Laws, including obligations to report AEs to the Competent Authorities, each Party agrees to provide such information to the other in sufficient time to enable each Party to report such AEs to the Competent Authorities in accordance with Applicable Laws.
(c): Each Party shall designate to the other Party a qualified person under Applicable Laws to be responsible for AE reporting in each country in the Territory.
(d): If the report of an AE causes a Competent Authority to request a Labeling revision or any other corrective action, or if Fujisawa believes it is necessary to have a Labeling revision or conduct a post marketing surveillance program as a result of an AE, then Fujisawa shall determine all of the material terms and conditions of such Labeling revision, corrective action or post marketing surveillance program in consultation with the applicable Competent Authority. Upon Fujisawa's request, Cardiome will cooperate with Fujisawa with respect to any of the foregoing. The costs of such Labeling revision, corrective action or post marketing surveillance program shall be borne one hundred percent (100%) by Fujisawa. Notwithstanding the foregoing, however, the Parties agree that if any such Labeling revision or corrective action or post marketing surveillance program is due to the negligence or willful misconduct in the conduct of the Development by Cardiome or its Representatives or their conduct of the pre-clinical and clinical research and development activities in connection with the Product or RSD1235 prior to or after the Signing Date, then, in such event, the costs of any such Labeling revision, corrective action, or post marketing surveillance program, as the case may be, shall be borne one hundred percent (100%) by Cardiome.

6.3 Assistance

Each Party shall provide reasonable assistance to the other at the other's request, in connection with their obligations pursuant to this Article 6, the requesting Party shall reimburse all of the other Party's reasonable out-of-pocket costs of such assistance, subject to the allocation of costs determined pursuant to this Article 6.

6.4 Compliance

Subject to the other terms and conditions of this Agreement, the Parties agree to the following general compliance provisions:

(a): Fujisawa shall be responsible for compliance in all material respects with Applicable Laws and the Governmental Approvals relating to its activities under this Agreement, including the Development, development for other indications, the manufacturing, distribution, marketing, advertising, promoting, selling, importation and export of the Product, including the maintenance of the Marketing Authorizations and other requirements of a Competent Authority applicable thereto, obtaining and holding all necessary permits and any other requirements relating to its activities under this Agreement, including the Development, development for other indications, the manufacturing, distribution, marketing, advertising, promoting, selling, importation and export of the Product. Any and all Labeling and packaging and any and all proposed change to any such Labeling and packaging shall be determined by Fujisawa, which shall have the sole right and decision-making authority with respect thereto. Fujisawa shall have the sole right and decision making authority with respect to any and all advertising, sales and marketing materials (collectively the "Promotional Material(s)") and shall be responsible for all interactions with the Competent Authorities in connection with such Promotional Materials. Fujisawa shall submit any required changes to the Labeling or packaging to the Competent Authorities in a timely fashion at Fujisawa's expense.

(b): Cardiome shall be responsible for compliance in all material respects with Applicable Laws and Government Approvals relating to its activities under this Agreement, including the Development to be conducted by Cardiome.
(c): As provided in this Agreement with regard to each Party's obligations hereunder, Fujisawa and Cardiome (as the case may be) shall each comply in all material respects with all Applicable Laws within the Territory, including the provision of information by Fujisawa and Cardiome to each other necessary for Cardiome and Fujisawa, as the case may be, to comply with any applicable reporting requirements and Governmental Approvals required; and maintaining any and all licenses, permits and consents necessary or required for complying with such Party's obligations under this Agreement. During the Term, each Party agrees to execute and deliver to the other Party any certifications that may be required by Applicable Laws, including any debarment certification. Each Party shall cause their respective Representatives to comply with this Section 6.4.
(d): Each Party shall promptly notify (in any event within three (3) business days) the other Party of any written or oral notices received from, or inspections by, the FDA, or other Competent Authority, which materially impact the Product or RSD1235, the Development or the Marketing Authorizations, and shall promptly inform the other Party of any responses to such written notices or inspections and the resolution of any issue raised by the FDA or other Competent Authority.

6.5 General Regulatory Matters

(a): During the Development, the JDMC shall have all regulatory responsibility with respect to and relative to the Product or RSD1235 in the Field in the Territory and has the sole right and decision making authority with respect to all such regulatory matters, including reaching agreement on all regulatory matters with the FDA and any other Competent Authority. Subject to the foregoing, from and after the IND Transfer Date, Fujisawa, under the oversight of the JDMC, shall have primary regulatory responsibility for the Indication in the Field in the Territory. From and after Fujisawa's receipt of the applicable Approval Letter from a particular country in the Territory for the Indication, the JDMC shall no longer have any regulatory responsibility or oversight with respect to the Indication in such country. From and after Fujisawa's receipt of any such Approval Letter, Fujisawa shall have sole right and decision making authority with respect to all regulatory matters for the Indication, as well as other indications, in such country.
(b): The Parties acknowledge that Cardiome, as of the Signing Date, owns and holds certain Governmental Approvals in connection with the research and development of the Product or RSD1235 in the Field, including the IND and the CTA. Cardiome shall be responsible for the filing and maintenance of all such Governmental Approvals, with costs and expenses associated therewith to be included in Development Costs. During the time that Cardiome is the holder of the IND and CTA, Cardiome shall comply with all Applicable Laws applicable to the holder of the IND, including process, track and report all IND Safety Reports (as defined by the FDA in the U.S and Health Canada in Canada). No later than one hundred twenty (120) days prior to the anticipated date of the pre-NDA meeting with the FDA for the Indication, or earlier upon the JDMC's request (the "IND Transfer Date"), Cardiome shall transfer to Fujisawa, without any additional consideration, all such Governmental Approvals in the Field (including the IND and CTA) then owned or held by Cardiome.
(c): During the time that Cardiome is the holder of such Governmental Approvals during the Development, Fujisawa shall be entitled to attend any and all meetings and participate in telephone calls with the Competent Authorities, including any meeting preparation, meeting co-ordination, preparation of minutes and pre-NDA meeting with the FDA. During such time

as Cardiome is the holder of such Governmental Approvals, subject to Cardiome's obligations under Section 6.5(b) and Applicable Laws during the period of time in which it is the IND or CTA holder:

(i): the JDMC shall have the sole right and decision making authority for all regulatory matters with respect to or relative to the Product or RSD1235 in the Field in the Territory.
(ii): While it is still the holder of the IND in the United States or the CTA in Canada, Cardiome shall give Fujisawa no less than three (3) business days notice following the scheduling of any such meeting or telephone call with the FDA or other Competent Authority (or such shorter period of time, if the meeting or telephone call is scheduled within such three (3) business days and in such event such notice shall be in sufficient time so that Fujisawa shall be able to attend or participate in such meeting or telephone call).
(iii): Cardiome shall provide Fujisawa copies of any materials relating to any regulatory matter, including telephone logs with the Competent Authorities, no less than three (3) business days prior to their presentation to the FDA or other Competent Authority during the Development, so that Fujisawa shall have an opportunity to review and comment thereon.

(d)

During the time that Fujisawa is the holder of such Governmental Approvals during the Development, Cardiome shall be entitled to attend any and all meetings and participate in telephone calls with the Competent Authorities, including any meeting preparation, meeting co-ordination, preparation of minutes and pre-NDA meeting with the FDA. During such time, subject to Applicable Laws:

(i): the JDMC shall have the sole right and decision making authority for all regulatory matters with respect to or relative to the Product or RSD1235 in the Field in the Territory.
(ii): Fujisawa shall give Cardiome no less than three (3) business days notice following the scheduling of any such meeting or telephone call with the FDA or other Competent Authority (or such shorter period of time, if the meeting or telephone call is scheduled within such three (3) business days and in such event such notice shall be in sufficient time so that Cardiome shall be able to attend or participate in such meeting or telephone call).
(iii): Fujisawa shall provide Cardiome copies of any materials relating to any regulatory matter prior to their presentation to the FDA or other Competent Authority during the Development, so that Cardiome shall have an opportunity to review and comment thereon.

ARTICLE 7 PATENTS AND TRADEMARKS

7.1 Maintenance of Cardiome Patents

(a): In consultation with Fujisawa, Cardiome shall, at its expense, except as otherwise provided in Section 7.1(f), in each country in the Territory: (i) use Commercially Reasonable Efforts to obtain Cardiome Patent Rights; (ii) file all documentation and other materials required by any Competent Authority in each applicable country to maintain and renew Cardiome Patent Rights; and (iii) use Commercially Reasonable Efforts to otherwise maintain the Cardiome Patent Rights in all countries in the Territory; provided however, that upon written request by Cardiome, Fujisawa shall, at no cost or expense to Fujisawa, provide such reasonable

assistance as may be necessary to enable Cardiome to comply with the administrative formalities necessary to register or maintain any Cardiome Patent Rights.

(b): From and after the Effective Date, Cardiome shall instruct all patent counsel responsible for the prosecution and maintenance of the Cardiome Patents to provide to Fujisawa all material documentation and correspondence from Competent Authorities regarding the Cardiome Patents and all material documentation and correspondence prepared by its counsel for Competent Authorities regarding the Cardiome Patents at the same time as such counsel provides same to Cardiome. Cardiome will seriously consider all reasonable comments and suggestions of Fujisawa or Fujisawa's designated patent counsel on all material documentation and correspondence to be filed or submitted to the relevant patent offices in the Territory regarding the prosecution and maintenance of the Cardiome Patents.
(c): In the event Cardiome does not pursue, or intends to abandon, the prosecution or maintenance of all or any part of Cardiome Patent Rights claiming the Product or RSD1235 (which it shall only be permitted to do in the event it has a bona fide belief that obtaining or maintaining rights are not possible using Commercially Reasonable Efforts), Cardiome shall notify Fujisawa no less REDACTED days (or such shorter period of time if there is a shorter period of time required by a Competent Authority) prior to the date it intends to abandon the prosecution or maintenance, as applicable, of any such Cardiome Patent Rights.
(d): In the event Cardiome notifies Fujisawa within the period provided in Section 7.1(c) above, Fujisawa has the right but not the obligation to assume such prosecution or maintenance and shall notify Cardiome if, and when, Fujisawa wishes to assume the responsibility for prosecuting and maintaining such Cardiome Patent Rights, as applicable, whereupon Cardiome shall permit Fujisawa, at Fujisawa's expense, to take over such prosecution or maintenance, as applicable, and Cardiome shall cooperate in any such transfer of responsibilities and rights as necessary or prudent for the benefit of Fujisawa to prosecute or maintain the foregoing rights. Thereafter, Fujisawa shall have the right but not the obligation to prosecute or maintain any such Cardiome Patent Right, as the case may be, at its expense; provided that Fujisawa keeps Cardiome reasonably informed of the progress of any such prosecution. Cardiome shall have the right to review all such pending applications and other proceedings and make recommendations to Fujisawa concerning them and their conduct, but the final decision with respect thereto shall rest with Fujisawa, provided that Fujisawa acts reasonably.
(e): Fujisawa shall make available to Cardiome or its authorized attorneys, agents or representatives, Fujisawa's employees, agents or consultants necessary or appropriate to enable Cardiome to file, prosecute and maintain applications for Cardiome Patent Rights for a reasonable period of time sufficient for Cardiome to obtain the assistance it needs from such personnel. Cardiome shall provide Fujisawa with copies of all correspondence, documentation and submissions provided to, and received from, U.S. PTO and comparable Competent Authorities.
(f): Each Party shall pay REDACTED of Cardiome's necessary and reasonable Third Party fees and expenses incurred in connection with the filing, prosecution and maintenance of Cardiome Patents in the Territory.
(g): At any time during the Term, Fujisawa may notify Cardiome in writing of its intent to opt-out of any Cardiome Patent covering any Improvement which does not cover the use, development, manufacture, promotion, marketing, distribution, offer for sale, sale, importation or export of the Product as then used, developed, promoted, manufactured, marketed, distributed, offered for sale, sold, imported or exported by Fujisawa. As of the date of such notice, (i) Fujisawa shall no longer be obligated to pay any fees or expenses related to such

Cardiome Patent, and (ii) such Cardiome Patent shall cease to be a "Cardiome Patent" herein as of such date (i.e., such Cardiome Patent shall no longer be licensed to Fujisawa under the terms herein).

7.2 Maintenance of Fujisawa Patents and Fujisawa Marks

(a): In consultation with Cardiome, Fujisawa shall, in each country in the Territory: (i) use Commercially Reasonable Efforts to obtain Fujisawa Patent Rights; (ii) file all documentation and other materials required by any Competent Authority in each applicable country to maintain and renew Fujisawa Patent Rights; and (iii) use Commercially Reasonable Efforts to otherwise maintain the Fujisawa Patent Rights in all countries in the Territory; provided however, that upon written request by Fujisawa, Cardiome shall, at no cost or expense to Cardiome, provide such reasonable assistance as may be necessary to enable Fujisawa to comply with the administrative formalities necessary to register or maintain any Fujisawa Patent Rights.
(b): From and after the Effective Date, Fujisawa shall promptly provide to Cardiome all material documentation and correspondence from patent offices regarding the FHI Patents and all material documentation and correspondence prepared by its counsel regarding the FHI Patents. Fujisawa will seriously consider all reasonable comments and suggestions of Cardiome or Cardiome's designated patent counsel on all material documentation and correspondence to be filed or submitted to the relevant patent offices regarding the prosecution and maintenance of the FHI Patents.
(c): In the event Fujisawa does not pursue or intends to abandon the prosecution or maintenance of all or any part of Fujisawa Patent Rights in any country (which, with respect to the Territory, it shall only be permitted to do in the event it has a bona fide belief that obtaining or maintaining rights are not possible using Commercially Reasonable Efforts), Fujisawa shall notify Cardiome no less than REDACTED days (or such shorter period of time if there is a shorter period of time required by a Competent Authority) prior to the date it intends to abandon the prosecution or maintenance, as applicable, of any such Fujisawa Patent Rights.
(d): In the event Fujisawa notifies Cardiome within the period provided in Section 7.2(c) above, Cardiome has the right but not the obligation to file, assume prosecution or maintenance of same and shall notify Fujisawa if, and when, Cardiome wishes to assume the responsibility for prosecuting and maintaining such Fujisawa Patent Rights, as applicable, whereupon Fujisawa shall permit Cardiome, at Cardiome's expense, to take over such prosecution or maintenance, as applicable, and Fujisawa shall cooperate in any such transfer of responsibilities and rights as necessary or prudent for the benefit of Cardiome to prosecute or maintain the foregoing rights. Thereafter, Cardiome shall have the right but not the obligation to prosecute or maintain any such Fujisawa Patent Right, as the case may be, at its expense; provided that Cardiome keep Fujisawa reasonably informed of the progress of any such prosecution. Fujisawa shall have the right to review all such pending applications and other proceedings and make recommendations to Cardiome concerning them and their conduct, but the final decision with respect thereto shall rest with Cardiome, provided that Cardiome acts reasonably.
(e): Cardiome shall make available to Fujisawa or its authorized attorneys, agents or representatives, its employees, agents or consultants necessary or appropriate to enable Fujisawa to file, prosecute and maintain applications for Fujisawa Patent Rights for a reasonable period of time sufficient for Fujisawa to obtain the assistance it needs from such personnel. Fujisawa shall provide Cardiome with copies of all correspondence, documentation and submissions provided to, and received from, U.S. PTO and comparable Competent Authorities.

(f): Cardiome shall pay REDACTED in connection with the filing, maintenance and prosecution of Fujisawa Patents unless Cardiome takes over the filing, prosecution or maintenance of the Fujisawa Patents in accordance with the foregoing.
(g): Fujisawa shall, at Fujisawa's expense in each country in the Territory: (i) use Commercially Reasonable Efforts to obtain Fujisawa Marks; (ii) pay all fees and file all documentation and other materials required by any Competent Authority in each applicable country to maintain and renew Fujisawa Marks; and (iii) shall use Commercially Reasonable Efforts to otherwise maintain the Fujisawa Marks in all countries in which Fujisawa has the right and elects to exercise any or all of its rights hereunder related to the Product or RSD1235; provided however, that upon written request by Fujisawa, Cardiome shall, at no cost or expense to Cardiome, provide such reasonable assistance as may be necessary to enable Fujisawa to comply with the administrative formalities necessary to register or maintain any Fujisawa Marks.

7.3 Prosecution and Maintenance of Joint Patents

(a): Notwithstanding Sections 7.1 and 7.2, for all patents claiming jointly owned inventions forming a part of the Improvements ("Jointly Owned Patents"), the Parties shall work together to develop a reasonable patent strategy appropriate for the technology at issue. Cardiome shall have the first right, but not the obligation, to file, prosecute and maintain any Jointly Owned Patents. All material documentation and correspondence to be filed or submitted to the relevant patent offices in the Territory regarding the prosecution and maintenance of the Jointly Owned Patents shall be subject to the prior approval of both Parties. In the event the Parties in good faith disagree as to the strategy or substance associated with any such documentation or correspondence, the Parties shall submit the dispute to the Parties' Chief Executive Officers for resolution. In the event Chief Executive Officers cannot come to an expeditious resolution, the Parties shall submit such dispute to an independent, mutually acceptable Third Party patent attorney for a final and binding determination of such dispute, and the Parties shall equally share the cost of engaging such patent attorney.
(b): Fujisawa shall reimburse Cardiome for REDACTED of Cardiome's expenses in filing, prosecuting and maintaining Jointly Owned Patents in the Territory; provided, however, that Fujisawa may elect to forego its ownership interest in such Jointly Owned Patent application during the REDACTED day period following the filing of such application, in which case it shall not reimburse Cardiome and shall assign over its interest. If Cardiome elects not to file, prosecute a Jointly Owned Patent, or to abandon any Jointly Owned Patent, it shall provide REDACTED days written notice to Fujisawa prior to any relevant deadline and Fujisawa shall have the right, but not the obligation, to file, prosecute and maintain such patent at Fujisawa's expense, and under its own name. Cardiome shall have the right to grant licenses under any Jointly Owned Patents to any Third Party without the consent of Fujisawa, subject to Sections 3.1 and 11.1. Fujisawa shall have the right to grant licenses under any Jointly Owned Patents to any Third Party without the consent of Cardiome subject to Sections 3.4 and 11.2.

7.4 Cooperation and Procedures Relative to Actions Brought Under Sections 7.5 and 7.6

(a): The Parties shall reasonably cooperate with each other with respect to any litigation, action, suit, claim or other proceeding under Sections 7.5 and 7.6 (an "Article 7 Proceeding"). Without limiting the generality of the foregoing, the "Non-Litigating Party" (as hereinafter defined) agrees to cooperate reasonably in any Article 7 Proceeding, as may be requested by or necessary to the "Litigating Party" (as hereinafter defined) including joining any Article 7 Proceeding as a party, executing all necessary documents, supplying essential documentary evidence and making available essential witnesses then in its employment or engaged as a consultant.

(b): The Party prosecuting any Article 7 Proceeding under Section 7.5 or controlling the defence of any Article 7 Proceeding under Section 7.6 shall be referred to in this context, as the "Litigating Party"). The other Party in this context shall be referred to as the "Non-Litigating Party". Except as provided in Section 7.4(d), the Litigating Party shall have the right to control any Article 7 Proceeding. In addition, the Litigating Party shall have the right to control the settlement or compromise of any Article 7 Proceeding and may so settle or compromise without the Non-Litigating Party's prior written consent, provided that the terms of any such settlement or compromise: (i) does not materially impair the Non-Litigating Party's rights hereunder (including each Party's rights in the Cardiome Technology or the Fujisawa Technology); (ii) would not require the Non-Litigating Party to be subject to an injunction or to make a monetary payment or would restrict the claims in or admit any invalidity or unenforceability of the Cardiome Patent Rights or the Fujisawa Patent Rights; (iii) provide for the unconditional release of the Non-Litigating Party; and (iv) expressly state that neither the fact of settlement, nor the settlement agreement shall constitute or be construed or interpreted, as, an admission by the Non-Litigating Party of any issue, fact, allegation or any other aspect of the claim being settled. In all other cases, the Litigating Party may not settle any Article 7 Proceeding without the prior written consent of the Non-Litigating Party, which consent shall not be unreasonably withheld or delayed. The Non-Litigating Party may not pay or voluntarily permit the determination of any liability which is subject to any such Article 7 Proceeding while the Litigating Party is negotiating the settlement thereof or contesting the matter, except with the prior written consent of the Non-Litigating Party, which consent shall not be unreasonably withheld or delayed.
(c): Upon learning of any actual, contemplated or threatened Article 7 Proceeding involving any of the Cardiome Patent Rights or Fujisawa Patent Rights that claim the Product or RSD1235, each Party shall promptly notify the other Party of such and shall, upon request, provide to the other Party information and updates on the status of any such proceeding.
(d): The Parties acknowledge and agree that circumstances may arise in which a Party hereto may desire to protect its interests by joining or intervening in litigation or other proceeding involving the Cardiome Patent Rights or Fujisawa Patent Rights, which proceeding has neither been brought by that Party nor levied against that Party. Accordingly, neither Party shall object or oppose any effort by the other Party, at its own expense, to join or intervene in such litigation or other proceedings involving the Cardiome Patent Rights or Fujisawa Patent Rights. In the event the Non-Litigating Party seeks to join or intervene in any litigation or other proceeding where such joining or intervention is neither requested by nor necessary to the Litigating Party, then (i) the Litigating Party's right to control the litigation under Sections 7.5 or 7.6 (as the case may be) shall not be extended to the conduct of the Non-Litigating Party after intervention or joining; and (ii) notwithstanding anything to the contrary contained in Sections 7.5 and 7.6, the Non-Litigating Party shall bear its own expenses and costs (including reasonable attorney fees) associated with its involvement in any such litigation or other proceeding after intervening or joining.

7.5 Prosecution of Infringement in the Territory in the Field

(a): During the Term, each Party shall give prompt notice to the other of any Third Party act known to such Party which may infringe one or more claims of the Cardiome Patent Rights or the Fujisawa Patent Rights in the Territory in the Field.
(b): Fujisawa shall have the first right (but not the obligation) to prosecute any Article 7 Proceeding under this Section 7.5 against such Third Party infringement of any claims of Cardiome Patent Rights or Fujisawa Patent Rights in accordance with the terms of Section 7.4 and this Section 7.5 and in such event Fujisawa shall become the Litigating Party.

(c): In the event Fujisawa fails to institute any Article 7 Proceeding against any Third Party infringement of the Cardiome Patent Rights or the Fujisawa Patent Rights in the Territory in the Field within REDACTED days of the later of: (i) receiving notification from Cardiome of any such infringement or (ii) sending notice to Cardiome of such action, Cardiome may take (but shall have no obligation to do so) such action as it deems appropriate, including the filing of a lawsuit against such Third Party. In such event Cardiome shall promptly notify Fujisawa of any such Article 7 Proceeding and upon receipt of such notification, Fujisawa shall provide Cardiome with the necessary rights to conduct such action as Cardiome deems appropriate, including the filing of a lawsuit against such Third Party.
(d): The Litigating Party shall pay all expenses and costs (including reasonable attorney fees) in connection with any Article 7 Proceeding under this Section 7.5, provided that the Litigating Party shall first recover its actual out-of-pocket expenses and costs (including reasonable attorney fees) associated with any Article 7 Proceeding under this Section 7.5, or settlement thereof from any recovery made by the Litigating Party. With respect to any recovery for an Article 7 Proceeding related to Cardiome Patent Rights or Fujisawa Patent Rights, such amount shall be shared between Cardiome and Fujisawa on the basis of REDACTED to Fujisawa and REDACTED to Cardiome. In the event there is no recovery from a Third Party or if any such recovery does not cover all of the costs and expenses (including reasonable attorney fees) of the Litigating and Non-Litigating Party, as the case may be, then any such unrecovered costs and expenses (including reasonable attorney fees) shall be shared in accordance with the foregoing. If Fujisawa is the Litigating Party, Fujisawa shall recover such amounts only by deducting such amounts from royalty payments or any other amounts payable to Cardiome hereunder in accordance with Section 4.5.

7.6 Infringement Claimed by Third Parties in the Territory in the Field

(a): In the event a Third Party commences, or threatens to commence, any Article 7 Proceeding against a Party to this Agreement alleging infringement of a Third Party's Intellectual Property rights by the use, development, promotion, manufacture, marketing, distribution, offering for sale, selling, importation or export by Fujisawa, its Affiliates or sublicensees of the Product, the Party against whom such proceeding is threatened or commenced shall give prompt notice to the other Party ("Infringement Notice").
(b): Fujisawa shall have the first right (but not the obligation) to control the defense and settlement of any such Article 7 Proceeding under this Section 7.6 in accordance with the terms of Section 7.4 and this Section 7.6 and in such event Fujisawa shall become the Litigating Party; provided that Fujisawa notifies Cardiome that it intends to exercise such option: (i) at the time Cardiome gives Fujisawa the Infringement Notice or (ii) if Cardiome is not the Party giving an Infringement Notice, then within thirty (30) days after receipt by Cardiome of the Infringement Notice from Fujisawa. If Fujisawa fails to notify Cardiome of its intent to exercise such option within the time periods required by this Section 7.6(b) or if Fujisawa notifies Cardiome within such time periods that it does not intend to exercise such option, Cardiome shall then control the defense and settlement of any such Article 7 Proceeding in accordance with the terms of Section 7.4 and this Section 7.6 and in such event Cardiome shall become the Litigating Party.
(c): The Parties shall share any and all Costs on the basis of REDACTED in connection with any such Article 7 Proceeding under this Section 7.6. If Fujisawa is the Litigating Party, Fujisawa shall deduct Cardiome's share of such Costs from royalty payments or any other amounts payable to Cardiome hereunder in accordance with Section 4.5. Notwithstanding the foregoing, this Section 7.6(c) shall not apply to any Third Party Intellectual Property

infringement claims for which Cardiome must indemnify Fujisawa under Sections 10.1 and 10.2.

7.7 Prosecution of Infringement Outside the Territory or Outside the Field

(a): During the Term, each Party shall give prompt notice to the other of any Third Party act known to such Party which may infringe one or more claims of the Cardiome Patent Rights or the Fujisawa Patent Rights outside the Territory or inside the Territory and outside the Field.
(b): Cardiome, or its designee, may, at its sole cost and expense and its option, prosecute any Article 7 Proceeding under this Section 7.7 against such Third Party infringement of any claims of Cardiome Patent Rights and control the defense and settlement of any such claim.
(c): Fujisawa shall have the first right (but not the obligation) to prosecute any Article 7 Proceeding under this Section 7.7 against such Third Party infringement of any claims of Fujisawa Patent Rights.
(d): In the event Fujisawa fails to institute any Article 7 Proceeding against any Third Party infringement of the Fujisawa Patent Rights outside the Territory or inside the Territory and outside the Field within REDACTED days of the later of: (i) receiving notification from Cardiome of any such infringement or (ii) sending notice to Cardiome of such action, Cardiome may take (but shall have no obligation to do so) such action as it deems appropriate, including the filing of a lawsuit against such Third Party. In such event Cardiome shall promptly notify Fujisawa of any such Article 7 Proceeding and upon receipt of such notification, Fujisawa shall provide Cardiome with the necessary rights to conduct such action as Cardiome deems appropriate, including the filing of a lawsuit against such Third Party.

7.8 Co-operation with Other Licensees

Fujisawa acknowledges that Cardiome may grant to licensees rights in the Cardiome Technology in the Territory in respect of fields outside the Field, and may grant to other licensees rights outside the Territory. If Cardiome grants such rights to other licensees, in the event of any litigation in respect of:

(a): fields outside of the Field that may reasonably affect Fujisawa's use of the Cardiome Technology in the Field or the use or sale of Products by Fujisawa; or
(b): the Field that may reasonably affect Cardiome or one or more of Cardiome's licensee's use of the Cardiome Technology outside the Field or the use, development, promotion, manufacture, marketing, distribution, offer for sale, sale, importation or export of products outside the Field by Cardiome or one or more other such licensee(s); or
(c): fields outside of the Territory that may reasonably affect Fujisawa's use of the Cardiome Technology in the Territory or the use, development, promotion, manufacture, marketing, distribution, offer for sale, sale, importation or export of Products by Fujisawa; or
(d): the Field that may reasonably affect Cardiome or one or more of Cardiome's licensee's use of the Cardiome Technology outside the Territory or the use, development, promotion, manufacture, marketing, distribution, offer for sale, sale, importation or export of products outside the Territory by Cardiome or one or more other such licensee(s);

then Cardiome, Fujisawa and such other licensee(s) will use good faith efforts to determine jointly the course of action, if any, necessary or appropriate to prosecute or defend the litigation. Cardiome will use Commercially Reasonable Efforts to include in its other license agreements, provisions that allow the participation of Fujisawa as contemplated herein. If Cardiome is unable to include in any such other license agreement such provisions, then Fujisawa's sole remedy for such failure shall be that, with respect to the licensee under such other license agreement, Fujisawa shall not be bound by the terms and conditions of this Section 7.8.

ARTICLE 8 CONFIDENTIALITY

8.1 Confidentiality

(a)

During the Term and for a period of REDACTED years thereafter, each Party shall maintain all Confidential Information of the other Party as confidential and shall not disclose any such Confidential Information to any Third Party or use any such Confidential Information for any purpose, except:

(i)

as expressly authorized by this Agreement or with the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed;

(ii)

as required by Applicable Laws or court order of a court of competent jurisdiction (provided that the disclosing Party shall first notify the other Party to afford the other Party, for a period of REDACTED business days or such lesser period as may be provided by Applicable Law, an opportunity to seek whatever protective relief it deems appropriate, and the disclosing Party shall use Commercially Reasonable Efforts to obtain confidential treatment of any such information required to be disclosed);

(iii)

Confidential Information that is submitted by a Party to Competent Authorities to facilitate the issuance of Governmental Approvals for the Product, provided that, where reasonable to do so, measures are taken to assure confidential treatment of such information;

(iv)

the inclusion of information necessary for Fujisawa Patent Rights or Cardiome Patent Rights, except for Confidential Information of the non-filing Party, provided the non-filing Party is given a reasonable opportunity to review the information to be included prior to submission of such patent application;

(v)

any public written disclosure it believes in good faith based upon the advice of counsel is required by Applicable Law concerning its or its Affiliates' publicly traded securities;

(vi)

to its Representatives to accomplish the purposes of this Agreement, so long as such Representatives are under an obligation of confidentiality no less stringent than as set forth herein. Each Party may use such Confidential Information only to the extent required to accomplish the purposes of this Agreement;

(vii)

Cardiome shall have the right, without Fujisawa's prior approval but upon prior notice to Fujisawa, to disclose the Collaboration Data and the Fujisawa Technology licensed to Cardiome pursuant to Section 3.4 to potential partners for the commercialization of products containing RSD1235 or Backup Compounds outside the Territory, and inside the Territory but outside the Field, and to qualified potential financial investors in or acquirers of Cardiome, in each case under a confidentiality agreement in favor of Fujisawa that binds the recipients of such information to non-use and confidentiality obligations that are no less restrictive than those set forth in this Article 8, provided that:

(A): any such information has been disclosed to Fujisawa prior to the disclosure to any such partner, financial investor or acquirer;
(B): such partner, financial investor or acquirer could not be reasonably anticipated to compete with Fujisawa for a Product in the Field in the Territory; and
(C): in the case of the disclosure of the Fujisawa Technology licensed to Cardiome pursuant to Section 3.4 to a potential partner, such disclosure will take place only during the conduct of due diligence in contemplation of the execution of a sublicense, and solely for such purpose.

(viii): Cardiome shall have the right to reference and use and have full access to and disclose the Collaboration Data to regulatory authorities outside the Territory, and inside the Territory but outside the Field, for RSD1235 or Backup Compounds, provided that, where reasonable to do so, measures are taken to assure confidential treatment of such information.
(ix): Cardiome's sublicensees and partners shall have the right, in connection with the commercialization of products containing RSD1235 or Backup Compounds outside the Territory, and inside the Territory but outside the Field, to use, have full access to and disclose the Collaboration Data to regulatory authorities, in each case without Fujisawa's prior consent, provided that all such sublicensees and partners are bound to confidentiality obligations, in favor of Fujisawa, that are no less restrictive than those set forth in this Article 8.

(b): Each Party shall use at least the same standard of care as it uses to protect its own Confidential Information to ensure that it and its Representatives do not disclose or make any unauthorized use of the other Party's Confidential Information. Each Party shall be responsible for any act or omission by any person to whom such Party disclosed such other Party's Confidential Information with respect such Confidential Information. Each Party shall promptly notify the other Party upon discovery of any unauthorized use or disclosure of the other Party's Confidential Information.
(c): Subject to Section 8.1(a): (i) the Parties shall use Commercially Reasonable Efforts to develop a protocol with respect to the disclosure of any statements to the public regarding the subject matter of this Agreement and disclosures required under Applicable Law; and (ii) the JDMC shall develop a protocol with respect to public disclosures of any results of clinical studies conducted as part of the Development and prior to the Signing Date.

8.2 Publicity Review

The Parties agree that the public announcements of the execution and effectiveness of this Agreement shall be in the form of press releases to be mutually agreed upon by the Parties on or before the Signing Date and attached hereto as Exhibit 8.2. Thereafter, each Party shall be entitled to make or publish any public statement consistent with the contents thereof, provided that either Party may disclose the terms of this Agreement to the extent required to comply with Applicable Laws. Subject to the foregoing, each Party acknowledges that if the other Party files a registration statement covering the sale of its securities in the United States and Canada, it will be required to file a copy of this Agreement with its public disclosure statement, however in such event, the filing Party shall (a) redact the version to be filed in a manner consistent with prudent practices in the industry, (b) provide the redacted version to the other Party at least ten (10) business days prior to filing, and (c) seriously consider all reasonable comments and suggestions for any further redactions upon the reasonable request of the other Party.

8.3 Protocol for Scientific Publications

REDACTED

ARTICLE 9 REPRESENTATIONS, WARRANTIES AND COVENANTS

9.1 Corporate Power

Each Party hereby represents, warrants and covenants that such Party is, and will remain through the Term, duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof.

9.2 Due Authorization

Each Party hereby represents and warrants that such Party is duly authorized to execute and deliver this Agreement and perform its obligations herein, and such Party is not required to obtain the consent of any Third Party in order to consummate the transaction set forth herein.

9.3 Binding Obligation/No Conflict

Each Party hereby represents, warrants and covenants that: (i) this Agreement is a legal and valid obligation binding upon it and is enforceable in accordance with its terms; and (ii) the execution, delivery and performance of this Agreement by such Party does not, and will not during the Term, conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor to the best knowledge of each Party as of the Signing Date, violate any Applicable Laws.

9.4 Ownership of Cardiome Technology

Cardiome represents, warrants, and covenants, as the case may be, that:

(a): as of the Signing Date and during the Term, it is and shall remain the sole owner of all right, title and interest in and to the Cardiome Technology, subject to Cardiome's ability to license and assign as permitted hereunder; and to the best of the knowledge of Cardiome as of the Signing Date no Representative of Cardiome or any Third Party has any rights to the Cardiome Technology;
(b): as of the Signing Date, it has not granted and will not grant during the Term any license under the Cardiome Technology for any product in the Territory for use in the Field to any Third Party, and is under no obligation to grant any such license, except to Fujisawa, and there are, and will be, no rights granted to any Third Party and no agreements, either written or oral, regarding the Cardiome Technology which are inconsistent or in conflict with this Agreement;
(c): as of the Signing Date, there are no, and during the Term there will be no, outstanding liens, judgments, injunctions, decrees, rulings, security interests, or any other encumbrances on the Cardiome Technology (other than security interests filed by Cardiome's lender(s), licensee(s) and licensor(s) in the ordinary course of business) on the Cardiome Technology which could materially affect Fujisawa's interests in the Cardiome Technology;
(d): as of the Signing Date and during the Term, it has taken and will take Commercially Reasonable Efforts to ensure that all Cardiome Know-How has been and will continue to be fully protected and maintained in accordance with appropriate procedures for its protection;
(e): as of the Signing Date, Cardiome has made available to Fujisawa all material information in its possession or Control relating to the Product and RSD1235 in the Field in the Territory; and as of the Signing Date, to the best of its knowledge, all information known to each individual associated with the filing and prosecution of the Cardiome Patents to be material to the patentability has been timely disclosed to the U.S. PTO in the United States; and Cardiome has timely disclosed and will disclose all such information to the Competent Authorities in the rest of the Territory; and
(f): Exhibit 1.1(a) is a true, complete and current listing of the Cardiome Patents as of the Signing Date.

9.5 Ownership of Fujisawa Technology

Fujisawa represents, warrants, and covenants, as the case may be, that

(a): as of the Signing Date and during the Term, it, along with its Affiliates, is and shall remain the sole owner of all right, title and interest in and to the Fujisawa Technology (if any), subject to Fujisawa's ability to license and assign as permitted hereunder; and, to the best of the knowledge of Fujisawa as of the Signing Date, no Representative of Fujisawa or any Third Party has any rights to the Fujisawa Technology (if any);
(b): as of the Signing Date, it has not granted and will not grant during the Term any license under the Fujisawa Technology to any Third Party except as permitted by this Agreement, and is under no obligation to grant any such license, except to Cardiome, and there are, and will be, no rights granted to any Third Party and no agreements, either written or oral, regarding the Fujisawa Technology which are inconsistent or in conflict with this Agreement;
(c): as of the Signing Date, there are no, and during the Term there will be no, outstanding liens, judgments, injunctions, decrees, rulings, security interests, or any other encumbrances on the Fujisawa Technology (other than security interests filed by Fujisawa's lender(s), licensee(s) or licensor(s) in the ordinary course of business) on the Fujisawa Technology which could materially affect Cardiome's interests in the Fujisawa Technology;
(d): as of the Signing Date and during the Term, it has taken and will take Commercially Reasonable Efforts to ensure that all Fujisawa Know-How (if any) has been and will continue to be fully protected and maintained in accordance with appropriate procedures for its protection;
(e): Fujisawa will timely disclose all information known to each individual associated with the filing and prosecution of the Fujisawa Patents to be material to the patentability of the Fujisawa Patents to the Competent Authorities in the Territory; and

9.6 Patent and Other Intellectual Property Rights Proceedings of Cardiome

As of the Signing Date, Cardiome represents and warrants that:

(a): no patent within the Cardiome Patent Rights or patent application with regard to the Cardiome Patent Rights is the subject of any pending interference, opposition, cancellation or other protest proceeding, or judicial proceeding;
(b): to the best of its knowledge, the Cardiome Technology and any process, procedure or method used to manufacture the Product and RSD1235 as of the Signing Date do not infringe, interfere with, or misappropriate the Intellectual Property rights of any Third Party;
(c): to the best of its knowledge, the practice of the Cardiome Patent Rights and any process, procedure or method used to manufacture the Product and RSD1235 do not and will not infringe, interfere with, or misappropriate any Intellectual Property rights of any Third Party;
(d): there has been no lapse of any claims within the Cardiome Patents in the Territory; and
(e): Cardiome has not received any: (i) notices or communications that the use, development or manufacture of RSD1235, the use, development, manufacture, promotion, marketing, distribution, offer for sale, sale, importation or export of the Product, or use of the Cardiome Technology would infringe or misappropriate any Intellectual Property rights of any Third Party; or (ii) allegation regarding the legality, enforceability, or validity of the Cardiome Technology, other than those made by the U.S. PTO or other comparable Competent Authorities in other countries in the prosecution of the Cardiome Patent Rights and previously disclosed to Fujisawa.
(f): as of the Signing Date, Cardiome has delivered to Fujisawa all material documentation and correspondence from, sent to or filed with patent offices regarding the Cardiome Patents prior to the Signing Date.

9.7 Pre-Clinical and Clinical Studies Prior to Signing Date

Cardiome represents and warrants that all of the pre-clinical and clinical trials related to the Product or RSD1235 prior to the Signing Date, including the First Phase III Study and Second Phase III Study, have been conducted in accordance with Applicable Laws.

9.8 Debarment

During the Term, neither of the Parties shall knowingly utilize any employee, representative, agent, assistant or associate who has been debarred by the FDA pursuant to 21 U.S.C. Section 335a (a) or (b) of the Act in connection with any of the activities to be carried out under this Agreement. Cardiome further represents and warrants that, as of the Signing Date, to the best of its knowledge, none of the entities, laboratories or clinical sites participating in the clinical studies prior to the Signing Date have been debarred.

9.9 Limitation on Warranties

(a)

EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT:

(i): NOTHING HEREIN SHALL BE CONSTRUED AS A REPRESENTATION OR WARRANTY BY CARDIOME TO FUJISAWA THAT THE CARDIOME TECHNOLOGY IS NOT INFRINGED BY ANY THIRD PARTY, OR THAT THE PRACTICE OF SUCH RIGHTS DOES NOT INFRINGE ANY PUBLISHED INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.
(ii): NOTHING HEREIN SHALL BE CONSTRUED AS A REPRESENTATION OR WARRANTY BY FUJISAWA TO CARDIOME THAT THE FUJISAWA TECHNOLOGY IS NOT INFRINGED BY ANY THIRD PARTY, OR THAT THE PRACTICE OF SUCH RIGHTS DOES NOT INFRINGE ANY PUBLISHED INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.
(iii): CARDIOME MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO RSD1235 OR THE PRODUCT.
(iv): FUJISAWA MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO RSD1235 OR THE PRODUCT.

(b)

NEITHER PARTY MAKES ANY OTHER WARRANTIES HEREUNDER, EXPRESS OR IMPLIED, INCLUDING WARRANTIES CONCERNING THE SUCCESS OF THE DEVELOPMENT PROGRAM, THE SUCCESS OF THE MARKETING AND COMMERCIALIZATION OF THE PRODUCT OR THE COMMERCIAL UTILITY OF THE PRODUCT.

ARTICLE 10 INDEMNIFICATION AND INSURANCE

REDACTED

ARTICLE 11 ADDITIONAL COVENANTS OF THE PARTIES

11.1 Cardiome Covenant Not To Compete

REDACTED

11.2 Launch of Competitive Product by Fujisawa

REDACTED

11.3 Filing of Certain Patent Applications and Obtaining Inventor Assignments

REDACTED

11.4 Limitation To The Territory

Fujisawa hereby covenants that it will not directly or indirectly, without the prior written authorization of Cardiome: (i) promote or actively solicit the sale of the Product or advertise the Product, outside of the Territory; (ii) purchase or cause to be purchased Product which Fujisawa has represented, directly or indirectly, as being for the purpose of sale in a specific country in the Territory for sale in any other country outside the Territory; (iii) contact any of Cardiome's suppliers or vendors of the Product or element thereof for the purpose of causing the Product to be sold outside the Territory; (iv) knowingly sell or distribute for resale the Product purchased hereunder to a Third Party who intends to sell the Product outside of the Territory; and (vi) knowingly sell or distribute for resale Product purchased from a Third Party outside the Territory for resale in the Territory.

11.5 Records and Audits

(a)

Each Party shall keep or cause to be kept true, accurate and complete Books and Records as are required to determine, in a manner consistent with accrual method of accounting in accordance with GAAP, any sums or credits due under this Agreement during the Term and for a period of three years thereafter or as otherwise required to comply with Applicable Laws. Without limiting the generality of the foregoing, the Parties agree that such Books and Records shall include without limitation the following:

(i): Fujisawa shall keep such Books and Records to permit Cardiome to confirm the completeness and accuracy of (A) the information presented in each Royalty Statement and all payments due hereunder; (B) the calculation of Net Sales and Sublicense Revenue; (C) any payments due Cardiome under this Agreement; and (D) any other payment obligations of Fujisawa hereunder.
(ii): Cardiome shall keep such Books and Records to permit Fujisawa to confirm the completeness and accuracy of (A) Development Costs, including those costs incurred prior to the Signing Date for which Fujisawa is obligated to reimburse Cardiome for under this Agreement, (B) any payments due Fujisawa under this Agreement; and (C) any other obligations of Cardiome hereunder.

(b)

With regard to sums or credits due or related reports, at the request (and expense) of the requesting Party, the other Party shall permit the requesting Party and such requesting Party's independent certified public accountant selected by such Party and reasonably acceptable to the other Party to audit and inspect only those Books and Records of the other Party as may be necessary to determine, with respect to any calendar year ending no more than three years prior to such Party's request, the completeness and accuracy of any reports made and any sums or credits due under this Agreement. Any such independent accounting firm shall be subject to the confidentiality provisions of this Agreement. Such inspection shall be conducted during the Party's normal business hours, no more than once in any twelve (12) month period and upon at least thirty (30) days prior written notice by the requesting Party. If such requesting Party concludes that such payments were underpaid during the periods reviewed by such requesting Party and its accountants, the other Party shall pay the requesting Party the amount of any such underpayments, plus interest at a rate equal to the Prime Rate of Interest REDACTED, within thirty (30) days of the date the requesting Party delivers to the other Party the report so concluding that such payments were underpaid. If such requesting Party and its accounting firm concludes that such payments were overpaid during such period, the Party shall pay to the other Party the amount of any such overpayments, without interest, within thirty (30) days of the date the requesting Party delivers to the other Party the report

so concluding that such payments were overpaid. The requesting Party shall bear the full cost of such audit unless such audit discloses an underpayment by more than five percent (5%) of the amount due during such periods. In such case, the other Party shall bear the full cost of such audit.

(c): In the event the non-requesting Party does not agree with the conclusions of such report under Section 11.5(b) above, (whether such payments were underpaid or overpaid), then such Party shall notify the other Party within thirty (30) days after receipt of such report. Thereafter, the Parties shall in good faith try and resolve such differences. If the Parties are unable to reach a mutual agreement within fifteen (15) days after the date of notice then independent auditors of each Party shall meet and select an independent accounting firm (being an accounting firm not used by either Party) to make the final determination within fifteen (15) days thereafter. The determination of such independent accounting firm shall be binding and conclusive on the Parties, and the cost of such firm shall be borne by the Party against whom the determination by such firm is made.
(d): Cardiome shall, upon prior, reasonable notice by Fujisawa and during normal business hours, allow Fujisawa or its Representative to inspect and audit Cardiome's facilities, equipment, personnel and operating procedures (and of any Representative, as applicable) used to develop the Product or RSD1235 and any Books and Records related thereto to confirm compliance with the terms and conditions of this Agreement, including compliance with Applicable Laws and Governmental Approvals; provided that Fujisawa shall use Commercially Reasonable Efforts to ensure that such inspection and audit shall not interfere with Cardiome's (or its Representative's, as applicable) normal operations. However, notwithstanding the foregoing, Fujisawa shall be permitted to inspect and audit as provided above immediately on notice in the event of a bona fide belief that (i) an Applicable Law is being, or may be, violated or (ii) there is, or may be, an AE or imminent and otherwise material harm to the public due to the Product. Without limiting anything else under this Agreement, if any of the obligations of Cardiome are performed by a Representative, then Cardiome shall cause any such Representative to comply with the terms and conditions of this Section 11.5(d). If any inspection or audit hereunder reveals that Cardiome (or its Representative(s)) is not in compliance in all material respects with the terms and conditions of this Agreement, Applicable Laws, or/and applicable Government Approvals, Cardiome, at its sole cost, shall use Commercially Reasonable Efforts to promptly correct (and, as applicable, cause its Representative(s) to use Commercially Reasonable Efforts to promptly correct) any such deficiencies to ensure compliance as required hereunder. Cardiome shall keep Fujisawa informed on a regular, on-going and periodic basis as to the status of any such deficiencies and such corrections.
(e): Fujisawa shall, upon prior, reasonable notice by Cardiome and during normal business hours, allow Cardiome or its Representative to inspect and audit Fujisawa's facilities, equipment, personnel and operating procedures (and of any Representative, as applicable) used to develop the Product and any Books and Records related thereto to confirm compliance with the terms and conditions of this Agreement, including compliance with Applicable Laws and Governmental Approvals; provided that Cardiome shall use Commercially Reasonable Efforts to ensure that such inspection and audit shall not interfere with Fujisawa's (or its Representative's, as applicable) normal operations. However, notwithstanding the foregoing, Cardiome shall be permitted to inspect and audit as provided above immediately on notice in the event of a bona fide belief that (i) an Applicable Law is being, or may be, violated or (ii) there is, or may be, an AE or imminent and otherwise material harm to the public due to the Product. Without limiting anything else under this Agreement, if any of the obligations of Fujisawa are performed by a Representative, then Fujisawa shall cause any such

Representative to comply with the terms and conditions of this Section 11.5(e). If any inspection or audit hereunder reveals that Fujisawa (or its Representative(s)) is not in compliance in all material respects with the terms and conditions of this Agreement, Applicable Laws, or/and applicable Government Approvals, Fujisawa, at its sole cost, shall use Commercially Reasonable Efforts to promptly correct (and, as applicable, cause its Representative(s) to use Commercially Reasonable Efforts to promptly correct) any such deficiencies to ensure compliance as required hereunder. Fujisawa shall keep Cardiome informed on a regular, on-going and periodic basis as to the status of any such deficiencies and such corrections.

11.6 Marketing Expenses

Fujisawa covenants and agrees that, except as otherwise specified in this Agreement, Fujisawa shall be solely responsible for the cost and implementation of any and all marketing, sales, promotional and related activities concerning or related to the marketing, sale, distribution and promotion of the Product under this Agreement.

11.7 Further Actions

Upon the terms and subject to the conditions hereof, each of the Parties shall use its Commercially Reasonable Efforts to take, or cause to be taken, all appropriate action and do, or cause to be done, all things necessary or advisable under Applicable Laws or otherwise to consummate and make effective the transactions contemplated by this Agreement.

ARTICLE 12 PRODUCT RECALL

12.1 Product Recalls or Withdrawal

If at any time or from time to time during the Term: (a) any Competent Authority of any country in the Territory requests Fujisawa to recall or withdraw the Product; (b) a court of competent jurisdiction issues an order or directive for the Product to be recalled or withdrawn; or (c) if a voluntary recall, withdrawal or correction of the Product is contemplated by Fujisawa (individually or collectively, a "Recall"), then Fujisawa shall carry out any Recall in the Territory in as expeditious a manner as reasonably possible to preserve the goodwill and reputation of the Product and the goodwill and reputation of the Parties. Fujisawa shall in all events be responsible for conducting any Recall in the Territory with respect to the Product in the Territory. Fujisawa shall maintain records of all sales and distribution of Product and customers sufficient to adequately administer a Recall for the period required by Applicable Law. Cardiome shall cooperate as reasonably requested by Fujisawa in connection with any such Recall. Fujisawa will be responsible for complying with all Applicable Laws and Governmental Approvals during the Recall and will be responsible for all interactions with appropriate Competent Authorities, including the FDA Office of Compliance in the U.S. and the appropriate FDA local district office(s) in the U.S. Fujisawa shall be responsible for preparing and timely submitting any reports any other documentation required by the Competent Authorities in connection with any such Recall.

12.2 Recall Costs

Fujisawa shall be responsible for conducting any Recall of the Product in Field in the Territory and the cost and expense therefor shall be paid by Fujisawa, unless such Recall is due to: (i) any breach by Cardiome of its representations, warranties, covenants, obligations or agreements under this Agreement; or (ii) the negligence or willful misconduct of Cardiome or any of Cardiome's Representatives under this Agreement, including violation of Applicable Laws in their performance under this Agreement or prior to the Development; in which case all such costs and expenses, to the extent same are reasonable, shall be borne and paid solely by Cardiome. In such event, Fujisawa shall

recover any such costs and expenses paid by Fujisawa solely by deducting them from any royalty payments or any other amounts payable to Cardiome hereunder in accordance with Section 4.5.

12.3 Notification Of Complaints

During the Term and for a period of REDACTED years after the termination, expiration or cancellation of this Agreement or for such longer period as may be required by Applicable Law(s), each Party agrees to (a) notify the other Party immediately of all available material information concerning any complaint, product defect reports, and similar notices received by either Party with respect to the Product, whether or not determined to be attributable to the Product and (b) with respect to an AE, comply with the provisions of Section 6.2. Fujisawa shall define and implement appropriate and necessary regulatory compliance procedures for product defect reporting, including action plans and establishing standard operating procedures therefor and will handle all product complaints in the Territory. In connection with any such product complaint Cardiome shall cooperate as reasonably requested by Fujisawa. Fujisawa, at its sole cost and expense, will have the responsibility for preparing and submitting any reports to the Competent Authorities, including FDA field alerts.

12.4 Notification Of Threatened Action

During the Term and, for a period of four years after the termination, expiration or cancellation of this Agreement or for such longer period as may be required by Applicable Law(s), each Party agrees to immediately notify the other Party of any information it receives regarding any threatened or pending action, inspection or communication by or from a concerned Competent Authority which may affect the safety or efficacy claims of the Product or the continued marketing or distribution of the Product. Upon receipt of such information, the Parties shall consult with each other in an effort to arrive at a mutually acceptable procedure for taking appropriate action, provided that, subject to Cardiome's obligation under Section 6.5(b) and Applicable Laws during the period Cardiome is the IND or CTA holder, Fujisawa shall have the final decision making authority with respect thereto.

ARTICLE 13 TERM AND TERMINATION

13.1 Term

This Agreement shall become effective on the Effective Date and shall expire on the date of the expiration of the last to expire Royalty Term in any country in the Territory (the "Term"), unless earlier terminated as provided in Sections 13.2, 13.3 or 13.4 below.

13.2 Termination by Either Party

Either Party may terminate this Agreement (in its entirety or on a country by country basis as hereinafter provided) prior to the expiration of the Term upon the occurrence of any of the following:

(a): upon or after the cessation of operations of the other Party or the bankruptcy, dissolution or winding up of the other Party (other than dissolution or winding up for the purposes or reconstruction or amalgamation which includes an assignment permitted by this Agreement) or the filing of any involuntary petition for bankruptcy, dissolution, liquidation or winding up of the affairs of the other Party which is not dismissed within REDACTED days after the date on which it is filed or commenced, and in the case of any of the foregoing events, the non-defaulting Party may terminate the Agreement in its entirety; or
(b): upon or after the breach of any material provision of this Agreement by the allegedly breaching Party if the allegedly breaching Party has not cured such breach within REDACTED days after written notice thereof by the non-breaching Party, the non-breaching Party may, at its sole option, terminate this Agreement with respect to the particular country in the Territory that is the subject of such breach, and this Agreement shall remain in effect as it applies to all

other countries; provided, however, that if such breach occurs in the United States or Canada, the non-breaching Party may terminate this Agreement in its entirety.

13.3 Termination by Fujisawa

REDACTED

13.4 Termination by Cardiome

REDACTED.

13.5 Effect of Termination

REDACTED

13.6 Remedies

All of the non-breaching Party's remedies shall be cumulative, and the exercise of one remedy hereunder by the non-defaulting Party shall not be deemed to be an election of remedies. These remedies shall include the non-breaching Party's other rights of recovery for such breach with or without terminating this Agreement.

13.7 License Following Expiration

Upon expiration of the Royalty Term, the license granted to Fujisawa under Article 3 shall thereafter become irrevocable, royalty-free and fully paid up.

ARTICLE 14 DISPUTE RESOLUTION/DAMAGES

14.1 Disputes

The Parties recognize that disputes as to certain matters may from time to time arise during the Term which relate to either Party's rights and obligations hereunder or to the interpretation, performance, breach, or termination of this Agreement, (a "Dispute"). It is the objective of the Parties to establish procedures to facilitate the resolution of a Dispute in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 14 if and when a Dispute arises under this Agreement. The Parties acknowledge and agree that nothing under this Article 14 shall in any way affect, alter, negate or modify Fujisawa's tie breaking vote in the JDMC under Section 2.4(g), provided that same is exercised in accordance with the terms thereof.

Subject to Sections 2.4(g), 4.5(d), 7.3(a) and 11.5(c), a Dispute among the Parties will be resolved as recited in this Article 14. Any Disputes relating to this Agreement shall be promptly presented to the Chief Executive Officers of Cardiome and Fujisawa, or their respective designees (who must be members of a Party's senior management) for resolution. From the date of referral of a Dispute to the Chief Executive Officers or their designees of the Parties and until such time as any matter has been resolved by the Parties or has been finally settled by arbitration hereunder, the running of the cure periods (if any) as to which a Party must cure a breach that is part of the subject matter of any Dispute shall be suspended. In the event that the Chief Executive Officers of Cardiome and Fujisawa, or their respective designees, cannot after good faith negotiations resolve the Dispute within 10 days (or such other period of time as mutually agreed to by the Parties in writing) of being requested by a Party to resolve a Dispute, the Parties agree that such Dispute shall be resolved by binding arbitration in accordance with this Section 14.1.

If a Party intends to begin arbitration to resolve such Dispute, such Party shall provide written notice (the "Arbitration Notice") to the other Party informing such other Party of such intention and the issues to be resolved. Any arbitration hereunder shall be conducted pursuant to the Commercial Arbitration Rules of the American Arbitration Association ("AAA"), including the Supplementary

Procedures for Large Complex Disputes (the "AAA Rule") except as modified herein. The arbitration shall be conducted by a panel of three (3) arbitrators (the "Panel") to be mutually agreed upon by the Parties and appointed by the AAA. The arbitrators shall be industry experts experienced in the issues comprising the Dispute and shall have no past, present or anticipated future affiliation with either Party. If the Parties are unable to agree upon all or any number of the three (3) mutually acceptable arbitrators within thirty (30) days after the filing of the Arbitration Notice, the AAA shall promptly appoint the arbitrator(s) to complete the Panel in accordance with the criteria set forth in this Section 14.1. The arbitration shall take place in Denver, Colorado. The Panel shall apply the laws of the State of Delaware, without regard to its conflicts of laws provisions. The Panel shall issue appropriate protective orders to protect each Party's Confidential Information. If a Party can demonstrate to the Panel that the complexity of the issue or other reasons warrant the extension of one or more timetables in the AAA Rules, the Panel may extend such timetables but in no event shall the proceeding extend more than twelve (12) months from the date of filing of the Arbitration Notice with the AAA. The Panel's decision shall be in writing. The Panel shall have the authority to award any remedy allowed by law or in equity, including compensatory damages, pre-judgment interest and to grant final, complete, interim, or interlocutory relief, including specific performance, injunctions and other equitable relief, but not punitive or other damages set forth in Section 14.4 and each Party shall be deemed to have waived any right to such excluded damages. Except as set forth in Section 14.5, each Party shall bear its own costs, fees and expenses in the arbitration and shall share equally the Panel's fees, unless the Panel determines that its fees are to be paid by the non-prevailing Party.

14.2 Determination of Patents and Other Intellectual Property

Notwithstanding the foregoing, any dispute relating to the determination of validity of claims, infringement or claim interpretation relating to Cardiome's Patents or Fujisawa's Patents or Fujisawa's Marks shall be submitted exclusively to the federal courts.

14.3 Injunctive Relief

Nothing in this Agreement shall prevent either Party from seeking a temporary restraining order or injunction against the other Party as required to prevent such other Party's misuse of the Intellectual Property or Confidential Information of the other Party seeking such temporary restraining order or injunction. In addition nothing in this Agreement shall prevent Fujisawa from seeking a temporary restraining order or injunction against Cardiome to prevent any breach by Cardiome under Section 11.1. The Parties understand and agree that because of the difficulty in measuring economic losses to the non breaching Party as a result of a breach of the covenants set forth in this Agreement respecting Intellectual Property and Confidential Information and because of the immediate and irreparable damage that may be caused to the non breaching Party for which monetary damages would not be a sufficient remedy, the Parties agree that the non breaching Party will be entitled to seek specific performance, temporary and permanent injunctive relief, and such other equitable remedies to which it may then be entitled against the breaching Party. This Section 14.3 shall not limit any other legal or equitable remedies that the non breaching Party may have against the breaching Party.

14.4 No Consequential Damages

EXCEPT WITH REGARD TO ANY BREACH OF A PARTY'S CONFIDENTIALITY OBLIGATIONS HEREIN, INFRINGEMENT OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS OR EACH PARTY'S DUTY TO INDEMNIFY THE OTHER FOR INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES RECOVERED BY A THIRD PARTY AS PROVIDED UNDER Article 10 ABOVE, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES INCURRED BY EITHER PARTY UNDER THIS AGREEMENT OR OTHERWISE.

14.5 Attorney's Fees

Notwithstanding Section 14.1, In the event of any claim hereunder related to either Party's infringement of the Intellectual Property rights of the other Party or the misuse of Confidential Information of the other Party, the prevailing Party in any such dispute shall pay the reasonable legal fees and costs related thereto.

ARTICLE 15 CONDITIONS

15.1 Conditions to Agreement

Notwithstanding anything else in this Agreement, except as expressly set out in Section 15.2, the respective obligations of the Parties to consummate this Agreement and the transaction contemplated hereby shall be subject to:

(a): each of the Parties having filed with the United States Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice (the "Antitrust Division") a pre-merger notification in accordance with the HSR Act;
(b): the expiration or early termination of the waiting period under the HSR Act;
(c): the board of directors of Fujisawa Japan approving this Agreement and the transactions contemplated hereby; and
(d): the board of directors of Cardiome approving this Agreement and the transactions contemplated hereby.

15.2 Efforts Prior to Effectiveness of the Agreement

Each of the Parties shall:

(a): file with the FTC and the Antitrust Division a pre-merger notification in accordance with the HSR Act; and
(b): furnish promptly to the FTC and the Antitrust Division any additional information requested thereby pursuant to the HSR Act in connection with such filings. The Parties shall each bear their own costs associated with such filings, and share equally any disbursements payable to FTC or the Antitrust Division in connection with such filings.

15.3 Conditions Not Satisfied

In the event that the requirements of Sections 15.1(a), 15.1(b), 15.1(c) and 15.1(d) have not been waived or met on or before October 31, 2003, either Party shall have the right to give written notice of termination of the Agreement, and upon delivery of such notice, this Agreement shall terminate and neither Party shall have any rights or obligations hereunder, all to the same effect as if the Parties had never entered into this Agreement.

ARTICLE 16 MISCELLANEOUS

16.1 No Solicitation

Neither Party nor its Affiliates (collectively, the "Initiating Group") shall, directly or through its representatives, solicit for employment or employ any officer, director or employee of the other Party or its subsidiaries or Affiliates (collectively, the "Other Group") with whom the Initiating Group has contact in connection with, or who otherwise is known by the Initiating Group to participate in, the transactions contemplated by this Agreement for a period of two years after the Effective Date. The Initiating Group shall not be precluded from hiring any such person who has been terminated by the Other Group prior to commencement of employment discussions between such person and the

Initiating Group or its representatives. "Solicitation" shall not include any generalized public advertisement or any other solicitation by the Initiating Group or its representatives that is not specifically directed toward any such employee of the Other Group or toward any group of such employees of the Other Group.

16.2 Assignment; Binding Effect

Except as otherwise provided in this Agreement, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties hereto (whether by operation of Applicable Laws or otherwise) without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, either Party may sell, transfer or assign its rights under this Agreement to any Third Party, as part of a sale or transfer of substantially all of a Party's assets; provided that such Third Party agrees in writing to be bound by the terms and conditions of this Agreement. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective permitted successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing herein, expressed or implied, is intended to confer on any person other than the Parties hereto or their Representatives, respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

16.3 Force Majeure

Neither Party shall be held liable or responsible to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, including fire, floods, embargoes, war, acts of war (whether war be declared or not), acts of terrorism, failure of suppliers, insurrections, riots, civil commotions strikes, lockouts or other labour disturbances, acts of God (a "Force Majeure"); provided that the Party whose performance is delayed or prevented shall provide prompt notice of the Force Majeure to the other Party. Performance shall be excused so long as the condition constituting Force Majeure continues and the non-performing Party uses good faith diligent efforts to mitigate, avoid or end such delay of failure in performance as soon as practicable.

16.4 Governing Law

This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, except that no conflict of laws provision shall be applied to make the laws of any other jurisdiction applicable to this Agreement.

16.5 Waiver

Except as specifically provided for herein, the waiver from time to time by either of the Parties of any of their rights or their failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such Party's rights or remedies provided in this Agreement.

16.6 Severability

In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

16.7 No Right to Use Names

Except as otherwise provided herein, no right, express or implied, is granted by the Agreement to use in any manner the name "Cardiome," "Fujisawa" or any other trade name or trademark of the other Party or its Affiliates in connection with the performance of the Agreement.

16.8 Notices

All notices and other communications provided for hereunder shall be in writing and shall be mailed by registered or certified mail, postage paid, or delivered personally, by overnight delivery service or by facsimile, computer mail or other electronic means, with confirmation of receipt, addressed as follows:

Notice so given shall be deemed given and received (a) if by mail on the fourth day after posting; (b) by cable, telegram, telex or personal delivery on the date of actual transmission, with evidence of transmission acceptance, or (as the case may be) personal or other delivery; and (c) if by overnight delivery courier, on the next business day following the day such notice is delivered to the overnight delivery courier service.

16.9 Independent Contractors

The activities and resources of each Party shall be managed by such Party, acting independently and in its individual capacity. It is expressly agreed that Cardiome and Fujisawa shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership or agency of any kind. Neither Cardiome nor Fujisawa shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party.

16.10 Rules of Construction

The Parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the Party drafting such agreement or document.

16.11 Entire Agreement; Amendment

This Agreement (including the Exhibits attached hereto) sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter hereof and supersedes and terminates all prior agreements and understandings between the Parties. There are no covenants, promises, agreements, warranties, representations conditions or understandings, either oral or written, between the Parties other than as set forth herein. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties hereto unless reduced to writing and signed by the respective authorized officers of the Parties. Purchase orders, purchase order releases, confirmations, acceptances and similar documents submitted by a Party in conducting the activities contemplated under this Agreement are for administrative purposes only and shall not add to or modify the terms of the Agreement. To the extent of any conflict or inconsistency between this Agreement and any such document, the terms of this Agreement shall govern.

16.12 Counterparts; Facsimile

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be signed and delivered to the other Party by facsimile signature; such transmission will be deemed a valid signature.

16.13 Interpretation

The Section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. Except where the context clearly requires to the contrary: (i) each reference in this Agreement to a designated "Section" or "Exhibit" is to the corresponding Section or Exhibit of or to this Agreement; (ii) instances of gender or entity-specific usage (e.g., "his" "her" "its" "person" or "individual") shall not be interpreted to preclude the application of any provision of this Agreement to any individual or entity; (iii) "including" shall mean "including, without limitation"; (iv) references to Applicable Laws shall mean such Applicable Laws in effect during the Term (taking into account any amendments thereto effective at such time without regard to whether such amendments were enacted or adopted after the Signing Date); (v) references to "Federal" or "federal" shall be to laws, agencies or other attributes of the United States (and not to any State or locality thereof); (vi) references to "days" shall mean calendar days, unless it is expressly stated as "business days"; (vii) the English language version of this Agreement shall govern all questions of interpretation relating to this Agreement, notwithstanding that this Agreement may have been translated into, and executed in, other languages; (viii) references to "$" or "dollars" shall mean the lawful currency of the United States; and (ix) when an act requires the consent of a Party under this Agreement, such consent shall not be unreasonably withheld or delayed.

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed by their duly authorized officers as of the Signing Date.

CARDIOME PHARMA CORP.
By:

Name:		Robert Rieder
Title:		President and CEO
FUJISAWA HEALTHCARE, INC.
By:

Name:		H. Fukumoto
Title:		Chairman and CEO

EXHIBIT 1.1(H)

BACKUP COMPOUND(S)

REDACTED

EXHIBIT 1.1(A)

CARDIOME PATENTS

REDACTED

EXHIBIT 1.1(BB)

DEVELOPMENT PLAN

REDACTED

EXHIBIT 1.1(DD)

EXECUTIVE SUMMARY

REDACTED

EXHIBIT 1.1(CCCC)

CHEMICAL STRUCTURE OF RSD1235

REDACTED

EXHIBIT 4.1(B)

STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT

BY AND BETWEEN

CARDIOME PHARMA CORP.

AND

FUJISAWA HEALTHCARE, INC.

DATED: October 16, 2003

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT ("Stock Purchase Agreement") entered into as of the 16th day of October 2003 between Cardiome Pharma Corp., a Canadian corporation ("Cardiome" or "CP"), and Fujisawa Healthcare, Inc., a Delaware corporation ("Fujisawa" or "Stockholder").

RECITALS

A. Cardiome and Fujisawa have entered into a Collaboration and License Agreement as of October 16, 2003 (the "Collaboration and License Agreement").

B. The Collaboration and License Agreement provides that Fujisawa and Cardiome shall enter into this Stock Purchase Agreement.

C. All capitalized terms not defined herein shall have the same meanings as in the Collaboration and License Agreement unless otherwise indicated herein.

INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and the mutual representations, warranties, covenants and agreements contained herein, Cardiome and Fujisawa hereby agree as follows:

AGREEMENT

1. Option, Issuance, Closing and Delivery.

1.1 Issuance of the CP Common Shares.

Subject to the terms and conditions of this Stock Purchase Agreement, and provided that CP elects to exercise its option pursuant to Section 1.2, Cardiome hereby agrees to issue to Fujisawa and Fujisawa hereby agrees to subscribe for and acquire from Cardiome, shares of common stock without par value (the "Common Shares") of Cardiome at an aggregate purchase price of US$4,000,000, such number (the "CP Common Shares") (rounded to the nearest whole share) equal to US$4,000,000 (the "Purchase Price") divided by an amount equal to the product of ⁵/4 multiplied by the U.S. Dollar Equivalent of the average of the closing prices of the Common Shares on The Toronto Stock Exchange over a 30 calendar day period ending on the date which is one business day prior to the Notice Date (as that term is defined in Section 1.2 below). For the purposes of this Section 1.1, "U.S. Dollar Equivalent" shall mean the equivalent amount of U.S. dollars calculated from Canadian currency according to the rate of exchange reported in The Wall Street Journal as of the date which is one business day prior to the Notice Date. For greater clarity, by way of illustration only, if the 30-calendar day average of the closing prices was US$4.00, the number of CP Common Shares would equal US$4,000,000 divided by US$5.00 (the product of US$4.00 multiplied by ⁵/4), or 800,000 Common Shares.

1.2 CP Option Exercise; Closing; Delivery of the CP Common Shares.

(a) Within 12 months of the Effective Date (the "Option Period") and upon at least 30 days prior written notice to Fujisawa (the date Fujisawa receives or is deemed to have received such notice in accordance with Article 8 being the "Notice Date"), CP, at its option, may elect to issue to Fujisawa, whereupon Fujisawa shall subscribe for, purchase and acquire from CP, the CP Common Shares. The closing of the issuance and subscription of the CP Common Shares (the "Closing") shall take place on such date within the Option Period specified by CP in such written notice (the "Closing Date"), at the offices of Farris, Vaughan, Wills & Murphy, Vancouver, British Columbia, or at such other time or place as CP and Fujisawa may mutually agree.

(b) On the Closing Date, subject to the terms and conditions contained in this Stock Purchase Agreement, Fujisawa shall provide a wire transfer of immediately available funds to an

account of CP specified to Fujisawa, in an amount equal to the Purchase Price, in payment of the full purchase price for the CP Common Shares against delivery by Cardiome to Fujisawa of a certificate or certificates representing the CP Common Shares, dated as of the Closing Date.

(c) Unless and until CP provides such notice of election under Section 1.2(a), CP will not be under any obligation to issue nor will Fujisawa be under any obligation to subscribe for the CP Common Shares or any of them. For greater clarity, the parties acknowledge and agree that CP is not under an obligation to make the election set forth in Section 1.2(a) and that Fujisawa is not under an obligation to purchase the CP Common Shares set forth in such Section 1.2(a), if CP does not provide a written notice to Fujisawa pursuant to Section 1.2(a). The obligations of both parties under this Stock Purchase Agreement to sell and purchase the CP Common Shares shall expire at the end of the Option Period and be of no further force and effect.

2. Conditions to Closing.

2.1 Conditions to CP's Obligations.

The obligation of CP to issue and sell the CP Common Shares at the Closing is subject to the fulfilment by the Stockholder, at or prior to the Closing Date, of the following conditions, each of which is for the exclusive benefit of CP and may be waived by CP at any time prior to the Closing Date, in whole or in part, in its sole discretion without prejudice to any other right that it may have:

(a) Stockholder shall have delivered the Purchase Price to CP in accordance with Section 1.2(b) herein;

(b) CP shall have received at the Closing, a certificate, executed by the appropriate officer of Stockholder and dated as of the date of the Closing, certifying that the representations and warranties of Stockholder set forth in Article 3 of this Stock Purchase Agreement are true and correct in all respects as of the date hereof and as of the Closing Date (as if made on and as of that time), except as affected by transactions contemplated or permitted by this Stock Purchase Agreement and except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date, and also certifying that all covenants, agreements and conditions to be performed on or prior to the Closing Date have been performed or complied with in all material respects; and

(c) Stockholder shall have completed, executed and delivered to CP the Toronto Stock Exchange Private Placement Questionnaire and Undertaking, the form of which is attached hereto as Schedule 2.

2.2 Conditions to Stockholder's Obligations.

The obligation of Stockholder to purchase and pay for the CP Common Shares at the Closing is subject to the fulfilment by CP, at or prior to the Closing Date, of the following conditions, each of which is for the exclusive benefit of the Stockholder and may be waived by the Stockholder at any time prior to the Closing Date, in whole or in part, in its sole discretion without prejudice to any other right that it may have:

(a) Stockholder shall have received at the Closing an opinion from Farris, Vaughan, Wills & Murphy, counsel to CP, regarding this Stock Purchase Agreement substantially in the form and substance attached hereto as Schedule 1;

(b) Stockholder shall have received at the Closing copies of the resolutions of the board of directors of CP authorizing the execution and delivery of this Stock Purchase Agreement and the performance by CP of all transactions contemplated hereby, certified by the appropriate officer of CP;

(c) Stockholder shall have received at the Closing, a certificate, executed by the appropriate officer of CP and dated as of the date of the Closing, certifying that (i) the representations and warranties of CP set forth in Article 4 of this Stock Purchase Agreement are true and correct in all respects as of the date hereof and as of the Closing Date (as if made on and as of that time) except as affected by the transactions contemplated or permitted by this Stock Purchase Agreement and except to the extent that any such representation or warranty is made as of a specified date, in which case such representation or warranty shall have been true and correct as of such date; (ii) all covenants, agreements and conditions to be performed on or prior to the Closing Date have been performed or complied with in all material respects. Notwithstanding the foregoing, if the effect on CP of any inaccuracies (singularly or cumulatively) in such representations and warranties (provided that, for this purpose, all Material Adverse Effect qualifications or other qualifications based on the word "material" contained within the language of such representations and warranties shall be disregarded) does not have a Material Adverse Effect as of the Closing Date, the conditions contained in this Section 2.2(c) shall be deemed to be satisfied with respect to such representations and warranties;

For purposes of this Stock Purchase Agreement, "Material Adverse Effect" means any event, change, occurrence, effect, fact, violation, development or circumstances which has, (either individually or in the aggregate), a material adverse effect on: (A) the ability of CP to duly perform its obligations under this Stock Purchase Agreement or to consummate the transactions contemplated hereby on a timely basis; or (B) the business properties, assets (both tangible and intangible), liabilities, condition (financial or otherwise), results of operations of CP and its subsidiaries which, taken as a whole, fundamentally impairs the ability of CP to carry on its business of drug discovery and development; provided, however, that any adverse event, change, occurrence, effect, development or circumstance directly attributable to conditions affecting the market sectors in which CP operates, or affecting financial markets generally or relating to the clinical development or prospects of a particular product candidate shall not, in and of themselves, be deemed to constitute a Material Adverse Effect; and

(d) CP shall have obtained all necessary governmental approvals to consummate the transactions contemplated hereunder.

3. Stockholder Representations, Warranties and Agreements.

Stockholder hereby represents, warrants and agrees that:

3.1 Organization, Good Standing and Qualification.

Stockholder has been duly organized and is validly subsisting as a corporation under the laws of its jurisdiction of incorporation with corporate power and authority to own, lease and operate its properties and assets and carry on its businesses as currently owned and carried on.

3.2 Authority and Approval.

Stockholder has all requisite corporate power and authority and has taken all action necessary in order to execute, deliver and perform its obligations under this Stock Purchase Agreement. This Stock Purchase Agreement has been duly executed and delivered by the Stockholder and constitutes a legal, valid and binding agreement of the Stockholder enforceable against the Stockholder, in accordance with its terms, subject to bankruptcy, insolvency and other similar laws affecting creditors' rights generally and general principles of equity.

3.3 Investment Representations.

(a) Stockholder is an "accredited investor" (1) as defined in Rule 501(a) of Regulation D of the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder, as now in effect and as amended from time to time (the "1933 Act"), as it is an organization

described in section 501(c)(3) of the U.S. Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of US$5,000,000; and (2) as defined in Multilateral Instrument 45-103—Capital Raising Exemptions, as it is a corporation, limited partnership, limited liability partnership, trust or estate, other than a mutual fund or non-redeemable investment fund, that had net assets of at least CDN$5,000,000 as shown on its most recently prepared financial statements, and in purchasing the CP Common Shares, it will be purchasing them as principal. The Stockholder has such knowledge and experience in financial, tax and business matters to enable the Stockholder to evaluate the merits and risks of acquiring the CP Common Shares.

(b) For purposes of the 1933 Act and U.S. state securities laws, Stockholder is acquiring the CP Common Shares issuable to it hereunder for its own account and not with a view to, or for sale or other disposition in connection with, any distribution of all or any part thereof, except pursuant to an applicable exemption under the 1933 Act and applicable state securities laws.

(c) Stockholder understands (1) that the CP Common Shares will not have been registered, nor is CP under any obligation to register, the CP Common Shares pursuant to the 1933 Act or any applicable U.S. state securities laws or qualified for resale by a prospectus under the applicable securities laws of the provinces of British Columbia, Alberta, Manitoba, Ontario and Quebec and the Yukon Territory, the rules, their respective regulations, prescribed forms, orders and rulings made thereunder and the policy statements issued by the securities commissions or other applicable securities regulatory authorities thereunder (the "Canadian Securities Laws"), (2) that the CP Common Shares will be characterized as "restricted securities" under U.S. federal and state securities laws and applicable Canadian Securities Laws, (3) that under such laws and applicable regulations the CP Common Shares cannot be sold or otherwise disposed of without registration under the 1933 Act and applicable state laws, except pursuant to an applicable exemption under the 1933 Act and applicable state laws, or qualification for resale by a prospectus under Canadian Securities Laws or qualification for an exemption therefrom and (4) that stop-transfer instructions may be issued to the transfer agent for securities of CP (or a notation may be made in the appropriate records of CP) in connection with the CP Common Shares.

3.4 Acknowledgement of Stockholder.

The Stockholder acknowledges that:

(a) Stockholder is not resident in British Columbia;

(b) CP is relying on an exemption from the requirements to provide the Stockholder with a prospectus and to sell the CP Common Shares through a person registered to sell the CP Common Shares under Canadian Securities Laws and, as a consequence of acquiring said CP Common Shares pursuant to this exemption, certain protections, rights and remedies provided by the applicable registration and prospectus requirements of the Securities Act (British Columbia) as in effect as of the date hereof and as it may be amended from time to time prior to the Closing Date (the "BC Securities Act"), (collectively, "British Columbia Securities Laws"), including statutory rights of rescission or damages, will not be available to the Stockholder;

(d) no securities commission or similar regulatory authority has reviewed or passed on the merits of the CP Common Shares;

(e) there are risks associated with the purchase of the CP Common Shares;

(f) there are restrictions on the Stockholder's ability to resell the CP Common Shares and it is the responsibility of the Stockholder to find out what those restrictions are and to comply with them before selling the CP Common Shares; and

(g) no person has made to the Stockholder any written or oral representations: (1) that any person will resell or repurchase the CP Common Shares, (2) that any person will refund the purchase price for the CP Common Shares, (3) as to the future price or value of the CP Common Shares, (4) that the CP Common Shares will be listed and posted for trading on any stock exchange or that application has been made to list the CP Common Shares on any stock exchange, other than listing of the CP Common Shares on the Toronto Stock Exchange, or (5) that Rule 144 promulgated under the 1933 Act ("Rule 144") or any other 1933 Act or U.S. state securities law exemption is or will be available for resale of the CP Common Shares.

3.5 CP Disclosure Documents.

Stockholder has received copies of (a) CP's Annual Information Form to its shareholders for the year ended November 30, 2002, and (b) CP's Quarterly Reports for the quarters ended February 2003 and May 2003, each of which are attached hereto (such reports, as amended and supplemented, are collectively referred to herein as the "Disclosure Documents").

3.6 Securities and Exchange Commission Restrictions.

The Stockholder will not offer to sell, exchange, transfer, pledge or otherwise dispose of any of the CP Common Shares unless at such time all applicable Canadian Securities Laws in respect of such transaction applicable to it are being complied with the conditions of at least one of the following is satisfied, and then only in accordance with any requirement contained in the applicable section of the following:

(a) such transaction shall be permitted pursuant to the provisions of Rule 144 and in accordance with any applicable U.S. state securities laws;

(b) counsel representing the Stockholder, reasonably satisfactory to CP, shall have advised CP in a written opinion letter reasonably satisfactory to CP and CP's counsel, and upon which CP and its counsel may rely, that no registration under the 1933 Act would be required in connection with the proposed sale, exchange, transfer, pledge or other disposition;

(c) an authorized representative of the SEC shall have rendered written advice to the Stockholder (sought by the Stockholder or counsel to the Stockholder, with a copy thereof and of all other related communications delivered to CP) to the effect that the SEC would take no action, or that the staff of the SEC would not recommend that the SEC take action, with respect to the proposed sale, exchange, transfer, pledge or other disposition if consummated;

(d) the sale is made outside the United States in a transaction meeting the requirements of Rule 904 of Regulation S under the 1933 Act; or

(e) the sale is to CP.

3.7 Restrictive Legend.

All certificates representing the CP Common Shares deliverable to the Stockholder pursuant to this Stock Purchase Agreement and any certificates subsequently issued with respect thereto or in substitution therefor, unless a sale, exchange, transfer or other disposition is executed pursuant to one or more of the alternative conditions set forth in Section 3.6 shall have occurred, shall bear a legend substantially as follows:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THEY ARE REGISTERED UNDER APPLICABLE US FEDERAL AND STATE SECURITIES LAWS OR UNLESS SUCH OFFER, SALE OR TRANSFER IS ONLY (A) TO THE CORPORATION; (B) OUTSIDE THE

UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT; (C) IN ACCORDANCE WITH RULE 144 OR RULE 144A UNDER THE SECURITIES ACT, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS; OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE LAWS AND REGULATIONS GOVERNING THE OFFER AND SALE OF SECURITIES, AND THE HOLDER HAS, PRIOR TO SUCH SALE, FURNISHED TO THE CORPORATION, IF REASONABLY REQUESTED BY THE CORPORATION, AN OPINION OF COUNSEL, OF RECOGNIZED STANDING, OR OTHER EVIDENCE OF EXEMPTION IF REQUESTED BY THE CORPORATION, IN A GENERALLY ACCEPTABLE FORM.

provided that if the CP Common Shares are being sold outside the United States in a transaction meeting the requirements of Rule 904 of Regulation S of the 1933 Act and in compliance with applicable laws and regulations, the legend may be removed by providing a declaration to the transfer agent for the CP Common Shares, to the following effect (or as CP may prescribe from time to time):

The undersigned (A) acknowledges that the sale of the securities to which this declaration relates is being made in reliance on Rule 904 of Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act") and (B) certifies that (1) the offer of such securities was not made to a person in the United States and either (a) at the time the buy order was originated, the buyer was outside the United States, or the seller and any person acting on its behalf reasonably believes that the buyer was outside the United States or (b) the transaction was executed on or through the facilities of The Toronto Stock Exchange and neither the seller nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States, (2) neither the seller nor any person acting on its behalf engaged in any directed selling efforts in the United States in connection with the offer and sale of such securities, (3) the sale is bona fide and not for the purpose of "washing off" the resale restrictions imposed because the securities are "restricted securities" (as such term is defined in Rule 144(a)(3) under the Securities Act), (4) the seller does not intend to replace the securities sold in reliance on Rule 904 with fungible unrestricted securities, (5) the contemplated sale is not a transaction, or part of a series of transactions which, although in technical compliance with Regulation S, is part of a plan or scheme to evade the registration provisions of the Securities Act and (6) the undersigned is not an "affiliate" (as defined in Rule 405 under the Securities Act) of the Issuer. Terms used herein have the meanings given to them by Regulation S.

Except as set forth below, the Stockholder also understands that the following restrictive legends will be required under Canadian Securities Laws, the terms of this Stock Purchase Agreement and the policies of The Toronto Stock Exchange to be placed on the certificates representing the CP Common Shares:

"UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THE SECURITIES SHALL NOT TRADE THE SECURITIES BEFORE [INSERT THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE CLOSING DATE].

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A STOCK PURCHASE STOCK PURCHASE AGREEMENT DATED FOR REFERENCE THE 16TH DAY OF OCTOBER, 2003, AS AMENDED FROM TIME TO TIME, AND SUCH SECURITIES ARE NOT TRANSFERABLE ON THE BOOKS OF THE CORPORATION AND, WITHOUT LIMITATION, MAY NOT BE SOLD, TRANSFERRED, PLEDGED, ASSIGNED, OPTIONED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE AND COMPLIANCE WITH THE TERMS AND CONDITIONS OF SUCH STOCK PURCHASE AGREEMENT UNTIL THE [INSERT THE DATE THAT IS 6 MONTHS AFTER THE CLOSING DATE].

THE COMMON SHARES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE TORONTO STOCK EXCHANGE; HOWEVER, THE SAID SECURITIES CANNOT BE TRADED THROUGH THE FACILITIES OF SUCH EXCHANGE SINCE THEY ARE NOT FREELY TRANSFERABLE, AND CONSEQUENTLY ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS NOT "GOOD DELIVERY' IN SETTLEMENT OF TRANSACTIONS ON THE TORONTO STOCK EXCHANGE."

Provided, the legends above may be removed in the event the Stockholder has provided CP's transfer agent the declaration in substantially the form as set out on page 8 of this Stock Purchase Agreement or CP has instructed the transfer agent to remove the legends pursuant Section 3.6 of this Stock Purchase Agreement, in either case on or after the date that is 6 months following the Closing Date.

4. CP Representations, Warranties and Agreements.

CP represents, warrants and agrees that:

4.1 Organization, Good Standing and Qualification.

CP has been duly incorporated and is validly subsisting as a corporation under the laws of its jurisdiction of incorporation, amalgamation or continuance, as the case may be, with corporate power and authority to own, lease and operate its properties and assets and carry on its businesses as currently owned and carried on as described in the Disclosure Documents and is duly registered, licensed or qualified to carry on business in each jurisdiction in which the nature of the business now being carried on or the property owned or leased by it makes such registration, licensing or qualification necessary except such as would not, individually or in the aggregate, be reasonably likely to have, a Material Adverse Effect. CP has made available to the Stockholder a complete and correct copy of its articles of incorporation and by-laws, including all amendments thereto, as presently in effect.

4.2 Capital Structure.

As of the date hereof, the authorized capital of CP consists of an unlimited number of Common Shares and an unlimited number of preferred shares, of which 36,486,108 Common Shares and no preferred shares are issued and outstanding as of the date hereof. All of the outstanding shares of capital stock of CP are, and the CP Common Shares, when issued and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable. Except as described in this section or the Disclosure Documents filed prior to the date hereof, there are, as of the date hereof:

(a) no conversion rights, special liquidation rights, sinking fund provisions, pre-emptive rights attached to any Common Shares;

(b) no bonds, debentures or other evidences of indebtedness of CP having the right to vote (or that are convertible for or exercisable into securities having the right to vote) on any matter;

(c) no contractual obligations of CP to repurchase, redeem or otherwise acquire any outstanding securities or indebtedness of CP; and

(d) no options, warrants or other rights to purchase any of CP's authorized and unissued Common Shares, nor are there any pre-emptive rights or rights of first refusal granted by CP to shareholders to purchase Common Shares.

4.3 Authority and Approval.

CP has all requisite corporate power and authority and has taken all action necessary in order to execute, deliver and perform its obligations under this Stock Purchase Agreement and to issue and deliver the CP Common Shares to Stockholder. This Stock Purchase Agreement has been duly

executed and delivered by CP and constitutes a legal, valid and binding agreement of CP enforceable against CP in accordance with its terms, subject to bankruptcy, insolvency and other similar laws affecting creditors' rights generally and general principles of equity.

4.4 No Violations.

CP is not in violation of its articles of incorporation or by-laws and to the actual knowledge of the senior management of CP in respect of the relevant subject matter ("to the best of CP's knowledge"), no condition or circumstance exists that likely would (with or without notice or lapse of time) constitute or result directly or indirectly in such a violation; to the best of CP's knowledge, CP is not in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan agreement, evidence of indebtedness, note, lease or other agreement, understanding or instrument to which it is a party or by which it may be bound or to which any of its property or assets is subject, other than defaults that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. To the best of CP's knowledge, the execution, delivery and performance of this Stock Purchase Agreement:

(a) do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of CP pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which CP is a party or by which CP is bound or to which any of the property or assets of CP is subject (other than conflicts, breaches, defaults, liens, charges and encumbrances that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect); and

(b) do not and will not result in any violation of any applicable laws other than violations that would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect.

4.5 CP Reports.

CP is a reporting issuer not in default in the provinces of British Columbia, Alberta, Manitoba, Ontario, Quebec and the Yukon Territory (the "Reporting Jurisdictions") and has filed with securities regulators in the Reporting Jurisdictions true and complete copies of all Disclosure Documents. The Disclosure Documents, and the documents filed with the Toronto Stock Exchange, as of the date they were filed, complied in all material respects with applicable laws and the requirements of the Toronto Stock Exchange and did not contain a "misrepresentation" (as that term is defined in the BC Securities Act.).

4.6 Qualifying Issuer.

CP is a "qualifying issuer" as defined under Multilateral Instrument 45-102—Resale of Securities ("MI 45-102").

4.7 Financial Statements.

As of the date hereof and as of the Closing Date, the financial statements (including related notes) of CP included in the Disclosure Documents are true, accurate and complete in all respects, are consistent with the books and records of CP, comply with all applicable accounting requirements and the published rules related thereto, have been prepared in accordance with generally accepted accounting principles in Canada applied on a consistent basis during the periods involved which conforms to U.S. generally accepted accounting principles ("GAAP") (except as may be indicated in the notes thereto) and fairly and accurately present the consolidated financial position and condition of CP as of the dates thereof and their consolidated results of operations and cash flows for the periods ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments).

4.8 Securities Laws.

Based in part on the representations of the Stockholder herein, the offer, sale and delivery of the CP Common Shares are exempt from the registration requirements of the federal securities laws of the United States and British Columbia Securities Laws.

4.9 Consents.

Except for the consents already obtained prior to Closing and the consent of the Toronto Stock Exchange required for the listing of the CP Common Shares, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any U.S. federal, state, local or foreign or Canadian federal, provincial or local governmental agency, body, authority, or instrumentality or any court or tribunal (a "Governmental Authority"), or any other person, is required in connection with the execution and delivery of, and the consummation of the transactions contemplated by this Stock Purchase Agreement.

4.10 Litigation.

As of the date hereof and as of the Closing Date:

(a) there is no action, suit, claim, proceeding or investigation pending, or to the knowledge of CP, threatened, against CP or any subsidiary, and CP is not aware of any event or circumstance that may form a basis for any such action, suit, claim, proceeding or investigation. The foregoing includes, without limitation, actions, suits, claims, proceedings or investigations pending or threatened against CP or any subsidiary (or any basis therefor known to CP) involving the prior employment of any of CP's or any subsidiary's employees, their use in connection with the business of CP of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with former employers that could, individually or in the aggregate, result in a Material Adverse Effect;

(b) none of CP or any subsidiary is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or Governmental Authority that could, individually or in the aggregate, result in a Material Adverse Effect;

(c) there is no action, suit, claim, proceeding or investigation by CP or any subsidiary that is currently pending or that CP or any subsidiary intends to initiate that could, individually or in the aggregate, result in a Material Adverse Effect; and

(d) there is no action, suit, claim, proceeding or investigation pending or, to the knowledge of CP, threatened, that questions the validity of this Stock Purchase Agreement, or the right of CP to enter into this Stock Purchase Agreement, or to consummate the transactions contemplated hereby or that could, individually or in the aggregate, result in a Material Adverse Effect.

4.11 Compliance with Laws.

(a) Except as set forth in the Disclosure Documents, CP is in full compliance, with each Legal Requirement (as defined below) that is applicable to CP or any of CP's properties, assets, operations or businesses, and no event has occurred, and no condition or circumstance exists, that might (with or without notice or lapse of time) constitute, or result directly or indirectly in, a default under, a breach or violation of, or a failure to comply with, any such Legal Requirement to the extent that such default, breach or failure to comply could, individually or in the aggregate, result in a Material Adverse Effect. Except as set forth in the Disclosure Documents, to the best of CP's knowledge, CP has not received any notice from any third party regarding any actual, alleged or potential violation of any Legal Requirement.

(b) Legal Requirement shall mean any U.S. or Canadian federal, state, provincial, local, municipal, foreign or other law, statute, legislation, constitution, principle of common law,

resolution, ordinance, code, order, edict, decree, proclamation, treaty, convention, rule, regulation, permit, ruling, directive, pronouncement, requirement (licensing or otherwise), specification, determination, decision, opinion or interpretation that is or has been issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect by or under the authority of any Governmental Authority.

4.12 SEC Filings.

CP has filed all forms, reports, schedules, statements and documents required to be filed with the SEC from November 30, 2002 (such documents, as supplemented and amended, the "CP SEC Reports"), each of which has complied in all material respects with the applicable requirements of the 1933 Act and the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"), each as in effect on the date so filed (and, in the case of registration statements, on the dates of effectiveness and the dates of mailing, respectively, and in the case of any CP SEC Reports amended or superseded by a filing prior to the date of this Agreement, then on the date of such amending or superseding filing). None of the CP SEC Reports (including any financial statements or schedules included or incorporated by reference therein) contained when filed (and, in the case of registration statements, on the dates of effectiveness and the dates of mailing, respectively, and in the case of any CP SEC Reports amended or superseded by a filing prior to the date hereof, then on the date of such amending or superseding filing) any untrue statement of a material fact or omitted to state a material fact required to be stated therein (or incorporated by reference therein) or necessary in order to make the statements therein (or incorporated by reference therein), in light of the circumstances under which they were made, not misleading. In CP's Form 20-F for the fiscal year ended November 30, 2002 filed with the SEC, the principal executive officer of CP and the principal financial officer of CP (and each former principal executive officer of CP and each former principal financial officer of CP, as applicable) have made the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), and the rules and regulations of the SEC promulgated thereunder with respect to CP's filings pursuant to the Exchange Act. For purposes of the preceding sentence, "principal executive officer" and "principal financial officer" shall have the meanings given to such terms in the Sarbanes-Oxley Act.

5. Covenants of CP.

CP hereby covenants and agrees that:

(a) as of the Closing Date, the CP Common Shares will be posted and listed for trading on the Toronto Stock Exchange, subject to the customary conditions of the Toronto Stock Exchange;

(b) as of the Closing Date, CP will be a "qualifying issuer" and will have equity securities listed or quoted on a "qualified market" (as each such term is defined in MI 45-102), and it will continue to be a reporting issuer in 1 or more of the Reporting Jurisdictions; and

(c) it will comply with applicable securities laws, including in connection with the issuance of the CP Common Shares making all required filings and paying all required fees.

6. Stockholder Lock-Up—Common Shares.

6.1 Lock-Up—Sale of Common Shares

Stockholder hereby agrees that it will not, during the period from the date hereof until the later of the expiration of 12 months following the Effective Date or 6 months following the Closing Date provided that in no event shall the period extend beyond 6 months after the Closing Date:

(a) lend, offer, pledge, sell, contract to sell, sell any option, purchase any option or contract to sell, grant any option, right to transfer or dispose of, directly or indirectly, any Common Shares

(whether such shares or any such securities are then owned by the Stockholder or are thereafter acquired);

(b) engage in any hedging or other transaction which is designed to or could be reasonably expected to lead to or result in a disposition of such securities by Stockholder, such prohibited hedging or other transactions would include, without limitation, effecting any short sale or having in effect any short position (whether or not such sale or position is against the box and regardless of when such position was entered into) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to such securities or with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Common Shares; or

(c) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Shares, whether any such transaction described in clause (a), (b) or (c) above is to be settled by delivery of Common Shares or such other securities, in cash or otherwise, except:

(d) pursuant to a tender offer, takeover bid, amalgamation, statutory arrangement, merger or other similar reorganization of CP;

(e) as a pledge or charge of any or all of the Common Shares to a financial institution, provided that prior to such pledge or charge, such financial institution agrees in writing to be bound by the provisions of this Stock Purchase Agreement and acknowledges that the Common Shares so pledged or charged may not be sold, transferred or otherwise dealt with except in accordance with the provisions of this Stock Purchase Agreement, as if such financial institution were a party hereto in place of the Stockholder;

(f) as may be required by reason of the bankruptcy, as applicable, of the Stockholder or otherwise by operation of law, provided that the transferee of the Common Shares agrees in writing to be bound by the provisions of this Stock Purchase Agreement and acknowledges that the Common Shares may not be sold, transferred or otherwise dealt with except in accordance with the provisions of this Stock Purchase Agreement, as if such transferee were a party hereto in place of the Stockholder;

(g) as may be necessary to comply with applicable law or the requirements of any applicable regulatory authority having jurisdiction; or

(h) as a sale, transfer, assignment or otherwise between the Stockholder and any Affiliate (defined in Collaboration and License Agreement) of Stockholder, provided that the transferee of the Common Shares agrees in writing to be bound by the provisions of this Stock Purchase Agreement and acknowledges that the Common Shares may not be sold, transferred or otherwise dealt with except in accordance with the provisions of this Stock Purchase Agreement, as if such transferee were a party hereto in place of the Stockholder and provided that any Affiliate agree to be bound by the provisions of this Stock Purchase Agreement.

6.2 Lock-Up—Purchase of Common Shares.

Stockholder hereby agrees that it will not, during the period from the date hereof until the earlier of (i) the Closing Date or (ii) the date is that is twelve months following the Effective Date, borrow, offer, take a charge on, buy, contract to buy, buy any option or contract to purchase, acquire any option, right or warrant to purchase, or otherwise acquire ownership of, directly or indirectly, any Common Shares (herein a "Purchase"). Thereafter, the Stockholder shall be free to Purchase any Common Shares.

7. The Toronto Stock Exchange Private Placement Questionnaire and Undertaking.

The Stockholder hereby covenants and agrees that it shall complete, execute and deliver to CP, at or prior to the Closing Date a private placement questionnaire and undertaking in the form acceptable to The Toronto Stock Exchange, the current form of which is attached as Schedule 2.

8. Notices.

All notices and other communications provided for hereunder shall be in writing and shall be delivered personally, by overnight delivery service or by facsimile, computer mail or other electronic means, with confirmation of receipt, addressed as follows:

Notice so given shall be deemed given and received (a) by facsimile, computer mail or other electronic means on the date of actual transmission, with evidence of transmission acceptance, or (as the case may be) personal or other delivery; and (b) if by overnight delivery service, on the next business day following the day such notice is delivered to the overnight delivery service.

9. Counterparts.

This Stock Purchase Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Stock Purchase Agreement may be signed and delivered to the other Party by facsimile signature; such transmission will be deemed a valid signature.

10. Successors and Assigns.

Except as otherwise provided in this Stock Purchase Agreement, neither this Stock Purchase Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties hereto (whether by operation of Applicable Laws or otherwise) without the prior written

consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, either Party may sell, transfer or assign its rights under this Stock Purchase Agreement to any Third Party, as part of a sale or transfer of substantially all of a Party's assets; provided that such Third Party agrees in writing to be bound by the terms and conditions of this Stock Purchase Agreement. Subject to the preceding sentence, this Stock Purchase Agreement shall be binding upon and shall inure to the benefit of the Parties hereto and their respective permitted successors and assigns. Notwithstanding anything contained in this Stock Purchase Agreement to the contrary, nothing herein, expressed or implied, is intended to confer on any person other than the Parties hereto or their Representatives, respective heirs, successors, executors, administrators and assigns any rights, remedies, obligations or liabilities under or by reason of this Stock Purchase Agreement.

11. Governing Law.

This Stock Purchase Agreement shall be governed by, and construed and enforced in accordance with, the laws of the province of British Columbia, Canada, except that no conflict of laws provision shall be applied to make the laws of any other jurisdiction applicable to this Stock Purchase Agreement.

12. Severability.

In case any provision of this Stock Purchase Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

13. Press Release And Public Disclosure.

The parties agree that public disclosure of this Stock Purchase Agreement is governed by the confidentiality provisions contained in the Collaboration and License Agreement, therefore neither CP nor the Stockholder will disclose of the existence or terms of this Stock Purchase Agreement other than as provided for under the terms of the Collaboration and License Agreement.

14. Further Assurances.

As of the date hereof and thereafter as may be necessary or desirable, and without further consideration, each party shall deliver such documents, certificates, assurances and other instruments as may be reasonable required to carry out the provisions of this Stock Purchase Agreement.

15. Effect of Headings.

The section headings herein are for convenience only and shall not affect the construction or interpretation of this Stock Purchase Agreement.

16. Third Party Reliance.

Counsel to the parties shall be entitled to rely upon this Stock Purchase Agreement as needed in the rendering of opinions as provided for herein.

17. Legal Fees.

In the event of any legal action or proceeding to enforce or interpret the provisions hereof, the prevailing party shall be entitled to reasonable attorneys' fees whether or not the proceeding results in a final judgment. If both parties hereto prevail in part in any such legal action, the court shall have the decision to award fees and costs to the parties as it deems equitable.

18. Specific Performance.

In addition to any and all other remedies that may be available at law in the event of any breach of this Stock Purchase Agreement, each party hereto will be entitled to specific performance of the

agreements and obligations of the other party hereto and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction.

[Remainder of Page Intentionally Left Blank; Signature Page Follows]

SIGNATURE PAGE—STOCK PURCHASE AGREEMENT

IN WITNESS WHEREOF, the parties have caused this Stock Purchase Agreement to be executed as of the date first above written.

		CP:
		Cardiome Pharma Corp.
		By:
		Its:
		STOCKHOLDER:
		Fujisawa Healthcare, Inc.
		By:
		Its:

SCHEDULE 1—OPINION

PRELIMINARY DRAFT

• , 200•

To:: Fujisawa Healthcare, Inc.
Re:: Cardiome Pharma Corp.—Sale of Common Shares

Ladies and Gentlemen:

We have acted as counsel for Cardiome Pharma Corp. (the "CP") in connection with the Stock Purchase Agreement dated • , 2003 (the "Stock Purchase Agreement"), between CP and Fujisawa Healthcare, Inc. ("Fujisawa"). This letter is provided to you in satisfaction of the requirement set forth in Section 2.2(a) of the Stock Purchase Agreement in connection with the Closing. The Stock Purchase Agreement provides, among other things, for the sale and purchase of • common shares in the capital of CP (the "CP Common Shares"). Terms not otherwise defined herein have the meanings given to them in the Stock Purchase Agreement.

Documents Examined

In connection with the foregoing, we have participated in the preparation of and examined the Stock Purchase Agreement, the Schedules to the Stock Purchase Agreement, records of proceedings of the directors and shareholders of CP, the Articles of Incorporation and Bylaws of CP, certificates of officers of CP and public officials, and such other documentation as we have deemed necessary or advisable in order to render the opinions expressed herein.

Certificates Relied Upon

In rendering the opinion expressed in paragraph 1 as to the valid existence of CP, we have relied exclusively and without independent investigation upon a certificate of Compliance issued by the Director, Industry Canada dated • , 200•, a copy of which has been delivered to you.

As to various questions of fact related to this opinion, we have relied exclusively and without independent investigation upon a certificate of an officer of CP dated the date hereof, a copy of which is attached as Schedule "A" hereto. However, nothing has come to our attention in the course of representing CP in this matter that would lead us to believe the certificate is incorrect.

In rendering the opinion expressed in paragraph 7 we have relied exclusively and without independent investigation upon a letter from The Toronto Stock Exchange dated • , 200•, a copy of which has been delivered to you.

In rendering the opinion expressed in paragraph 9 we have relied exclusively and without independent investigation upon a certificate from the British Columbia Securities Commission dated • , 200•, a copy of which has been delivered to you.

Assumptions

As to questions of fact, you have authorized us to assume for the purpose of this opinion:

(a): the accuracy of all of the representations and warranties of the parties set forth in the Stock Purchase Agreement and Schedule 2 to the Stock Purchase Agreement; and
(b): that the Stock Purchase Agreement has been duly authorized, executed and delivered by Fujisawa.

We have further assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to the original of all documents submitted to us as true, certified or photostatic copies thereof. We have also assumed the completeness, truth and accuracy of all facts set forth in public records reviewed by us and certificates and other documents supplied by public officials.

Qualifications

Whenever a statement herein is qualified by the expression "to our knowledge" or a similar phrase or expression with respect to our knowledge of matters of fact, it is intended to mean that our knowledge is based upon the record, documents, instruments and certificates described herein and the current actual knowledge of the lawyers in this firm who have devoted substantial attention to the transactions contemplated by the Stock Purchase Agreement, (but not including any constructive or imputed notice of any information) and that we have not otherwise undertaken any independent investigations for the purpose of rendering this opinion. No inference as to our knowledge of the existence or absence of such facts should be drawn from the fact of our representation of CP.

We are qualified to practice law in the Province of British Columbia and to express legal opinions with respect to the laws of such province and the laws of Canada applicable therein. The opinions expressed below are to be construed in accordance with such laws in effect on the date hereof. We have not made an examination of the laws of any jurisdiction other than those specified and we do not express any opinion with respect to the laws of any other jurisdiction.

The opinion expressed in paragraph 3 is subject to the following qualifications:

(a): we express no opinion as to the effect of rules of law governing specific performance, injunctive relief or other equitable remedies in any particular instance;
(b): we express no opinion as to the effect of applicable bankruptcy, reorganization, winding-up, insolvency, fraudulent preference, moratorium and other similar laws affecting the rights of creditors generally; and
(c): the awarding of costs of litigation is at the discretion of a court of competent jurisdiction notwithstanding any provision to the contrary in an agreement.

Based upon the foregoing, it is our opinion that:

(1): CP has been duly incorporated and is validly existing as a company under the laws of Canada with the necessary corporate power to own, lease and operate its properties and conduct its business as described in CP's Annual Information Form for the fiscal year ended November 30, 2002 and is, according to the records of the Director, Industry Canada, in good standing with respect to the filing of returns.
(2): The authorized share capital of CP consists of an unlimited number of Common shares without par value and an unlimited number of Preferred shares issuable in one or more series, without par value. As of the [insert date of Stock Purchase Agreement] date hereof (and immediately prior to the issuance of the Common shares), there are [36,486,108] Common shares issued and outstanding and no Preferred shares issued and outstanding.
(3): CP has all requisite corporate power and authority to execute, deliver and perform its obligations under the Stock Purchase Agreement, and the Stock Purchase Agreement (and the performances by CP of its obligations thereunder) has been duly and validly authorized, executed and delivered by CP and constitutes a legal, valid and binding agreement of CP, enforceable against CP in accordance with its terms. CP has all requisite corporate power and authority to issue and sell the CP Common Shares.

(4): The execution, delivery and performance by CP of its obligations under the Stock Purchase Agreement and the issuance of the CP Common Shares pursuant to the Stock Purchase Agreement do not violate any provision of CP's Articles of Incorporation or Bylaws, and do not (a) violate or contravene any governmental statute, rule or regulation (including the listing rules of The Toronto Stock Exchange) applicable to CP, (b) to our knowledge violate or contravene any order, writ, judgement, injunction, decree, determination or award known to us which has been entered against CP or to which CP or any of its properties or assets is known to us to be subject, or (c) to our knowledge violate, contravene or constitute a default of (or an event with the giving of notice or lapse of time or both constitutes or would constitute a default of) the provisions of any contract listed as an exhibit to CP's Form 20-F for the fiscal year ended November 30, 2002 which in the case of either (a), (b) or (c) would not, individually or in the aggregate, be reasonably likely to have, a "Material Adverse Effect", as that term is defined in the Stock Purchase Agreement.
(5): The CP Common Shares have been duly authorized and, upon issuance and delivery against payment therefor in accordance with the terms of the Stock Purchase Agreement, the CP Common Shares will be duly and validly issued and the CP Common Shares will be fully paid and non-assessable.
(6): Based in part upon your representations in the Stock Purchase Agreement, the offer, issuance and sale of the CP Common Shares by CP to Fujisawa is exempt from the registration and the prospectus requirements of the Securities Act (British Columbia) (the "BC Securities Act") and the only filing, proceeding, approval, consent or authorization required to be made, taken or obtained under the provisions of the BC Securities Act to permit the offer and sale of the CP Common Shares is the filing, within 10 days of the date of such issuance and sale, (a) with the British Columbia Securities Commission of a report prepared and executed in accordance with Form 45-103F4 as required by section 139 of the rules made under the BC Securities Act together with the appropriate fees and a completed fee checklist, and (b) with the British Columbia Securities Commission of a Form 45-102F2 prepared and executed in accordance with Multilateral Instrument 45-102—Resale of Securities. [Farris NTD: Language to be adjusted to reflect changes, if any, during the Option Period to the filing requirements.]
(7): The CP Common Shares have been conditionally approved for listing on The Toronto Stock Exchange, subject to the fulfilment of the conditions set out in the conditional acceptance letter of The Toronto Stock Exchange dated • , 200•, and no other filings, proceedings, approvals, consents or authorizations are required to be made, taken or obtained under the rules of The Toronto Stock Exchange in connection with such listing.
(8): To our knowledge, there is no action, suit, proceeding or investigation pending against CP before any court or administrative agency, nor has CP received any overt threat thereof, that questions the validity of the Stock Purchase Agreement.
(9): CP is a reporting issuer under the BC Securities Act and is not in default of any requirement under the BC Securities Act or the regulations thereunder.

This opinion relates exclusively to the transaction outlined above, is being furnished for the sole benefit of the addressee hereof and may not be used, circulated, quoted, relied upon, distributed or otherwise referred to by any other person or entity or for any other purpose without our prior written consent. This opinion is limited to the matters stated herein as at the date hereof and no opinion or belief is implied or may be inferred beyond the matters expressly stated herein.

Very truly yours,

SCHEDULE "A"

OFFICER'S CERTIFICATE
CARDIOME PHARMA CORP.

TO:: Farris, Vaughan, Wills & Murphy

The undersigned, being the • of Cardiome Pharma Corp. (the "CP"), hereby certifies that as of the date hereof:

(1)

I am aware of the circumstances surrounding the Stock Purchase Agreement dated as of October 16, 2003 (the "Stock Purchase Agreement"), between CP and Fujisawa Healthcare Inc. relating to the issuance of • common shares in the capital of CP (the "CP Common Shares").

(2)

CP does not carry on any business nor own any material assets not disclosed in CP's Annual Information Form for the fiscal year ended November 30, 2002 filed with the Canadian securities regulatory authorities (the "AIF").

(3)

The resolution of the directors of CP dated [October] • , 2003, approving the Stock Purchase Agreement and the issuance of the CP Common Shares is in full force and effect, and has not been amended, rescinded or altered in any way.

(4)

CP's Articles of Incorporation and Bylaws, as same appear in the corporate records of CP provided to you, have not been amended or altered in any way.

(5)

The execution, delivery and performance by CP of its obligations under the Stock Purchase Agreement and the issuance of the CP Common Shares pursuant to the Stock Purchase Agreement do not violate, contravene or constitute a default of (or an event with the giving of notice or lapse of time or both constitutes or would constitute a default of) the provisions of any material contract to which CP is a party.

(6)

There are no pre-emptive or other rights to subscribe for or to purchase, nor any restriction on the voting of, any Common Shares pursuant to any material contract to which CP is a party.

(7)

There are no orders, writs, judgements, injunctions, decrees, determinations or awards that have been entered against CP, or to which CP or any of its properties or assets are subject, other than as described in CP's AIF.

(8)

All material contracts to which CP is a party are disclosed in CP's AIF.

(9)

There is no action, suit, proceeding or investigation pending against CP before any court or administrative agency, nor has CP received any overt threat thereof, that questions the validity of the Stock Purchase Agreement.

(10)

For the purposes of confirming that CP is a "qualifying issuer" under Multilateral Instrument 45-102 Resale of Securities ("MI 45-102"), CP hereby confirms that it is an issuer:

(a): that is a reporting issuer in 1 or more of the provinces of British Columbia, Alberta, Manitoba, Ontario, Quebec and the Yukon Territory and is an "electronic filer" as defined in National Instrument 13-101 System for Electronic Document Analysis and Retrieval ("SEDAR");
(b): that has not been notified by The Toronto Stock Exchange that it does not meet the requirements to maintain a listing of its equity securities thereon and the Company is not designated inactive, suspended or the equivalent; and

(c): that has not received notice in writing from any regulator that its "current AIF" (as defined in MI 45-102), including any technical report, is unacceptable.

(11): I make this certificate solely in my capacity as an officer of CP and not in my personal capacity.

The Remainder of this Page Intentionally Left Blank; Signature Page Follows

DATED this • day of • .

		CARDIOME PHARMA CORP.
		Per:		• • • Cardiome Pharma Corp.

SCHEDULE 2

THE TORONTO STOCK EXCHANGE

PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING

To be completed by each proposed private placement purchaser of listed securities or which are convertible into listed securities.

QUESTIONNAIRE

DESCRIPTION OF TRANSACTION

	Name of issuer of the Securities Cardiome Pharma Corp.
	Number and Class of Securities to be Purchased • common shares in the capital of Cardiome Pharma Corp.
	Purchase Price US$4,000,000

DETAILS OF PURCHASER

	Name of Purchaser: Fujisawa Healthcare, Inc.
	Address: Three Parkway North, Deerfield, IL, USA, 60015-2548
	Names and Addresses of persons having a greater than 10% beneficial interest in the purchaser:

RELATIONSHIP TO ISSUER

	Is the purchaser (or any person named in response to 2(c) above) an insider of the issuer for the purposes of the Ontario Securities Act (before giving effect to this private placement)? If so, state the capacity in which the purchaser (or person named in response to 2(c) qualifies as an insider.

	If the answer to (a) is "no", are the purchaser and the issuer controlled by the same person or company? If so, give details

DEALINGS OF PURCHASER IN SECURITIES OF THE ISSUER

	Give details of all trading by the purchaser, as principal, in the securities of the issuer (other than debt securities which are not convertible into equity securities), directly or indirectly, within the 60 days preceding the date hereof

UNDERTAKING

TO:: The Toronto Stock Exchange

The undersigned has subscribed for an agreed to purchase, as principal, the securities described in item 1 of this Private Placement Questionnaire and Undertaking.

The undersigned undertakes not to sell or otherwise dispose of any of the said securities so purchased or any securities derived therefrom for a period of four months from the date of the closing of the transaction herein or for such period as is prescribed by applicable securities legislation, whichever is longer without the prior consent of The Toronto Stock Exchange and any other regulatory body having jurisdiction.

DATED AT				(Name of Purchaser—please print)
this day of , 200				(Authorized Signature)
				(Official Capacity—please print)
				(please print here name of individual whose signature appears above, if different from name of purchaser printed above)

EXHIBIT 8.2

PRESS RELEASE

The press release shall contain:

•: the amount of the equity option
•: the upfront and total milestone amounts
•: R&D expense sharing
•: the royalty payments

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COLLABORATION AND LICENSE AGREEMENT BY AND BETWEEN CARDIOME PHARMA CORP. AND FUJISAWA HEALTHCARE, INC.
COLLABORATION AND LICENSE AGREEMENT TABLE OF CONTENTS
EXHIBIT 1.1(H) BACKUP COMPOUND(S)
EXHIBIT 1.1(A) CARDIOME PATENTS
EXHIBIT 1.1(BB) DEVELOPMENT PLAN
EXHIBIT 1.1(DD) EXECUTIVE SUMMARY
EXHIBIT 1.1(CCCC) CHEMICAL STRUCTURE OF RSD1235
EXHIBIT 4.1(B) STOCK PURCHASE AGREEMENT
SCHEDULE 1—OPINION PRELIMINARY DRAFT
SCHEDULE "A" OFFICER'S CERTIFICATE CARDIOME PHARMA CORP.
SCHEDULE 2 THE TORONTO STOCK EXCHANGE PRIVATE PLACEMENT QUESTIONNAIRE AND UNDERTAKING
EXHIBIT 8.2 PRESS RELEASE
EX-5 7 a2134050zex-5.htm EX-5
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Exhibit 5

CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS

We consent to the use of our report dated February 26, 2004 (except as to note 19(a) and (b) which are as of March 8, 2004) with respect to the consolidated financial statements of Cardiome Pharma Corp. as at December 31, 2003 and November 30, 2002 and for the thirteen month period ended December 31, 2003 and each of the years in the two year period ended November 30, 2002 included in this Annual Report (Form 40-F) for the thirteen month period ended December 31, 2003.

Vancouver, Canada,
March 8, 2004.

/s/ Ernst & Young LLP

Chartered Accountants

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Exhibit 5

CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
EX-6.1 8 a2134050zex-6_1.htm EX-6.1
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Exhibit 6.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Cardiome Pharma Corp. (the "Company") on Form 40-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert W. Rieder, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.: The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.: The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated: April 19, 2004

By:	/s/ ROBERT W. RIEDER
	Name:	Robert W. Rieder
	Title:	President and Chief Executive Officer

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EX-6.2 9 a2134050zex-6_2.htm EX-6.2
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Exhibit 6.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Cardiome Pharma Corp. (the "Company") on Form 40-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Doug Janzen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.: The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.: The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: April 19, 2004

By:	/s/ DOUG JANZEN
	Name:	Doug Janzen
	Title:	Chief Financial Officer

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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
-----END PRIVACY-ENHANCED MESSAGE-----

CARDIOME PHARMA CORP.

/s/ ROBERT W. RIEDER

Robert W. Rieder

President and Chief Executive Officer

April 19, 2004