10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

ý
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended March 31, 2003

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period from                               to                              

Commission File Number: 000-31253

Pharsight Corporation
(Exact name of Registrant as specified in its charter)

Delaware	77-0401273
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
800 W. El Camino Real, Mountain View, CA	94040
(Address of principal executive office)	(zip code)

Registrant's telephone number, including area code: (650) 314-3800

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange On which registered
None	None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        The aggregate market value of the Common Stock held by non-affiliates of the registrant as of September 30, 2002 was approximately $5,191,208, based on 7,865,466 shares of Common Stock. Excludes shares held by officers and directors and by each person known by the registrant to own 5% or more of the outstanding Common Stock. Exclusion of shares held by any of these persons should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant, or that such person is controlled by or under common control with the registrant.

        As of April 30, 2003, the registrant had 19,053,057 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        The Registrant has incorporated by reference into Part III of this Form 10-K portions of its Proxy Statement for Registrant's 2003 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	3
Item 2.	Properties	10
Item 3.	Legal Proceedings	10
Item 4.	Submission of Matters to a Vote of Security Holders	10
	Additional Item—Executive Officers of the Registrant	11
PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	13
Item 6.	Selected Financial Data	13
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operation	15
Item 7A.	Qualitative and Quantitative Disclosures About Market Risks	32
Item 8.	Financial Statements and Supplementary Data	32
Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	66
PART III
Item 10.	Directors and Executive Officers of the Registrant	66
Item 11.	Executive Compensation	66
Item 12.	Security Ownership of Certain Beneficial Owners and Management	66
Item 13.	Certain Relationships and Related Transactions	68
Item 14.	Controls and Procedures	68
PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	69
Signatures		73
Certifications		75

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PART I

FORWARD-LOOKING STATEMENTS

        This report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. These forward-looking statements are generally identified by words such as "expect," "anticipate," "intend," "plan," "believe," "hope," "can," "continue," "may," "could," "potential," "assume," "estimate" and other similar words and expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the business risks discussed under the caption "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operation—Business Risks" in this report on Form 10-K. These business risks should be considered in evaluating our prospects and future financial performance. Our expectations are as of the date we file this Form 10-K, and we do not intend to update any of the forward-looking statements after the date we file this Annual Report on Form 10-K to conform these statements to actual results, unless required by law.

ITEM 1. BUSINESS

Overview

        Pharsight Corporation develops and markets integrated products and services that help pharmaceutical and biotechnology companies improve the drug development process. Our products and services combine proprietary computer-based simulation, statistical and data analysis tools with strategic decision-making and the sciences of pharmacology, medicine and biostatistics.

        We believe our products and services help pharmaceutical and biotechnology companies reduce the time, cost and risk of drug development activities, and may improve the marketing and use of pharmaceutical products. Our products and services are designed to help our customers use a more rigorous scientific and statistical process to identify earlier those drug candidates that will not be successful and to enhance the likelihood that the remaining candidates will successfully complete clinical trials. This is significant because the process of taking a drug through clinical development has remained lengthy and unpredictable while the productivity of discovery research has accelerated dramatically in recent years.

        Eighteen of the world's largest twenty pharmaceutical companies have begun to apply our computer-assisted drug development products and services, and our computer-based development applications are currently used on more than 2,750 researcher desktops. To date, we have been engaged in over 200 clinical development projects in more than 15 therapeutic areas.

        We believe typical customer benefits of our capabilities include the following:

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More rapid and objective decision-making with quantified assessment of value versus risk;



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More effective trial designs with higher probability of success and greater information yield;



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More efficient development programs requiring fewer clinical trials and patients, less time and lower cost to reach market; and



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Strengthened competitive position due to improved product labels.

        The following illustrates a typical customer application of our products and services:

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In designing phase II clinical trials, companies often face significant uncertainty in selecting the appropriate doses to test. Our products and services integrate information from phase I and pre-clinical activities, information concerning related drugs that have been developed by the customer, information in the scientific literature about other drugs in the same therapeutic area, and knowledge of the relevant physiological and disease processes. This information, along with

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carefully identified assumptions, is used to develop a mathematical model enabling a computer simulation of the proposed trial. Using this approach, customers are often able to identify proposed doses which have little chance of success and should be excluded or to identify additional doses which are more likely to yield important information.

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In designing phase III clinical trials, companies often face significant uncertainty concerning the most appropriate treatment strategy, patient inclusion/exclusion criteria and/or clinical measurements. Our products and services use an information gathering and modeling approach similar to that described above, but incorporate phase II data and detailed mathematical models of the relevant patient populations. We are often able to identify patient groups with low chance of demonstrating efficacy, or an unacceptable chance of demonstrating side effects, prior to conducting the actual trial. In addition, we may be able to predict which clinical measurements will be most likely to provide conclusive results in the proposed trial.



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In making drug portfolio decisions, companies need to integrate scientific and clinical results, such as those described above, with market and financial information for all of the drug candidates in the development pipeline. We believe that our products and services help companies make better decisions concerning "go/no-go" criteria, prioritization of potential label objectives to be pursued and optimal sequencing of clinical trials within a development program. Our products and services can also help customers adopt a more quantitative and scientific approach to resource allocation among programs within their drug portfolios.

        We were incorporated in California in April 1995, and we reincorporated in Delaware in June 2000. In August 2000, we completed the initial public offering and our common stock began trading on the Nasdaq National Market. In November 2002, our common stock ceased to trade on the Nasdaq National Market. Our common stock is currently traded on the Over-The-Counter Bulletin Board system. We file electronically with the Securities and Exchange Commission (or SEC) our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. The public may read or copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. Our website is http://www.pharsight.com. Our website address is given solely for informational purposes; we do not intend, by this reference, that our website should be deemed to be part of this Annual Report on Form 10-K.

Pharsight Products and Services

        We provide strategic services and computer-based development applications. We first offered our WinNonLin® and WinNonMix® (together previously known as Model Workbench) and Trial Simulator™ (previously known as Trial Workbench) applications and scientific services in fiscal 1997. In fiscal 1998, we expanded our consulting offering to include decision services. At the end of fiscal 2001, we combined our scientific, decision support, methodology and training groups into an integrated group renamed Strategic Services. In fiscal 2002, we began selling our Pharsight® Knowledgebase Server™ (PKS), providing a means of capturing and managing both summary and detailed pharmacokinetic/pharmacodynamic (PK/PD) data across a large set of compounds and development phases.

        We believe that a key part of future growth is to continue to deliver new products to our current and prospective customers. These new products need to address a broader set of customer needs related to clinical development of drugs and thereby expand the number of prospective users we may sell to inside pharmaceutical companies. Our most recently announced product, PKS, was the first step in providing a broader set of product functionality.

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        In a typical project, our products and services are used together to design clinical trials or development programs. Some customers purchase only services from us and other customers purchase our computer-based development applications on a stand-alone basis as a tool for drug or disease modeling. In many cases our computer-based development applications continue to be utilized upon completion of a project as our customers seek to further redesign their drug development processes. The following chart depicts typical issues that we are asked to address in projects.

Phase I		Phase II/Phase III		Phase IV
•	Bridge preclinical results to clinical process.	•	Balance efficacy with side effects.	•	Explore new indications and label changes.
•	Explore dose ranging and population variability.	•	Explore trial sensitivity to patient compliance and dropout.	•	Plan life-cycle strategy, e.g. generic defense and "over-the-counter" switch.
•	Determine surrogate endpoint relevance, i.e. alternate indicators of efficacy.	•	Investigate impact of population genetic variability.	•	Evaluate special patient populations.
•	Support early "go/no-go" decisions.	•	Evaluate alternate protocols.	•	Assess capital productivity and franchise strategy.
•	Assess strategic fit in franchise.	•	Assess time/cost versus information trade-off.
		•	Develop licensing/acquisition strategy.

        Our products and services provide an iterative method for enhancing the design of a clinical trial or development program, based on a series of steps. Each step utilizes available data to produce and validate a mathematical model that is in turn used to select a better strategy for moving to the next stage of clinical development. In fiscal years 2003, 2002 and 2001, revenues from our product offerings generated 44%, 35% and 30% of our revenues, respectively, and revenues from our strategic services generated 56%, 65% and 70% of our revenues, respectively.

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Strategic Services

        Our strategic services consist of consulting, training and process redesign conducted by our clinical and decision scientists in the application and implementation of our core decision methodology. The methodology employed by our services group uses four types of models that work in concert:

Drug-Disease Models	Our drug-disease models predictively characterize the distribution of treatment outcomes (safety, efficacy, surrogate outcomes) for a NCE (new chemical entity) and related compounds as a function of dosing strategy, disease and patient and trial characteristics.
Trial Models	Our trial models predict probability distributions of outcomes and reductions in uncertainty around them as a function of dosing strategy, number of treatment arms, type of control, sample population characteristics, sample size and treatment duration.
Market Models	Our market models characterize the demand for products (market size and share) under different feature sets and different competitive and innovation scenarios and their evolution over time.
Financial Models	Our financial models incorporate the foregoing scientific, clinical and commercial insight to create a dynamic understanding of the value of a program at any point in time.

        By using these models in an integrated fashion, our consultants are able to place key decisions in development into quantitative terms of uncertainty and value. Drug development is a process by which uncertainty about a drug's efficacy and safety is progressively reduced. Our methodology enables customers to identify which uncertainties are greatest and matter most, and then to design development programs, trial sequences, and individual trials in such a way that they systematically reduce those uncertainties—and do so as rapidly and cost-effectively as possible.

        The methodology is most valuably applied very early in the life of a potential drug, but we have beneficially applied it at all stages of development. The integration of our models at the asset strategy (overall positioning of a new drug) and program/trial strategy (focusing on a specific indicator) phases enables us to help our customers position their drugs as competitively as possible in the market, to do so conducting all necessary and no unnecessary trials (and only as large, lengthy and costly as is required), and to redeploy resources away from unpromising compounds at the earliest possible point.

        As of April 30, 2003, our strategic services group included 21 full-time personnel. Our personnel are located throughout the United States and Europe. Most have Ph.D. degrees with post-doctoral training in clinical pharmacology, biostatistics, pharmacokinetics, mathematics, engineering, decision analysis or other relevant disciplines. We bring these skill sets to bear in an integrated fashion to address our customers' challenges. Senior consultants have more than a decade of experience in drug-disease modeling, trial design or strategic consulting. We also utilize a network of part-time consultants with expertise in various specialized disciplines and therapeutic areas.

        We are continually refining our methodologies and introducing new technologies. We are also expanding our activities at the portfolio level and in newer therapeutic areas. In addition, we are beginning to address customer needs to improve their marketing and sales processes by applying the same quantitative methods that we apply to their development processes.

Computer-Based Development Applications and Services

        Our software and services provide the analytical tools and conceptual framework to help clinical researchers optimize the decision-making required to perform clinical testing needed to bring drugs to

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market. By applying mathematical modeling and simulation to all available information on the compound being tested, researchers can clarify and quantify which trial and treatment design factors will influence the success of clinical trials. Software applications are being designed to be increasingly deployed together with our strategic services.

        Our WinNonLin® and WinNonMix® software applications are used to build a drug model and validate the assumptions and information on which it is based. Our Trial Simulator™ uses the models constructed and validated with these tools. Trial Simulator™ provides a structured framework for clinical trial simulation based on mathematical models that integrate existing knowledge and assumptions about a drug and the targeted population. Trial Simulator™ supports the use of simulation scenarios allowing the clinical researcher to perform "virtual clinical trials" on the computer.

        Our most recent product, the Pharsight® Knowledgebase Server™ (PKS), provides a means of capturing and managing both summary and detailed pharmacokinetic/pharmacodynamic (PK/PD) data across a large set of compounds and development phases. PKS also provides a unified data environment for supporting clinical pharmacology modeling and analysis activities. PKS is directly integrated with WinNonlin® Enterprise, which also provides import/export interfaces to other modeling and analysis tools. PKS was developed to help enable compliance with the Federal Drug Administration (FDA) regulation 21 CFR 11, which requires electronic data security and auditing on submissions to the FDA. Linked to PKS, a separate product, the PKS Reporter™ 1.0, will provide regulatory-compliant authoring of Microsoft® Word documents containing analysis results, source data, tables, and plots produced by WinNonlin® or other tools and securely managed within the PKS.

        We believe that a key part of continued growth is to continue to deliver new products to our current and prospective customers. These new products need to address a broader set of customer needs related to clinical development of drugs and thereby expand the number of prospective users we may sell to inside pharmaceutical companies. Our most recently announced product, PKS, was the first step in providing a broader set of product functionality.

        In February 2001, we announced the signing of a Cooperative Research and Development Agreement (CRADA) with the FDA's Center for Drug Evaluation and Research (CDER) to collaborate over the next three years on future versions of our WinNonLin®, WinNonMix® and Trial Simulator™ products.

Information Products

        In November 2001, we decided to suspend all marketing and acquisition of data for our information products business. This business was intended to combine anonymized patient level medical, laboratory and genetic data with software to access, analyze and present informative results to sophisticated queries. These information products permitted clinical and scientific personnel to obtain objective and quantitative answers to important questions in trial and program decision-making concerning, for example, the correlation of various disease markers with clinical outcomes, the frequency of adverse events under specific conditions, detailed patient demographics and response to placebo and standard therapies. There was very limited revenue generated from our information products, and its discontinuance has not negatively impacted our financial results.

Sales and Marketing

        Our customers range in size from the largest pharmaceutical companies to small biopharmaceutical companies, and the focus of our work differs somewhat depending on the size and maturity of the customer. In our smaller and medium-sized customers, we tend to engage in discrete projects often with challenging analytic and design problems, where modeling and simulation can be particularly valuable. This kind of work may or may not lead to subsequent engagements. By contrast, in our largest customers, we tend to have ongoing relationships progressively focused on helping improve the

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process by which they develop drugs, broadening and deepening the application of modeling and simulation over time, with the intent of achieving systematic, lasting performance improvement.

        PKS is our first enterprise-level software product, serving more than 100 users in our largest customers. Typically, the customer's purchase decision involves many groups, potentially including clinical pharmacology, ADME (Absorption, Distribution, Metabolism and Excretion), toxicology, regulatory and early clinical as well as information technology (IT). It also involves a significant validation process. PKS therefore requires a longer selling cycle than our previous software products, and demands a team of sales, marketing and support professionals in the sales process.

Customers

        Our customers currently consist of large pharmaceutical companies and biotechnology companies. During our fiscal year ended March 31, 2003, we provided products and services for which we recognized revenue from more than 850 customers. Pfizer Inc., our largest customer, accounted for 18% of our revenue, and Eli Lilly accounted for 10% of our revenue, in fiscal 2003. Consequently, we are dependent on Pfizer Inc. and Eli Lilly for a substantial portion of our revenues, and if we were to lose Pfizer Inc. or Eli Lilly as a customer, it would have a material adverse effect on our revenues and business. We operate in only one business segment comprised of products and services to pharmaceutical and biotechnology companies to improve the drug development process. Our revenues from external customers, profit and loss and total assets, are set forth in our financial statements, which appear in "Item 8—Financial Statements and Supplementary Data." Information regarding sales to customers by major geographic regions is set forth in Note 12 to our financial statements, which appear in "Item 8—Financial Statements and Supplementary Data. No foreign country accounted for 10% or more of our total revenues in the years ended March 31, 2003, 2002, and 2001. All of our significant long-lived assets are located within the United States.

Research and Development

        We employ engineers with expertise in software development, web-based applications, database systems, and mathematical modeling, and scientists with expertise in clinical development, statistical modeling, and clinical pharmacology and development. Our research and development personnel work closely with our service personnel in designing and testing products to meet customer requirements.

        As of April 30, 2003, we had 14 employees engaged in research and development. Our research and development efforts are focused on improving and enhancing our existing products and services as well as developing new products and services. Our research and development efforts take place principally at our offices in Mountain View, California, and Cary, North Carolina. Our research and development expenses were $3.9 million, $6.6 million, and $8.1 million, in fiscal 2003, 2002, and 2001, respectively. In November 2002, we refocused our research and development activities to concentrate only on our core modeling and simulation products (including PKS) and the development of our next generation platform. We believe research and development expenses will decline in fiscal 2004 as compared to fiscal 2003, as the full year effect of last year's reduction of non-core resources are realized.

        We are investing to grow our business by expanding our ability to achieve potential breakthrough improvements in drug development productivity for our customers. The primary focus of this investment is in software that enables customers to adopt and implement our model-based drug development methodology. New software is being designed to complement our existing modeling tools, which are used by a relatively small number of technical experts, thereby enabling a much larger number of other participants in the drug development process to utilize those models in a systematic, integrated fashion to collaborate and make better decisions. We are also broadening the capabilities of our services organization to help our customers take maximum advantage of the new tools.

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Intellectual Property Rights

Technology In-Licensing

        Although our products are based on our research and development, we license software from third parties when it is more efficient to incorporate pre-existing programs or routines, when there are novel technologies available by license that would improve our products, or when brand-recognition of established products provides a marketing advantage. We incorporate such third-party software that we have rights to use under the terms of license agreements that require us to pay royalties to the licensor based upon either a percentage of the sales of products containing the licensed software or a fixed fee for each product shipped. Although all of the software we license for use in our products is replaceable with software from other vendors or our own development efforts, the loss of a license could delay the sales of certain of our products.

Intellectual Property

        Our success is dependent upon our ability to develop and protect our proprietary technology and intellectual property rights. We rely primarily on a combination of contractual provisions, confidentiality procedures, trade secrets, and patent, copyright and trademark laws to accomplish these goals.

        We license our software products pursuant to non-exclusive license agreements, which impose restrictions on customers' ability to utilize the software. In addition, we seek to avoid disclosure of our trade secrets, including but not limited to, requiring employees, customers and others with access to our proprietary information to execute confidentiality agreements with us and restricting access to our source code. We also seek to protect our software, documentation and other written materials under trade secret and copyright laws.

        We have thirteen U.S. patent applications pending. It is possible that the patents that we have applied for, if issued, or our potential future patents may be successfully challenged or that no patent will be issued from our patent application. It is also possible that we may not develop proprietary products or technologies that are patentable, that any patent issued to us may not provide us with any competitive advantages, or that the patents of others will seriously harm our ability to do business.

        Despite our efforts to protect our proprietary rights, existing laws afford only limited protection. Attempts may be made to copy or reverse engineer aspects of our product or to obtain and use information that we regard as proprietary. Accordingly, there can be no assurance that we will be able to protect our proprietary rights against unauthorized third party copying or use. Use by others of our proprietary rights could materially harm our business. Furthermore, policing the unauthorized use of our product is difficult and expensive litigation may be necessary in the future to enforce our intellectual property rights.

Government Regulation

        The pharmaceutical industry is regulated by a number of federal, state, local and international governmental entities. Although the United States Food and Drug Administration or comparable international agencies do not directly regulate our products and services, the use of certain of our analytical software products by our customers may be regulated. We currently provide assistance to our customers in achieving compliance with these regulations.

Competition

        We compete based on a number of factors, including cost, the quality and effectiveness of our services, and the functionality, reliability and ease of implementation and use of our products. Our WinNonLin®, WinNonMix® and PKS products compete with products produced by InnaPhase Corporation. Although we believe we currently do not have direct competitors for our Trial Simulator™ product line or our scientific services, other companies may compete with us in the future. Potential

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competitors may have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships in the pharmaceutical industry than we have. In addition, competitors may merge or form strategic alliances and be able to offer, or bring to market earlier, services that are superior to our own. In addition, our customers are primarily large pharmaceutical companies that have substantial research and development budgets, and these customers may internally develop the expertise that we provide.

Employees

        As of April 30, 2003, we had a total of 72 employees. None of our employees is represented by a collective bargaining agreement, nor have we experienced any work stoppage.

ITEM 2. PROPERTIES

        Pharsight's principal administrative, sales, marketing and product development facilities are located in Mountain View, California. We lease approximately 10,000 square feet of space in Mountain View, California under a lease that expires in September 2005. Pharsight also leases a sales, development and training facility in Cary, North Carolina, under a lease that expires in 2006. We believe that our existing facilities are adequate for our current needs and that additional space will be available as needed.

ITEM 3. LEGAL PROCEEDINGS

        From time to time, Pharsight may become involved in claims, legal proceedings, or state or federal government agency proceedings that arise in the ordinary course of its business. We are not currently a party to any material litigation and are currently not aware of any pending or threatened litigation that could have any material adverse effect upon our business, operating results or financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of Pharsight's stockholders during the fourth quarter of its fiscal year ended March 31, 2003.

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ADDITIONAL ITEM—EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table provides information concerning our executive officers and key employees as of May 1, 2003:

Name	Age	Position
Shawn M. O'Connor	43	President and Chief Executive Officer
Charles K. Faas	43	Vice President, Finance and Chief Financial Officer
Mark R. Robillard	46	Senior Vice President, PKS Business Unit
Mona Cross Sowiski	53	Senior Vice President, Drug Development Consulting Services
Jacob Mandema	39	Senior Vice President and Chief Scientific Officer
E. Gregory Lee	54	Vice President, Engineering

        Set forth below is biographical information for each of our executive officers and key employees.

Shawn M. O'Connor, Pharsight's President, Chief Executive Officer and Director since February 2003, joined Pharsight in September 2002 as its Senior Vice President and Chief Financial Officer. Mr. O'Connor has more than 20 years of experience in high technology executive management. Prior to joining Pharsight, Mr. O'Connor was the President and Chief Operating Officer of QRS Corporation, a leading provider of business-to-business e-commerce services to the retail industry, from 1995 to 2001. During his tenure, QRS established itself as the most comprehensive source for product information in the retail industry, established itself as a key technology provider to industry sponsored internet exchanges such as the Worldwide Retail Exchange, and grew from 50 to 1100 employees and in excess of $160M in revenues. Mr. O'Connor's responsibilities included strategic direction, business development, product development, product architecture, data center operations, customer service, investor relations, finance and accounting, human resources and facilities. Prior to QRS, he served as Chief Financial Officer of Diasonics Ultrasound, Inc., a publicly held worldwide medical equipment manufacturer, from 1987 to 1994. Mr. O'Connor began his career with the accounting firm Peat Marwick, where he served as a CPA in both San Francisco and London. Mr. O'Connor holds an A.B. from the University of California, Berkeley, in Finance & Business Administration and is a graduate of the Executive Education Program at the Stanford Graduate School of Business.

Charles K. Faas, Pharsight's Chief Financial Officer since February 2003, joined Pharsight as Vice President of Finance in July 2000 and was named Chief Accounting Officer and Treasurer in October 2001. From December 1999 to July 2000, Mr. Faas was Corporate Controller for ZLand.com, an Internet business applications company. From July 1995 to December 1999, Mr. Faas was Controller for Cadence Design Systems' Methodology Services group, an electronic design automation company. From 1982 to 1995, Mr. Faas was with IBM in both financial and accounting management roles. Mr. Faas was a founding board member of the San Jose Inner-City Games and has served as either Chairman or Treasurer since its inception in 1996. He also served on the National Inner-City Games Foundation's honorary board. Since 1995, Mr. Faas has been an executive board member for the San Jose Sports Authority (the sports marketing arm for the City of San Jose). He holds a B.B.A. (Accounting) from Siena College.

Mark R. Robillard has served as Vice President, Global Sales, since October 2001 and was named Senior Vice President, PKS Business Unit in July 2002. From March 2000 to October 2001, Mr. Robillard was Vice President Business Development for SciQuest, Inc. From September 1999 to March 2001, he held several positions, and most recently was Senior Vice President, Sales and Business Development, for EMAX Solutions, a company that provides chemical and compound management and tracking systems for research and development organizations. In this role, he was responsible for driving EMAX's e-commerce solution strategy, business development activities and global sales

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organization. Prior to joining EMAX, Mr. Robillard spent 20 years at VWR Scientific Products, a $1.4 billion leading distributor of laboratory equipment, chemicals, and supplies to the life sciences market. In his most recent position as Vice President, Electronic Commerce, Mr. Robillard launched VWR's first Internet sales channel, a business-to-business online ordering facility for VWR's customers. He is credited with expanding monthly site traffic to over 100,000 users while increasing Web revenues 500% each quarter for the last two years. During the time period, overall sales through all electronic channels doubled, accounting for 22% of VWR's revenues. Before his appointment in 1996 as Vice President, Electronic Commerce, Mr. Robillard served in a number of key positions in sales and customer supply chain management, including area Vice President and District Manager.

Mona Cross Sowiski, joined Pharsight as Senior Vice President, Drug Development Consulting in July 2002. Ms. Sowiski has more than twenty years executive and management consulting experience in the health care industry. Prior to joining Pharsight Ms. Sowiski was an independent health care and pharmaceutical industry consultant from December 2001 to July 2002. From January 2002 to December 2002, Ms. Sowiski was a founding board member and served as President and Chief Executive Officer of the Institute for Inclusive Work Environments, a non-profit research Institute focusing on workplace diversity and inclusive work policy research. From March 1999 to November 2000 Ms. Sowiski was co-leader of the global health care consulting practice for Mitchell Madison consulting. From November 2000 to December 2001, Ms. Sowiski engaged in independent consulting. From February 1992 to February 1999 she was Partner and Managing Director of the Western Division of the U.S. for CSC/APM Healthcare. Prior to joining CSC/APM Healthcare, Ms. Sowiski held senior executive positions in leading academic medical institutions, including Stanford University Medical Center and the University of Pittsburgh Health Sciences Center. Ms. Sowiski is a fellow of the National Foundation for Women's Resources. She served as a panel reviewer for the Department of Health and Human Services Discretionary Funds Program in Washington, D.C. Ms. Sowiski serves on the boards of several non-profit organizations in Northern California. Ms. Sowiski has a Bachelor of Arts from San Francisco State University and a Masters of Public Health from the Graduate School of Public Health, University of Pittsburgh.

Jacob Mandema, Ph.D., joined Pharsight in December 1996 as Vice President, Scientific Affairs and is currently Senior Vice President and Chief Scientific Officer. Previous to joining Pharsight, Dr. Mandema was Director of New Products Discovery at ALZA Corporation, responsible for defining new product opportunities for Alza's delivery technologies. Prior to that, he was Assistant Professor of Pharmaceutical Sciences at the Department of Anesthesia, Stanford University School of Medicine. At Stanford, Dr. Mandema was directing research into the pharmacodynamic interactions among analgesic and anesthetic drugs (partially funded by NIH). He received his Ph.D. from the division of pharmacology at the Center for Bio-Pharmaceutical Sciences, University of Leiden and his master's degree from the school of Pharmacy, University of Utrecht, the Netherlands. Dr. Mandema's research interests are application of modeling and simulation to optimize treatment strategies, trial designs, and drug development decision-making. He has published extensively and received several awards for his academic contributions, among which in 2000 the Tanabe Young Investigators Award from the American College of Clinical Pharmacology. Dr. Mandema is a member of the American Statistical Association, the American Society for Clinical Pharmacology and Therapeutics and the American Association of Pharmaceutical Scientists.

E. Gregory Lee, Ph.D., a Pharsight founder and its Vice President, Engineering, joined Pharsight in 1995. Dr. Lee has extensive experience in the commercial development of mathematically and statistically oriented software programs. Prior to joining Pharsight, Dr. Lee was Director of Engineering at Sunrise Test Systems, a leading developer of electronic design automation software. From 1984 until 1993, he held technical and management positions at Weitek Corporation. Prior to that, he held technical positions at Applicon (Schlumberger) and Floating Point Systems. Dr. Lee received his Ph.D. in mathematics from MIT and his undergraduate degree from Reed College.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        Our common stock is currently listed on the Over-The-Counter Bulletin Board system under the symbol "PHST.OB." Our common stock first traded on August 9, 2000, concurrent with the underwritten initial public offering of shares of our common stock, on the Nasdaq National Market and continued to be traded there until November 8, 2002. Prior to August 9, 2000, there was no established public trading market for our common stock.

        As of April 30, 2003, there were 19,053,057 shares of common stock outstanding that were held of record by approximately 128 stockholders.

        We have never declared or paid any cash dividends on our common stock and do not anticipate paying such cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain all of our future earnings, if any, for use in the development and expansion of our business and for general corporate purposes. Any determination to pay dividends on our common stock in the future will be at the discretion of our board of directors and will depend upon our results of operation, financial condition and other factors as our board of directors, in its discretion, deems relevant. In addition, under the terms of some of our debt agreements, we are prohibited from paying dividends without the consent of the lender.

        Set forth below are the high and low bid prices per share of our common stock for each quarterly period in our fiscal years ended March 31, 2002 and 2003, as reported on the Nasdaq National Market until November 8, 2002, and thereafter on the Over-The-Counter Bulletin Board system.

FY 2002	High		Low
First Quarter (4/1/01-6/30/01)	$	3.75	$	1.80
Second Quarter (7/1/01-9/30/01)	$	3.20	$	1.28
Third Quarter (10/1/01-12/31/01)	$	2.00	$	0.75
Fourth Quarter (1/1/02-3/31/02)	$	2.21	$	1.52
FY 2003	High		Low
First Quarter (4/1/02-6/30/02)		2.05		0.80
Second Quarter (7/1/02-9/30/02)		1.15		0.50
Third Quarter (10/1/02-12/31/02)		0.79		0.12
Fourth Quarter (1/1/03-3/31/03)		0.30		0.07

The over-the-counter quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

ITEM 6. SELECTED FINANCIAL DATA

        You should read the following historical selected financial data in conjunction with the financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operation" appearing elsewhere in this Annual Report on Form 10-K. We have derived our balance sheet data as of March 31, 2003 and 2002, and statements of operations data for each of the years ended March 31, 2003, 2002 and 2001, from our audited financial statements included in this Annual Report on Form 10-K. We have derived our balance sheet data as of March 31, 2001, 2000 and 1999 and statements of operations data for the years ended March 31, 2000, and 1999, from our

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audited financial statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of results to be expected for any future period.

		Years Ended March 31,
		2003			2002			2001			2000			1999
		(In thousands, except per share data)
Statements of Operations Data
Revenues		$	13,968		$	14,249		$	11,948		$	8,859		$	3,891
Costs and expenses:
Cost of revenues			6,302			8,275			6,630			4,433			2,480
	Research and development		3,934			6,596			8,096			5,451			4,327
	Sales and marketing		6,738			8,626			6,703			4,059			2,292
	General and administrative		6,287			5,877			4,004			1,967			1,105
	Amortization of deferred stock compensation		1,322			2,993			7,552			2,180			57
	Amortization of intangible assets		—			370			572			941			965
	Restructuring		556			676			—			—			—
	Acquired in-process research and development		—			—			—			—			2,592
Total operating expenses			25,139			33,413			33,557			19,031			13,818
Loss from operations			(11,171	)		(19,164	)		(21,609	)		(10,172	)		(9,927	)
Other income (expense), net			(371	)		212			1,038			185			(120	)
Net loss			(11,542	)		(18,952	)		(20,571	)		(9,987	)		(10,047	)
Accretion on convertible preferred stock			—			—			(443	)		(1,241	)		(803	)
Preferred stock dividend			(375	)		—			—			—			—
Deemed dividend to preferred stockholders			(246	)		—			—			—			—
Net loss applicable to common stockholders		$	(12,163	)	$	(18,952	)	$	(21,014	)	$	(11,228	)	$	(10,850	)
Basic and diluted net loss per share applicable to common stockholders		$	(0.65	)	$	(1.03	)	$	(1.62	)	$	(3.48	)	$	(4.48	)
Shares used to compute basic and diluted net loss per share applicable to common stockholders			18,800			18,419			12,974			3,225			2,424

	March 31,
	2003			2002			2001			2000			1999
	(In thousands)
Balance Sheet Data
Cash, cash equivalents and short-term investments	$	10,875		$	13,492		$	21,223		$	16,482		$	6,147
Total assets		15,574			19,954			28,929			21,320			9,668
Long-term obligations, net of current portion		2,024			3,194			962			708			2,812
Redeemable convertible preferred stock		5,608			—			—			18,582			17,341
Deferred stock compensation		(352	)		(1,813	)		(5,197	)		(3,459	)		(239	)
Accumulated deficit		(77,721	)		(66,179	)		(47,227	)		(29,761	)		(18,533	)
Total stockholders' equity (deficit)	$	(2,127	)	$	6,684		$	22,229		$	(4,525	)	$	(15,541	)

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

        The financial and business analysis below provides information that Pharsight believes is relevant to an assessment and understanding of Pharsight's financial position and results of operations for the years ended March 31, 2003, 2002 and 2001. This financial and business analysis should be read in conjunction with "Item 6—Selected Financial Data" and our Financial Statements and related notes thereto set forth under "Item 8—Financial Statements and Supplementary Data."

        The following discussion and certain other sections of this Annual Report on Form 10-K contain statements reflecting our views about our future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are generally identified by words such as "expect," "anticipate," "intend," "plan," "believe," "hope," "assume," "estimate" and other similar words and expressions. These views may involve risks and uncertainties that are difficult to predict and may cause actual results to differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors, including changes in general economic conditions, nature of competition, relationships with key customers, industry consolidation, influence of e-commerce and other factors discussed in the "Business Risks" section below may effect our ability to attain the projected performance. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

        We develop and market integrated products and services that help pharmaceutical and biotechnology companies improve the drug development process. Our products and services combine proprietary computer-based simulation, statistical and data analysis tools with the sciences of pharmacology, drug and disease modeling, human genetics and biostatistics.

        Substantially all of our sales activities are conducted through a dedicated direct sales organization located in the United States and Europe. In addition, our strategic services consultants and technical support personnel conduct sales and marketing activities. Pfizer Inc. accounted for 18% of our revenue, and Eli Lilly accounted for 10% of our revenue, in fiscal 2003. Consequently, we are dependent on Pfizer Inc. and Eli Lilly for a substantial portion of our revenues, and if we were to lose Pfizer Inc. or Eli Lilly as a customer, it would have a material adverse effect on our revenues and business. In fiscal 2002, Pfizer Inc. was our largest revenue customer, accounting for 20%.

Critical Accounting Policies and Estimates

        Our financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, we evaluate estimates, including those related to revenue and restructuring. Estimates are based on historical experience and on various other assumptions that management believes to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

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Revenue Recognition

        Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter. We follow detailed revenue recognition guidelines, which are discussed below. We recognize revenue in accordance with GAAP rules that have been prescribed for the software industry. The accounting rules related to revenue recognition are complex and are affected by interpretations of the rules and an understanding of industry practices, both of which are subject to change. Consequently, the revenue recognition accounting rules require management to make significant judgments.

        We do not record revenue on sales to customers whose ability to pay is in doubt at the time of sale. Rather, we recognize revenue from these customers as cash is collected. The determination of a customer's ability to pay requires significant judgment. In this regard, management considers the international region of the customer and the financial viability of the customer in assessing a customer's ability to pay.

        We generally do not consider revenue arrangements with extended payment terms to be fixed or determinable and, accordingly, we do not generally recognize revenue on the majority of these arrangements until the customer payment becomes due. The determination of whether extended payment terms are fixed or determinable requires management to exercise significant judgment, including assessing such factors as the past payment history with the individual customer and evaluating the risk of concessions over an extended payment period. The determinations that we make can materially impact the timing of recognition of revenues. Our normal payment terms currently range from "net 30 days" to "net 60 days," which are not considered extended payment terms.

        Some of our PKS software arrangements include consulting implementation services. We defer revenue for consulting implementation services, along with the associated license revenue, until the services are completed. If there is a significant uncertainty about the project completion or receipt of payment for the consulting services, we defer revenue until the uncertainty is sufficiently resolved.

Restructuring

        During fiscal years 2003 and 2002, we recorded significant accruals in connection with our restructuring programs. These accruals include estimates pertaining to the ability to sub-lease a facility in Mountain View, California. The actual costs may differ from these estimates. These estimates will be reviewed and potentially revised on a quarterly basis and, to the extent that future vacancy rates and sublease rates vary adversely from those estimates, we may incur additional losses that are not included in the accrued facilities consolidation charge at March 31, 2003. Conversely, unanticipated improvements in vacancy rates or sublease rates, or termination settlements for less than our accrued amounts, may result in a reversal of a portion of the accrued balance and a benefit on our statement of operations in a future period. Such reversals would be reflected as a credit to restructuring charges.

Source of Revenue and Revenue Recognition

        Our revenues are derived from two primary sources: initial and renewal fees for product licenses and scientific and training consulting services. Additionally, we had an insignificant amount of revenue from subscriptions to our information products in fiscal 2003.

        Our revenue recognition policy is in accordance with Statement of Position No. 97-2, "Software Revenue Recognition," or SOP 97-2, as amended by Statement of Position No. 98-4, "Deferral of the Effective Date of SOP 97-2, `Software Revenue Recognition,' " or SOP 98-4, and Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions," or SOP 98-9. For each arrangement, we determine whether evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. If any of these criteria are not met, we defer revenue

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recognition until such time as all of the criteria are met. We do not currently offer, have not offered in the past, and do not expect to offer in the future, extended payment term arrangements. If we do not consider collectibility to be probable, we recognize revenue when the fee is collected. No customer has the right of return.

        We have contracts from which we receive solely license and renewal fees consist of one-year software licenses (initial and renewal fees) bundled with post contract support services, or PCS. We do not have vendor specific objective evidence to allocate the fee to the separate elements, as we do not sell PCS separately. We recognize each of the initial and renewal license fees ratably over the one-year period of the license during which the PCS is expected to be provided as required by paragraph 12 of SOP 97-2.

        We do not present PCS revenue separately as we do not have vendor specific objective evidence of PCS, and we do not believe other allocation methodologies, namely allocation based on relative costs, provide a meaningful and supportable allocation between license and PCS revenues.

        For arrangements consisting solely of services, we recognize revenue as services are performed. Arrangements for services may be charged at daily rates for different levels of consultants and out-of-pocket expenses or may be for a fixed fee. For fixed fee contracts with payments based on milestones or acceptance criteria, we recognize revenue as such milestones are achieved or upon acceptance, which approximates the level of services provided. For fixed fee arrangements at the end of each accounting period (i) we analyze the appropriateness of the daily rates charged based upon total fees to be charged and total hours to be incurred, and (ii) we determine if losses should be recognized.

        We also enter into arrangements consisting of licenses, renewal fees and scientific consulting services. The scientific consulting services meet the criteria of paragraph 65 of SOP 97-2 for separate accounting. As the only undelivered elements are services and PCS, and the PCS term (expressed or implied) and the period over which we expect the services to be performed are the same period, we recognize revenue based on the lesser of actual services performed and licenses delivered or straight line over the period of the agreement. If the PCS term and the period over which we expect the services to be performed are not the same period, we recognize revenue based on the lesser of actual services performed and licenses delivered or straight line over the longer of the PCS term and the period over which we expect the services to be performed. Vendor specific objective evidence of fair value of scientific services for purposes of revenue recognition in these multiple element arrangements is based on daily rates for different levels of consultants and out-of-pocket expenses.

        We also have arrangements that consist of licenses, PCS, and implementation/installation services. For arrangements involving a significant amount of services related to installation and implementation of our software products, we recognize revenue for the entire arrangement fee ratably over the remaining period of the PCS term once the services are completed and accepted by the customer. We currently do not have vendor specific objective evidence for our PCS.

        We recognize revenue from the subscription to information products over the contract period, provided we have evidence of an arrangement, the price of the subscription is fixed or determinable and payment is reasonably assured. The subscription fees have been included in license revenues.

        We have one international distributor. There is no right of return or price protection for sales to the international distributor. Sales are made to the distributor using a sell-in model. Revenue from this distributor in fiscal 2003 was less than 2%. Revenues from this distributor for fiscal 2002 and 2001 were less than 1% of total revenues.

Acquisitions

        In February 2001, we acquired the assets of Metazoa.com, a privately-held company that develops collaborative software for the life science research community. We purchased Metazoa.com's assets for

17

cash of $250,000 and incurred acquisition expenses of $102,000. The acquisition was accounted for using the purchase method. We allocated the purchase price to intangible assets and goodwill based on a valuation.

Deferred Stock Compensation

        During the years ended March 31, 2001 and 2000, we recorded aggregate deferred compensation of $10.1 million and $5.4 million, respectively, representing the difference between the exercise price of stock options granted and the then deemed fair value of our common stock. The amortization of deferred compensation is charged to operations over the vesting period of the options using the graded method for employee options, and the straight-line method for non-employee options. During the year ended March 31, 2002, we recorded deferred stock compensation of $114,000 representing the intrinsic value of a certain stock award issued to an officer as a bonus. We amortized $1.3 million, $3.0 million and $7.6 million of deferred compensation for the years ended March 31, 2003, 2002, and 2001. The amount of deferred compensation relating to stock options issued to employees and consultants to be amortized in future periods, ending March 31, is as follows:

2004	$	320,000
2005	$	32,000

The amount of deferred compensation expense to be recorded in future periods may further decrease if unvested options for which deferred compensation has been recorded are subsequently canceled.

Results of Operations

        All percentage calculations set forth in this section have been made using figures directly from the financial statements, and not from the rounded figures referred to in the text of this management discussion and analysis.

Years Ended March 31, 2003 and 2002

        Revenues.    License and renewal revenues increased $1.1 million, or 24%, from $5.0 million in fiscal 2002 to $6.1 million in fiscal 2003. Of this increase, approximately $350,000 was due to new license sales and $800,000 due to an increase in annual renewal revenue, attributed to the growth in the installed base. Included in this renewal increase is over $400,000 of PKS license renewals.

        Service revenues decreased $1.5 million, or 16%, from $9.3 million in fiscal 2002 to $7.8 million in fiscal 2003, primarily driven by the slowdown of services rendered under consulting agreements as some key pharmaceutical customers reduced their spending budgets in fiscal 2003. This downward trend was most pronounced during the first half of the year, while the beginnings of a reversal was noticeable in the third and fourth quarter of fiscal 2003, as evidenced by the signing of significant agreements with customers such as Pfizer, Roche, and several Japanese companies.

        The effect of budget cutbacks was partially offset by significant engagement expansions with some of our existing customers such as Aventis and Cephalon, and renewal of engagements with Eli Lilly and the major pharmaceutical research and development locations of Pfizer, Inc. In addition, approximately $700,000 in revenue was generated from new services customers, as efforts to diversify our revenue base began to produce results, measured by a 30% increase in the total number of revenue-generating services customers in fiscal 2003 compared to fiscal 2002. We view customers' continued adoption of our methodologies as validation of our business. As of March 31, 2003, we continued to be engaged with 14 of the top 20 major pharmaceutical companies.

        Costs and expenses.    The amounts discussed below for costs of license and renewal, cost of services, research and development, sales and marketing, and general and administrative expenses, are

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excluding amortization of deferred stock-based compensation. Amortization of deferred stock-based compensation is discussed above under "Deferred Stock Compensation".

        Cost of revenues.    Cost of license and renewal revenues consists of royalty expense for third-party software included in our products, and cost of materials for both initial products and product updates provided for in our annual license agreements. Cost of license and renewal revenues decreased 69% to $629,000 for the year ended March 31, 2003, from $2.0 million for the year ended March 31, 2002. The decrease was driven by the cost of revenues related to our information products which we ceased selling in July 2001. The restructuring actions in fiscal 2002 reduced resources in non-core areas such as our information products. Cost of license and renewal revenues as a percentage of license and renewal revenues was 10% for the year ended March 31, 2003, compared to 40% for fiscal 2002. We expect this percentage in fiscal 2004 to be consistent with fiscal 2003, as product royalties continue and all information product costs, as of November 2001, are now expensed.

        Cost of services revenues decreased 9% to $5.7 million for the year ended March 31, 2003, from $6.3 million for the year ended March 31, 2002. The decrease was due primarily to fewer personnel in strategic services. Because of the direct relationship of personnel to projects undertaken, we anticipate that as we take on new projects, cost of revenues generally will reflect changes in total revenue. The cost of service revenues, as a percentage of service revenues, was 73% in fiscal 2003 and 68% in fiscal 2002. The increase in this percentage in fiscal 2003 was due to under utilized capacity in our services organization for the first half of fiscal year 2003. We saw improved billable utilization in the second half of fiscal 2003. In fiscal 2004, we are more closely aligning project teams with key customer accounts. This is being implemented to make improvements to our productivity, margins and revenues on an annual basis. We do not expect to see significant benefits until the second half of fiscal 2004, at the earliest.

        Research and development.    Research and development expenses decreased $2.7 million, or 40%, from $6.6 million in fiscal 2002 to $3.9 million in fiscal 2003. The decrease resulted primarily from reduced numbers of software developers and outside contractors in non-core product areas, including management and non-revenue-generating products areas. As a percentage of total revenues, research and development expenses decreased from 46% in fiscal 2002 to 28% in fiscal 2003. We believe research and development expenses will decline in fiscal 2004 as compared to fiscal 2003, as we see the full year impact of the headcount reductions we implemented in fiscal 2003.

        Sales and marketing.    Sales and marketing expenses decreased $1.9 million, or 22%, from $8.6 million in fiscal 2002 to $6.7 million in fiscal 2003. The decrease in sales and marketing expenses is related primarily to a reduction in the number of our sales and marketing force personnel. As a percentage of total revenues, sales and marketing expenses decreased from 61% in fiscal 2002 to 48% in fiscal 2003. The decrease in marketing and sales expense as a percentage of total revenues reflects the reduction in the number of professionals selling and marketing our products and services. We expect that our sales and marketing expenses will decline in fiscal 2004 as compared to fiscal 2003, as we see the full year impact of the headcount reductions we implemented in fiscal 2003.

        General and administrative.    General and administrative expenses increased from $5.9 million in fiscal 2002 to $6.3 million in fiscal 2003. The increase is related to severance costs resulting from changes in management staff, as well as escalating insurance and professional service fees partially offset by a reduction in the number of general and administrative personnel. As a percentage of total revenues, general and administrative expenses increased from 41% in fiscal 2002 to 45% in fiscal 2003. We expect that our general and administrative expenses will decline in fiscal 2004 as compared to fiscal 2003, as we see the full year impact of the headcount reductions we implemented in fiscal 2003.

        Restructuring.    In fiscal 2003 and 2002, we implemented restructuring programs to better align operating expenses with anticipated revenues. During the third quarter of fiscal 2002, we recorded a

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$676,000 restructuring charge, which consisted of $402,000 in facility exit costs, $253,000 in employee severance costs and $21,000 in other exit costs. The restructuring program resulted in a reduction in force across all company functions of approximately 14% of our work force, or 20 employees and was intended to reduce expenses by approximately $4.5 million on an annualized basis.

        During the second quarter of fiscal 2003, we recorded a $324,000 restructuring charge, which consisted entirely of employee severance costs. The restructuring program resulted in a reduction in force across all company functions of 18 employees or approximately 15% and is intended to result in a reduction in annualized operating expenses of $2.5 to $3.0 million.

        During the third quarter of fiscal 2003, we recorded a $364,000 restructuring charge, which consisted of $293,000 in employee severance costs and $71,000 in facility exit costs. The restructuring plan reduced resources not integral to the development, marketing and deployment of our software products and consulting services. This includes a reduction in staff of 19 employees or approximately 20% of our work force, and is intended to result in a reduction in annualized operating expenses of $2.0 to $2.5 million, helping the company move closer to its goal of long-term, sustainable profitability.

        We expect these three restructuring programs will save us a total of approximately $10 million per year of cash. There is approximately $84,000 of remaining cash payments to be made in the first two quarters of fiscal 2004 from these charges.

        Other income (expense), net.    Other expense, net, was $371,000 for fiscal 2003 as compared to other income, net, of $212,000 for fiscal 2002. This occurred as a result of lower interest income on a smaller average balance of cash and short-term investments, as well as higher interest expense as we began paying for our utilization of our term loan. We continued to reduce the outstanding balance of our obligations under capital leases.

        Provision for income taxes.    As a result of our net operating losses, no provision was recorded for income taxes during fiscal years 2003 and 2002. As of March 31, 2003, we had federal and state net operating losses of $58 million and $19 million respectively, which begin to expire in the years 2005 through 2023, if not utilized. We have recorded a valuation allowance against the entire net operating loss carry-forwards because of the uncertainty that we will be able to realize the benefit of the net operating loss carry-forwards before they expire.

Years Ended March 31, 2002 and 2001

        Revenues.    License and renewal revenues increased $1.4 million, or 38%, from $3.6 million in fiscal 2001 to $5.0 million in fiscal 2002. Of this increase, $1.1 million was due to an approximately 26% increase in the number of licenses sold from fiscal 2001 to fiscal 2002, and approximately $253,000 reflected an increase in annual renewal revenue due to the growth in the installed base.

        Service revenues increased $1.0 million, or 12%, from $8.3 million in fiscal 2001 to $9.3 million in fiscal 2002. Significant customer renewals and additions in fiscal 2002 included Aventis, Eli Lilly and expansion to all R&D locations of Pfizer, Inc., as well as Millennium Pharmaceuticals. As a result of these expansions, revenue from existing customers increased $3.0 million or 34%, from $8.7 million in fiscal 2001 to $11.7 million in fiscal 2002. Over the same period, revenue from new customers declined 18%, as we focused on enhancing our existing relationships.

        Cost of revenues.    Cost of license and renewal revenues increased 25% to $2.0 million for the year ended March 31, 2002, from $1.6 million for the year ended March 31, 2001. The increase was due primarily to the inclusion of costs of our information products as cost of revenues beginning with the release of these products for general distribution in December 2000. During the year ended March 31, 2002, we implemented a restructuring program to better align operating expenses with anticipated revenues. The restructuring actions reduced resources in non-core areas such as our information

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products. Cost of license and renewal revenues as a percentage of license and renewal revenues was 40% for the year ended March 31, 2002, compared to 45% for fiscal 2001.

        Cost of services revenues increased 26% to $6.3 million for the year ended March 31, 2002, from $5.0 million for the year ended March 31, 2001. The increase was due primarily to additional personnel in strategic services. The cost of service revenues, as a percentage of service revenues, was 68% in fiscal 2002 and 60% in fiscal 2001. The increase in this percentage in fiscal 2002 was due to under utilized capacity in our services organization.

        Research and development.    Research and development expenses decreased $1.5 million, or 19%, from $8.1 million in fiscal 2001 to $6.6 million in fiscal 2002. The decrease resulted primarily from reduced numbers of software developers and outside contractors in non-core product areas including our information products areas. As a percentage of revenues, research and development expenses decreased from 68% in fiscal 2001 to 46% in fiscal 2002.

        Sales and marketing.    Sales and marketing expenses increased $1.9 million, or 29%, from $6.7 million in fiscal 2001 to $8.6 million in fiscal 2002. The increase in sales and marketing expenses is related primarily to an expansion in our sales force personnel during fiscal 2002. As a percentage of total revenues, sales and marketing expenses increased from 56% in fiscal 2001 to 61% in fiscal 2002. The increase in marketing and sales expense as a percentage of total revenues reflects the growth in the number of professionals selling and marketing our products and services during fiscal 2002, offset in part by increased revenues.

        General and administrative.    General and administrative expenses increased from $4.0 million in fiscal 2001 to $5.9 million in fiscal 2002. The increase is related to growth in management and administrative support staff during fiscal 2002 as well as professional fees as a result of the expansion of our business and the costs of being a public company. As a percentage of total revenues, general and administrative expenses increased from 34% in fiscal 2001 to 41% in fiscal 2002.

        Restructuring.    In fiscal 2002, we implemented a restructuring program to better align operating expenses with anticipated revenues. Our restructuring actions reduced resources in non-core areas. We recorded a $676,000 restructuring charge, which consists of $402,000 in facility exit costs (including $81,000 in equipment impairment), $253,000 in personnel severance costs and $21,000 in other exit costs. The restructuring program resulted in the reduction in force across all company functions of approximately 14% or 20 employees. As of March 31, 2002, all 20 employees had been terminated as a result of the program. The restructuring actions did not impact the resources assigned to develop or support our current and future PKS, WinNonlin®, WinNonMix® and Trial Simulator™ product families. At March 31, 2002, we had $249,000 of accrued restructuring costs related to monthly lease expenses for two facilities that were exited in fiscal 2002, employee severance payments and other exit costs.

        Other income (expense), net.    Other income, net, decreased to $212,000 for fiscal 2002 from other income, net, of $1.0 million for fiscal 2001. This decrease occurred as a result of lower interest income on a smaller average balance of cash and short-term investments, as well as higher interest expense as we began paying for our utilization of our term loan. We continued to reduce the outstanding balance of our obligations under capital leases.

        Provision for income taxes.    As a result of our net operating losses, no provision was recorded for income taxes during fiscal years 2002 and 2001.

21

Liquidity and Capital Resources

        From our inception through the initial public offering of our common stock, we funded operations through the private sale of preferred stock, with net proceeds of approximately $38 million, limited borrowings and equipment leases. In August 2000, we completed our initial public offering of 3,000,000 shares of common stock, at a price of $10.00 per share, all of which shares were issued and sold by us for net proceeds of $26.4 million, net of underwriting discounts and commissions of $2.1 million and expenses of $1.5 million. We paid $6.1 million to holders of our Series C preferred stock at the closing of the offering as required by the terms of the Series C preferred stock. After this payment, our net proceeds were $20.3 million. In June and September of last year, we completed a private placement of preferred stock to several of our investors, raising additional net proceeds of $7.2 million, as further described below.

        As of March 31, 2003, we had $10.9 million in cash and short-term investments, which include $3.8 million of cash borrowed under our credit facilities with Silicon Valley Bank. Cash and short-term investments decreased by $2.6 million from those held as of March 31, 2002. In June 2001, we extended and enhanced our previously unused credit facilities with Silicon Valley Bank, providing up to $7.5 million available under three different facilities. All have rates which are based on the prime interest rate plus one point or prime interest plus 1.25 points. The term loan facility of $3.5 million was fully exercised in fiscal 2002 and is payable, beginning in July 2002, over the next four years, ending June 2006.

        As of March 31, 2003, we had $2.8 million remaining to be paid on our term loan facility, having paid $656,000 to Silicon Valley Bank. We also continued to have $1.0 million of our accounts receivable facilities utilized. During 2003, the following financial covenants applied to our Silicon Valley Bank loan facilities: quick ratio greater than 1.0; remaining months liquidity of at least six months (defined as cash used in operating activities for the most recent quarter multiplied by two); liquidity of at least two times the term loan advance; and annual net losses within 20% of our plan, measured at specific quarterly intervals. On October 23, 2002, we obtained a modification to our Silicon Valley Bank loan agreement. This modification revised our allowable net losses for the second half of fiscal 2003. As of March 31, 2003, we were in compliance with all the covenants under our credit facilities with Silicon Valley Bank.

        In May 2003, we extended our secured revolving credit facility agreement with Silicon Valley Bank for an additional year. We have up to $2.0 million available under two accounts receivable facilities. These include $1.4 million of secured revolving credit against 80% of eligible domestic accounts receivable and $600,000 of secured revolving credit against 90% of eligible foreign accounts receivable. We continue to have $1.0 million of the accounts receivable facilities utilized.

        The following financial covenants apply to the extended Silicon Valley Bank loan facilities: remaining months liquidity of at least six months (defined as cash used in operating activities for the most recent quarter multiplied by two); liquidity of at least two times the term loan advance; and cumulative fiscal year-to-date net loss within 20% of our plan, measured monthly.

        Net cash used in operating activities was $8.3 million in fiscal 2003, $10.4 million in fiscal 2002 and $11.6 million in fiscal 2001. The cash used in these periods was primarily attributable to net losses in each period of $11.5 million, $19.0 million and $20.6 million, respectively, partially offset by non-cash charges for depreciation and amortization, and amortization of deferred stock compensation. Strong collections during the last fiscal quarter of 2003 yielded improved net cash used in operating activities.

        Net cash provided by investing activities was $2.9 million in fiscal 2003, primarily due to the maturities of short-term investments, offset slightly by $216,000 of purchases of equipment. Net cash provided by investing activities was $1.5 million in fiscal 2002, which resulted from maturities of short-term investments, partially offset by purchases of short-term investments and purchases of

22

$1.4 million of property and equipment. Net cash provided by investing activities was $2.1 million in fiscal 2001, primarily due to $2.6 million of capital expenditures, offset in part by the net maturities of short-term investments exceeding purchases. We also had $150,000 released from restricted cash, when we renegotiated our Mountain View, California facility lease.

        Financing activities provided net cash of $5.7 million in fiscal 2003, $4.1 million in fiscal 2002 and $19.5 million in fiscal 2001. In fiscal 2003, these amounts were primarily from cash provided as a result of proceeds from the issuance of Series A redeemable convertible preferred stock and warrants, resulting in net proceeds of approximately $7.2 million. We borrowed, then re-paid, $750,000 on our accounts receivable facilities in the first fiscal quarter of 2003. Additionally, we made principal payments on capital leases of $660,000 and paid the first nine of 48 installments on our term loan with Silicon Valley Bank totaling $656,000.

        The following table depicts our contractual obligations as of March 31, 2003:

	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		4-5 Years
	(in thousands)
Redeemable convertible preferred stock	$	10,058	$	582	$	1,746	$	7,730
Notes Payable		3,844		1,875		1,750		219
Capital Lease Obligations		350		295		55		—
Operating Leases (Gross)*		1,637		862		775		—
Total Contractual Cash Obligations	$	15,889	$	3,614	$	4,326	$	7,949

*

Operating leases reported above include $39,000 in restructuring vacated facilities expenditures and do not reflect sublease income totaling $75,000 to be realized in less than one year.

        Management believes we have adequate cash to sustain operations through fiscal year 2004 and is managing the business to achieve positive cash flow utilizing existing assets. During 2003, our commitments and liabilities were significantly reduced via restructuring events. In addition, we reduced ongoing operating expenses by reducing purchases of other services and making workforce reductions. We are committed to the successful execution of our operating plan and will take further restructuring actions as necessary to ensure our cash resources are sufficient to fund our presently anticipated operating losses and working capital requirements at least through fiscal 2004.

Related Party Transaction

        On June 26, 2002 and September 11, 2002, we completed private placements of our securities to certain entities affiliated with Alloy Ventures, Inc. and the Sprout Group, both of which were among our existing stockholders, pursuant to a Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement"). Pursuant to the Purchase Agreement, we sold an aggregate of 1,814,662 units (each a "Unit," and collectively the "Units"). Each Unit consisted of one share of our Series A redeemable convertible preferred stock (the "Series A Preferred") and a warrant to purchase one share of our common stock. The purchase price for each Unit was $4.133, which is the sum of $4.008 (four times the underlying average closing price for our common stock over the five trading days prior to the initial closing (i.e., $1.002)) and $0.125 for each share of Series A Preferred and warrant, respectively. The Second Closing, which occurred on September 11, 2002, was subject to stockholder approval, which was obtained on September 6, 2002.

        The Series A Preferred is redeemable at any time after five years from the date of issuance upon the affirmative vote of at least 75% of the holders of Series A Preferred, at a price of $4.008 per share plus any unpaid. Each share of Series A Preferred is convertible into four shares of our common stock

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at the election of the holder or upon the occurrence of certain other events. The holders of Series A Preferred are entitled to receive, but only out of legally available funds, quarterly cumulative dividends at the rate of 8% per year commencing in September 2002, which are payable in cash or shares of Series B redeemable convertible preferred stock (the "Series B Preferred" and, together with the Series A Preferred, the "Preferred Stock"), at the election of the holder. The terms of the Series B Preferred are identical to the Series A Preferred, except that the Series B Preferred is not entitled to receive the 8% dividends. In the event of any liquidation or winding up of the company, the holders of the Series A Preferred and Series B Preferred shall be entitled to receive in preference to the holders of the common stock a per share amount equal to the greater of (a) the original issue price, plus any accrued but unpaid dividends and (b) the amount that such shares would receive if converted to common stock immediately prior thereto (the "Liquidation Preference"). After the payment of the Liquidation Preference to the holders of Preferred Stock, the remaining assets shall be distributed ratably to the holders of the common stock. A merger, acquisition, sale of voting control of the company in which our stockholders do not own a majority of the outstanding shares of the surviving corporation, or a sale of all or substantially all of our assets, shall be deemed to be a liquidation.

        The holders of Series A Preferred and Series B Preferred are entitled to vote together with the common stock. Each share of Preferred Stock shall have a number of votes equal to the number of shares of common stock then issuable upon conversion of such share of Preferred Stock. In addition, consent of the holders of at least 75% of the then outstanding Preferred Stock shall be required for certain actions, including any action that amends our charter documents so as to adversely affect the Preferred Stock.

        The warrants are exercisable for a period of five years from issuance with an exercise price of $1.15 per share.

        Pursuant to the Purchase Agreement, we filed a registration statement on Form S-3 (File No. 333-98095) for the resale of the shares of Common Stock issuable to the investors upon conversion of the shares of Preferred Stock and exercise of the warrants. The registration statement became effective on October 31, 2002. In the event that we fail to keep the Registration Statement effective (other than pursuant to the permissible suspension periods or waivers granted by the holders of the Preferred Stock), we are obligated to pay to the holders of Preferred Stock as liquidated damages, the amount of 1% per month of the aggregate purchase price for the shares remaining to be sold pursuant to the registration statement.

Impact of Inflation

        The effect of inflation and changing prices on our operations was not significant during the periods presented.

Recent Accounting Pronouncements

Accounting for Costs Associated with Exit and Disposal Activities

        In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146 ("FAS 146"), Accounting for Costs Associated with Exit and Disposal Activities. This statement revises the accounting for exit and disposal activities under Emerging Issues Task Force Issue 94-3 ("EIFT 94-3"), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, by spreading out the reporting of expenses related to restructuring activities. Commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most anticipated costs. Instead, companies will record exit or disposal costs when they are "incurred" and can be measured at fair value, and they will subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not restate previously issued financial

24

statements for the effect of the provisions of SFAS No. 146. In addition, liabilities that a company previously recorded under EITF Issue No. 94-3 are grandfathered. The restructuring activities initiated by us in November 2001, July 2002 and November 2002 have been accounted for under the provisions of EITF 94-3. We plan to adopt SFAS 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material impact on the financial position or results of operations.

Accounting for Stock-Based Compensation-Transition and Disclosure

        In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure" ("Statement 148"). Statement 148 amends Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("Statement 123") and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure requirements of Statement 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of Statement148 are effective for financial statements issued for fiscal years ending after December 15, 2002 and for interim periods beginning after December 15, 2002. Accordingly, we adopted the disclosure provisions of this statement in our financial statements of fiscal year 2003.

Guarantor's Accounting Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others

        In December 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45")." FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. We adopted the disclosure requirements of FIN 45 as of December 31, 2002. In addition, we are required to adopt the initial recognition and measurement of the fair value of the obligation undertaken in issuing the guarantee on a prospective basis to guarantees issued or modified after December 31, 2002. We do not believe FIN 45 will have a material effect on our operations, financial position or cash flows.

Business Risks

Items That Affect Our Future Operations

We have a history of losses that we expect will continue, and we may not be able to generate sufficient revenues to achieve profitability.

        We commenced our operations in April 1995 and have incurred net losses since that time. As of March 31, 2003, we had an accumulated deficit of $77.7 million. We expect to incur further losses as we continue to develop our business. Since the amounts we may determine to invest to grow our business are uncertain, we are unable to be certain when, if ever, we may become profitable. We have announced that we intend to achieve cash breakeven; however, this expectation is based on a number of assumptions, including some outside of our control, including the state of the overall economy and the demand for our products, and if these assumptions do not prove to be accurate then we may never generate sufficient revenues to achieve profitability. Furthermore, even if we do achieve breakeven profitability and positive operating cash flow, we may not be able to sustain or increase profitability or positive operating cash flow on a quarterly or annual basis. If our losses exceed the expectations of investors, the price of our common stock may decline.

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We have engaged in restructuring actions in order to reduce our operating expenses. These actions may not be sufficient to reduce our operating expenses to the level that we need to achieve, and so we may need to engage in additional restructuring actions.

        In November 2001, July 2002 and November 2002, we announced that we were taking further actions intended to reduce our expenses. Our restructuring actions were designed to lower our cash used for operating expenses by reducing expenses for facilities, sales and marketing, hosting, professional services and marketing arrangements and significantly reducing our current employee and contractor staffing levels. While restructuring actions have reduced cash operating expenses, our ability to adequately reduce cash used in operations, and ultimately generate profitable results from operations, is dependent upon successful execution of our business plan, including obtaining new customers. During the year ended March 31, 2003, we used cash for operating activities of $8.3 million. We cannot assure you that we will be successful in implementing our new business plan or sufficiently reducing our operating expenses in the future. Our inability to generate adequate revenue growth and continue to develop successful product and services offerings could prevent us from successfully achieving breakeven operations and result in additional restructuring actions.

Our quarterly operating results may fluctuate significantly and may not be predictive of future financial results.

        We expect our quarterly operating results may fluctuate in the future, and may vary from investors' expectations, depending on a number of factors described below and elsewhere in this "Business Risks" section of Annual Report on Form 10-K, including:

•

Variances in demand for our products and services;



•

Timing of the introduction of new products or services and enhancements of existing products or services;



•

Changes in research and development expenses;



•

Our ability to complete fixed-price service contracts without committing additional resources;



•

Changes in industry conditions affecting our customers; and



•

Reorganization.

        As a result, quarterly comparisons may not indicate reliable trends of future performance.

        We base our expense levels in part upon our expectations concerning future revenue, and these expense levels are relatively fixed in the short term. If we have lower revenue, we may not be able to reduce our spending in the short term in response. Any shortfall in revenue would have a direct impact on our results of operations.

        In the past we have taken actions intended to reduce our expenses on an annualized basis. Our cost-cutting actions leave us with less available capacity to deliver our products and services. If there is a significant increase in demand from our estimates, it will take us longer to react to satisfy this demand, which would limit our ability to grow our business and potentially become profitable.

Because our sales and implementation cycles are long and unpredictable, our revenues are difficult to predict and may not meet our expectations or those of our investors.

        The lengths of our sales and implementation cycles are difficult to predict and depend on a number of factors, including the type of product or services being provided, the nature and size of the potential customer and the extent of the commitment being made by the potential customer. Our sales cycle is unpredictable and may take six months or more. Our implementation cycle is also difficult to predict and can be longer than one year. Each of these can result in delayed revenues, increased selling

26

expenses and difficulty in matching revenues with expenses, which may contribute to fluctuations in our results of operations. A key element of our strategy is to market our product and service offerings to large organizations. These organizations can have elaborate decision-making processes and may require evaluation periods, which could extend the sales and implementation cycle. Moreover, we often must provide a significant level of education to our prospective customers regarding the use and benefit of our product and service offerings, which may cause additional delays during the evaluation and acceptance process. We therefore have difficulty forecasting the timing and recognition of revenues from sales of our product and service offerings.

Our revenue is concentrated in a few customers, and if we lose any of these customers our revenue may decrease substantially

        We receive a substantial majority of our revenue from a limited number of customers. In fiscal 2003, sales to our top two customers accounted for 28% of our revenue, and sales to our top five customers accounted for 50% of our revenue. In fiscal 2002, sales to our top two customers collectively accounted for 29% of our revenue and sales to our top five customers accounted for 49% of our revenue. We expect that a significant portion of our revenue will continue to depend on sales to a small number of customers. If we do not generate as much revenue from these major customers as we expect to, or if we lose any of them as customers, our total revenue may be significantly reduced.

If we are unable to generate additional sales from existing customers and generate sales to new customers, we may not be able to generate sufficient revenues to become profitable.

        Our success depends on our ability to develop our existing customer relationships and establish relationships with additional pharmaceutical and biotechnology companies. If we lose any significant relationships with existing customers or fail to establish additional relationships, we may not be able to execute our business plan and our business will suffer. Developing customer relationships with pharmaceutical companies can be difficult for a number of reasons. These companies are often very large organizations with complex decision-making processes that are difficult to change. In addition, because our products and services relate to the core technologies of these companies, these organizations are generally cautious about working with outside companies. Some potential customers may also resist working with us until our products and services have achieved more widespread market acceptance. Our existing customers could also reassess their commitment to us, not renew existing agreements or choose not to expand the scope of their relationship with us.

Our revenues and results of operations would be adversely affected if a customer cancels a contract for services with us.

        Our services agreements can be canceled upon prior notice by our customers. Additionally, due to the nature of our services engagements, customers sometimes delay projects because of timing of the clinical trials and the need for data and information that prevent us from proceeding with our projects. These delays and contract cancellations cannot be predicted with accuracy and we cannot assure you that we will be able to replace any delayed or canceled contracts with the customer or other customers. If we are unable to replace those contracts, our revenues and results of operations would be adversely affected.

We may lose existing customers or be unable to attract new customers if we do not develop new products and services or if our offerings do not keep pace with technological changes.

        The successful growth of our business depends on our ability to develop new products and services and incorporate new capabilities, including the expansion of our product to address a broader set of customer needs related to clinical development of drugs and thereby expand the number of its prospective users, on a timely basis. If we cannot adapt to changing technologies, emerging industry

27

standards, new scientific developments and increasingly sophisticated customer needs, we may not achieve revenue growth and our products and services may become obsolete, and our business could suffer. We have suffered product delays in the past, resulting in lost product revenues. In addition, early releases of software often contain errors or defects. We cannot assure you that, despite our extensive testing, errors will not be found in our products before or after commercial release, which could result in product redevelopment costs and loss of, or delay in, market acceptance. Furthermore, a failure by us to introduce new products or services on schedule could harm our business prospects. Any delay or problems in the installation or implementation of new products or services may cause customers to forego purchases from us.

If the security of our customers' data is compromised, we could be liable for damages and our reputation could be harmed.

        As part of implementing our products and services, we inherently gain access to certain highly confidential proprietary customer information. It is critical that our facilities and infrastructure remain secure and are perceived by the marketplace to be secure. Despite our implementation of a number of security measures, our infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or similar disruptive problems. We do not have insurance to cover us for losses incurred in many of these events. If we fail to meet our customers' security expectations, we could be liable for damages and our reputation could suffer.

If we are unable to complete a project due to scientific limitations or otherwise meet our customers' expectations, our reputation may be adversely affected and we may not be able to generate new business.

        Because our projects may contain scientific risks, which are difficult to foresee, we cannot guarantee that we will always be able to complete them. Any failure to meet our customers' expectations could harm our reputation and ability to generate new business. On a few occasions, we have encountered scientific limitations and been unable to complete a project. In each of these cases, we have been able to successfully renegotiate the terms of the project with the particular customer. We cannot assure you that we will be able to renegotiate our customer agreements if such circumstances occur in the future. Moreover, even if we complete a project, we may not meet our customers' expectations regarding the quality of our products and services or the timeliness of our services.

If we are unable to hire additional specialized personnel, we will not be able to grow our business.

        Growth in the demand for our products and services will require additional personnel, particularly qualified scientific and technical personnel. We currently have limited personnel and other resources to staff and complete projects. In addition, as we grow our business, we expect an increase in the number of complex projects and large deployments of our products and services, which require a significant amount of personnel for extended periods of time. However, there is currently a shortage of these personnel worldwide, and competition for these personnel from numerous companies and academic institutions may limit our ability to hire these persons on commercially reasonable terms. Staffing projects and deploying our products and services will also become more difficult as our operations and customers become more geographically diverse. If we are not able to adequately staff and complete our projects, we may lose customers and our reputation may be harmed. Any difficulties we may have in completing customer projects may impair our ability to grow our business.

If we lose key members of our management, scientific or development staff, or our scientific advisors, our reputation may be harmed and we may lose business.

        We are highly dependent on the principal members of our management, scientific and development staff. Our reputation is also in part based on our association with key scientific advisors. The loss of any of these personnel might adversely impact our reputation in the market and harm our

28

business. Failure to attract and retain key management, scientific and technical personnel could prevent us from achieving our strategy and developing our products and services.

Our business depends on our intellectual property rights, and if we are unable to adequately protect them, our competitive position will suffer.

        Our intellectual property is important to our competitive position. We protect our proprietary information and technology through a combination of patent, trademark, trade secret and copyright law, confidentiality agreements and technical measures. We have filed thirteen patent applications, but do not currently have any patents issued. We cannot assure you that the steps we have taken will prevent misappropriation of our proprietary information and technology, nor can we guarantee that we will be successful in obtaining any patents or that the rights granted under such patents will provide a competitive advantage. Misappropriation of our intellectual property could harm our competitive position. We may also need to engage in litigation in the future to enforce or protect our intellectual property rights or to defend against claims of invalidity, and we may incur substantial costs as a result. In addition, the laws of some foreign countries provide less protection of intellectual property rights than the laws of the United States and Europe. As a result, we may have an increasingly difficult time adequately protecting our intellectual property rights as our sales in foreign countries grow.

If we become subject to infringement claims by third parties, we could incur unanticipated expense and be prevented from providing our products and services.

        We cannot assure you that infringement claims by third parties will not be asserted against us or, if asserted, will be unsuccessful. These claims, whether or not meritorious, could be expensive and divert management resources from operating our company. Furthermore, a party making a claim against us could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief that could block our ability to provide products or services, unless we obtain a license to such technology. In addition, we cannot assure you that licenses for any intellectual property of third parties that might be required for our products or services will be available on commercially reasonable terms, or at all.

International sales of our product account for a significant portion of our revenue which exposes us to risks inherent in international operations.

        We market and sell our products and services in the United States and internationally. International sales of our products and services accounted for approximately 23% of our total revenues for the year ending March 31, 2003. We have a total of 7 employees based outside the United States that market and sell our products and services in Europe. Our existing marketing efforts into international markets may require significant management attention and financial resources. We cannot be certain that our existing international operations will produce desired levels of revenue. We currently have limited experience in developing localized versions of our products and services and marketing and distributing our products internationally. Our operations in the United States and Europe also expose us to the following general risks associated with international operations:

•

Disruptions to commercial activities or damage to our facilities as a result of political unrest, war, terrorism, labor strikes and work stoppages;



•

Difficulties and costs of staffing and managing foreign operations;



•

The impact of recessions in economies outside the United States;



•

Greater difficulty in accounts receivable collection and longer collection periods;



•

Potential adverse tax consequences, including higher tax rates generally in Europe;

29

•

Tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers imposed by foreign countries;



•

Unexpected changes in regulatory requirements of foreign countries, especially those with respect to software, pharmaceutical and biotechnology companies; and



•

Fluctuations in the value of currencies.

        To the extent that such disruptions and costs interfere with our commercial activities, our results of operations could be harmed.

Risks Related To Our Industry

Our market may not develop as quickly as expected, and companies may enter our market, thereby increasing the amount of competition and impairing our business prospects.

        Because our products and services are new and still evolving, there is significant uncertainty and risk as to the demand for, and market acceptance of, these products and services. As a result, we are not able to predict the size and growth rate of our market with any certainty. In addition, other companies, including potential strategic partners, may enter our market. Our existing customers may also elect to terminate our services and internally develop products and services similar to ours. If our market fails to develop, grow more slowly than expected or become saturated with competitors, our business prospects will be impaired.

Government regulation of the pharmaceutical industry may restrict our operations or the operations of our customers and, therefore, adversely affect our business.

        The pharmaceutical industry is regulated by a number of federal, state, local and international governmental entities. Although our products and services are not directly regulated by the United States Food and Drug Administration or comparable international agencies, the use of some of our analytical software products by our customers may be regulated. We currently provide assistance to our customers in achieving compliance with these regulations. The regulatory agencies could enact new regulations or amend existing regulations with regard to these or other products that could restrict the use of our products or the business of our customers, which could harm our business.

Consolidation in the pharmaceutical industry could cause disruptions of our customer relationships and interfere with our ability to enter into new customer relationships.

        In recent years, the worldwide pharmaceutical industry has undergone substantial consolidation. If any of our customers consolidate with another business, they may delay or cancel projects, lay off personnel or reduce spending, any of which could cause our revenues to decrease. In addition, our ability to complete sales or implementation cycles may be impaired as these organizations undergo internal restructuring.

Reduction in the research and development budgets of our customers may impact our sales.

        Our customers include researchers at pharmaceutical and biotechnology companies, academic institutions and government and private laboratories. Fluctuations in the research and development budgets of these researchers and their organizations could have a significant effect on the demand for our products. Research and development budgets fluctuate due to changes in available resources, spending priorities, internal budgetary policies and the availability of grants from government agencies. Our business could be harmed by any significant decrease in research and development expenditures by pharmaceutical and biotechnology companies, academic institutions or government and private laboratories.

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Risks Related to Our Stock

Our common stock only trades on the Over the Counter bulletin board system, and has experienced depressed trading volumes and stock price since it began to be traded there.

        On November 8, 2002 our stock was removed from trading on the Nasdaq National Market as a result of failure to meet the continuing listing requirements. As a result, our common stock is quoted only on the over-the-counter bulletin board. Consequently, our common stock does not experience large trading volumes, and has traded under $1.00 per share since it was delisted in November 2002.

The public market for our common stock may be volatile.

        The market price of our common stock has been, and we expect it to continue to be, highly volatile and to fluctuate significantly in response to various factors, including:

•

Actual or anticipated variations in our quarterly operating results;



•

Announcements of technological innovations or new services or products by us or our competitors;



•

Timeliness of our introductions of new products;



•

Changes in financial estimates by securities analysts;



•

Changes in the conditions and trends in the pharmaceutical market; and



•

We have experienced very low trading volume in our stock, and so small purchases and sales can have a significant effect on our stock price.

        In addition, the stock markets have experienced extreme price and volume fluctuations, particularly in the past year, that have affected the market prices of equity securities of many technology companies. These fluctuations have often been unrelated or disproportionate to operating performance. These broad market factors may materially affect the trading price of our common stock. General economic, political and market conditions, such as recessions and interest rate fluctuations, may also have an adverse effect on the market price of our common stock.

Because our executive officers and directors have substantial control of our voting stock, takeovers not supported by them will be more difficult, possibly preventing you from obtaining optimal share price.

        The control of a significant amount of our stock by insiders could adversely affect the market price of our common stock. Entities affiliated with three of our directors beneficially own or control a majority of the outstanding common stock, calculated on an as-if-converted basis, as of April 30, 2003. If these directors choose to act or vote together, they will have the power to control all matters requiring the approval of our stockholders, including the election of directors and the approval of significant corporate transactions. Without the consent of these stockholders, we could be prevented from entering into transactions that could result in our stockholders receiving a premium for their stock.

31

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS

        We have considered the provisions of Financial Reporting Release No. 48, "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent In Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." We have no holdings of derivative financial or commodity-based instruments at March 31, 2003.

        A review of our other financial instruments and risk exposures at that date revealed that we have exposure to interest rate and foreign currency exchange rate risks. At March 31, 2003, we performed sensitivity analyses to assess the potential effect of these risks and concluded that near-term changes in interest rates and foreign currency exchange rates would not materially affect our financial position, results of operations or cash flows.

        We have operated primarily in the United States and all funding activities and sales have been denominated in U.S. dollars. Accordingly, we have no material exposure to foreign currency rate fluctuations.

        Our interest income is sensitive to changes in the general level of United States interest rates. Due to the nature of our short-term investments, consistent with our belief as of March 31, 2002, we believe that there is no material market risk exposure. As of March 31, 2003, our cash, cash equivalents and short-term investments consisted primarily of demand deposits and money market funds.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Supplementary Data

        The following tables set forth unaudited quarterly supplementary data for each of the years in the two-year period ended March 31, 2003.

	Quarter Ended
	June 30			September 30			December 31			March 31
	In thousands, except per share amounts
FISCAL 2003
Revenues	$	3,455		$	3,319		$	3,629		$	3,565
Cost of revenues		1,712			1,476			1,559			1,555
Gross profit		1,743			1,843			2,070			2,010
Loss from operations		(3,386	)		(2,912	)		(2,954	)		(1,919	)
Net loss applicable to common stockholders		(3,471	)		(3,137	)		(3,263	)		(2,292	)
Net loss per common share applicable to common stockholders, basic and diluted	$	(0.19	)	$	(0.17	)	$	(0.17	)	$	(0.12	)
FISCAL 2002
Revenues	$	2,744		$	3,716		$	4,020		$	3,769
Cost of revenues		2,442			2,245			1,854			1,734
Gross profit		302			1,471			2,166			2,035
Loss from operations		(6,617	)		(4,698	)		(4,461	)		(3,388	)
Net loss applicable to common stockholders		(6,450	)		(4,629	)		(4,457	)		(3,416	)
Net loss per common share applicable to common stockholders, basic and diluted	$	(0.35	)	$	(0.25	)	$	(0.24	)	$	(0.18	)

32

INDEX TO FINANCIAL STATEMENTS

	Page
Pharsight Corporation
Management's Report	34
Report of Ernst & Young LLP, Independent Auditors	35
Balance Sheets	36
Statements of Operations	37
Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)	38
Statements of Cash Flows	40
Notes to Financial Statements	42

33

Management's Report

        Management is responsible for all the information and representations contained in the financial statements and other sections of this Form 10-K. Management believes that the financial statements have been prepared in conformity with accounting principles generally accepted in the United States and appropriate in the circumstances to reflect in all material respects the substance of events and transactions that should be included, and that other information in this Form 10-K is consistent with those statements. In preparing the financial statements, management makes informed judgments and estimates of the expected effects of events and transactions that are currently being accounted for.

        In meeting its responsibility for the reliability of the financial statements, management depends on the Company's system of internal accounting control. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization, and are recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. In designing control procedures, management recognizes that errors or irregularities may nevertheless occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of the controls. Management believes that the Company's accounting controls provide reasonable assurance that errors or irregularities that could be material to the financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned functions.

        The Board of Directors pursues its oversight role for these financial statements through the Audit Committee, which is comprised solely of Directors who are not officers or employees of the Company. The Audit Committee meets with management periodically to review their work and to monitor the discharge of each of their responsibilities. The Audit Committee also meets periodically with Ernst & Young LLP, the independent auditors, who have free access to the Audit Committee of the Board of Directors, without management present, to discuss internal accounting control, auditing, and financial reporting matters.

        Ernst & Young LLP, independent auditors, have audited the Company's financial statements. Their accompanying report is based on audits conducted in accordance with auditing standards generally accepted in the United States, which require a review of the system of internal accounting controls and tests of accounting procedures and records to the extent necessary for the purpose of their audits.

/s/  SHAWN M. O'CONNOR Shawn M. O'Connor
President and Chief Executive Officer /s/  CHARLES K. FAAS Charles K. Faas
Vice President, Finance and Chief Financial Officer

June 9, 2003

34

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Pharsight Corporation

        We have audited the accompanying balance sheets of Pharsight Corporation as of March 31, 2003 and 2002, and the related statements of operations, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended March 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

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

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pharsight Corporation at March 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/  ERNST & YOUNG LLP

San Jose, California
April 23, 2003
except for Note 15, as to which the date is
May 28, 2003

35

PHARSIGHT CORPORATION

BALANCE SHEETS

(In thousands, except share and per share amounts)

		March 31,
		2003			2002
Assets
Current assets:
	Cash and cash equivalents	$	10,875		$	10,498
	Short-term investments		—			2,994
	Accounts receivable, net of allowance for doubtful accounts of $94 at March 31, 2003 and 2002		2,111			2,629
	Recognized income not yet billed		192			160
	Prepaids and other current assets		975			616
Total current assets			14,153			16,897
Property and equipment, net			1,177			2,708
Restricted cash			—			150
Other assets			244			199
Total assets		$	15,574		$	19,954
Liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)
Current liabilities:
	Accounts payable	$	635		$	664
	Accrued expenses		1,086			1,854
	Accrued compensation		1,198			1,830
	Deferred revenue		4,980			3,412
	Current portion of notes payable		1,875			1,656
	Current obligations under capital leases		295			660
Total current liabilities			10,069			10,076
Obligations under capital leases			55			350
Notes payable			1,969			2,844
Redeemable convertible preferred stock, $0.001 par value:
Authorized shares—3,200,000 (2,000,000 designated as Series A and 1,200,000 designated as Series B) at March 31, 2003 and none at March 31, 2002
Issued and outstanding shares—1,814,662 and none at March 31, 2003 and 2002, respectively			5,608			—
Aggregate redemption and liquidation value—$7,500
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.001 par value:
Authorized shares—1,800,000 and 5,000,000 at March 31, 2003 and 2002, respectively,
Issued and outstanding shares—none at March 31, 2003 and 2002
Common stock, $0.001 par value:
Authorized shares—120,000,000 at March 31, 2003 and 2002
Issued and outstanding shares—19,053,057 and 18,758,922 at March 31, 2003 and 2002, respectively			19			19
	Additional paid-in capital		75,927			74,754
	Deferred stock compensation		(352	)		(1,813	)
	Accumulated other comprehensive loss		—			(1	)
	Notes receivable from stockholders		—			(96	)
	Accumulated deficit		(77,721	)		(66,179	)
Total stockholders' equity (deficit)			(2,127	)		6,684
Total liabilities, redeemable convertible preferred stock, and stockholders' equity (deficit)		$	15,574		$	19,954

The accompanying notes are an integral part of these financial statements.

36

PHARSIGHT CORPORATION

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

		Years Ended March 31,
		2003			2002			2001
Revenues:
	License and renewal	$	6,144		$	4,971		$	3,615
	Services		7,824			9,278			8,333
Total revenues			13,968			14,249			11,948
Costs and expenses:
	License and renewal(1)		629			2,009			1,624
	Services(2)		5,673			6,266			5,006
	Research and development(3)		3,934			6,596			8,096
	Sales and marketing(4)		6,738			8,626			6,703
	General and administrative(5)		6,287			5,877			4,004
	Amortization of deferred stock compensation		1,322			2,993			7,552
	Amortization and impairment of intangible assets and goodwill		—			370			572
	Restructuring costs		556			676			—
Total costs and expenses			25,139			33,413			33,557
Loss from operations			(11,171	)		(19,164	)		(21,609	)
Other income (expense):
	Interest expense		(335	)		(238	)		(219	)
	Interest income (expense) and other, net		(36	)		450			1,257
Total other income (expense)			(371	)		212			1,038
Net loss			(11,542	)		(18,952	)		(20,571	)
Preferred stock accretion			—			—			(443	)
Preferred stock dividend			(375	)		—			—
Deemed dividend to preferred stockholders			(246	)		—			—
Net loss applicable to common stockholders		$	(12,163	)	$	(18,952	)	$	(21,014	)
Basic and diluted net loss per share applicable to common stockholders		$	(0.65	)	$	(1.03	)	$	(1.62	)
Shares used to compute basic and diluted net loss per share applicable to common stockholders			18,800			18,419			12,974

(1)

Excluding $84, $192 and $457 in amortization of deferred stock-based compensation for the years ended March 31, 2003, 2002, and 2001, respectively.

(2)

Excluding $11, $226 and $842 in amortization of deferred stock-based compensation for the years ended March 31, 2003, 2002, and 2001, respectively.

(3)

Excluding $80, $291 and $889 in amortization of deferred stock-based compensation for the years ended March 31, 2003, 2002, and 2001, respectively.

(4)

Excluding $287, $684 and $1,749 in amortization of deferred stock-based compensation for the years ended March 31, 2003, 2002, and 2001, respectively.

(5)

Excluding $860, $1,600 and $3,615 in amortization of deferred stock-based compensation for the years ended March 31, 2003, 2002, and 2001, respectively.

The accompanying notes are an integral part of these financial statements.

37

PHARSIGHT CORPORATION

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)

(In thousands)

	Redeemable Convertible Preferred Stock					Convertible Preferred Stock
											Common Stock									Accumulated Other Comprehensive Income (loss)			Notes Receivable from Stockholders
														Additional Paid-In Capital			Deferred Stock Compensation									Accumulated Deficit
	Shares		Amount			Shares		Amount			Shares	Amount																	Total
Balance at March 31, 2000	5,455		$	18,582		5,232		$	6		4,055	$	4	$	28,843		$	(3,459	)	$	(23	)	$	(135	)	$	(29,761	)	$	(4,525	)
Accretion of Series C preferred stock	—			174		—			—		—		—		—			—			—			—			(174	)		(174	)
Accretion of Series D preferred stock	—			269		—			—		—		—		—			—			—			—			(269	)		(269	)
Issuance of common stock in initial public offering, net of issuance costs	—			—		—			—		3,000		3		26,368			—			—			—			—			26,371
Conversion of redeemable convertible preferred stock and convertible preferred stock to common stock	(5,455	)		(12,916	)	(5,232	)		(6	)	10,687		10		9,364			—			—			—			3,548			12,916
Redemption of Series C redeemable convertible preferred stock	—			(6,109	)	—			—		—		—		—			—			—			—			—			—
Issuance of common stock under employee benefit plans, net of repurchases	—			—		—			—		618		1		905			—			—			—			—			906
Issuance of common stock on net exercise of warrants	—			—		—			—		22		—		—			—			—			—			—			—
Interest on notes receivable from stockholders	—			—		—			—		—		—		—			—			—			(8	)		—			(8	)
Deferred stock compensation related to stock option grants	—			—		—			—		—		—		10,070			(10,070	)		—			—			—			—
Amortization of deferred stock compensation	—			—		—			—		—		—		—			7,552			—			—			—			7,552
Reversal of deferred stock compensation for terminated employees	—			—		—			—		—		—		(780	)		780			—			—			—			—
Comprehensive loss:
Unrealized loss on short-term investments	—			—		—			—		—		—		—			—			31			—			—			31
Net loss	—			—		—			—		—		—		—			—			—			—			(20,571	)		(20,571	)
Total comprehensive loss																														(20,540	)
Balance at March 31, 2001	—		$	—		—		$	—		18,382	$	18	$	74,770		$	(5,197	)	$	8		$	(143	)	$	(47,227	)	$	22,229

The accompanying notes are an integral part of these financial statements.

38

PHARSIGHT CORPORATION

STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT) (Continued)

(In thousands)

	Redeemable Convertible Preferred Stock			Convertible Preferred Stock
							Common Stock									Accumulated Other Comprehensive Income (loss)			Notes Receivable from Stockholders
										Additional Paid-In Capital			Deferred Stock Compensation									Accumulated Deficit
	Shares	Amount		Shares	Amount		Shares	Amount																	Total
Balance at March 31, 2001	—	$	—	—	$	—	18,382	$	18	$	74,770		$	(5,197	)	$	8		$	(143	)	$	(47,227	)	$	22,229
Issuance of common stock under employee benefit plans, net of repurchases	—		—	—		—	377		1		320			—			—			—			—			321
Interest on notes receivable from stockholders	—		—	—		—	—		—		—			—			—			(8	)		—			(8	)
Write off of notes receivable from stockholders	—		—	—		—	—		—		—			—			—			55			—			55
Amortization of deferred stock compensation	—		—	—		—	—		—		—			2,993			—			—			—			2,993
Reversal of deferred stock compensation for terminated employees	—		—	—		—	—		—		(505	)		505			—			—			—			—
Issuance of restricted common stock to officer as a bonus	—		—	—		—	—		—		114			(114	)		—			—			—			—
Acceleration of option vesting	—		—	—		—	—		—		35			—			—			—			—			35
Issuance of options in consideration for service	—		—	—		—	—		—		20			—			—			—			—			20
Comprehensive loss:
Unrealized loss on short-term investments	—		—	—		—	—		—		—			—			(9	)		—			—			(9	)
Net loss	—		—	—		—	—		—		—			—			—			—			(18,952	)		(18,952	)
Total comprehensive loss																										(18,961	)
Balance at March 31, 2002	—		—	—		—	18,759		19		74,754			(1,813	)		(1	)		(96	)		(66,179	)		6,684
Issuance of common stock under employee benefit plans, net of repurchases	—		—	—		—	131		—		55			—			—			—			—			55
Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $268, and discount of $1,870	1,815		5,362	—		—	—		—		1,870			—			—			—			—			1,870
Deemed dividend to Series A redeemable convertible preferred stockholders	—		246	—		—	—		—		(246	)		—			—			—			—			(246	)
Accrued dividends on Series A redeemable convertible preferred stock	—		—	—		—	—		—		(375	)		—			—			—			—			(375	)
Amortization of deferred stock compensation	—		—	—		—	—		—		—			1,322			—			—			—			1,322
Reversal of deferred stock compensation for terminated employees	—		—	—		—	—		—		(139	)		139			—			—			—			—
Issuance of options in consideration for service	—		—	—		—	—		—		8			—			—			—			—			8
Issuance of common stock to officer	—		—	—		—	163		—		—			—			—			—			—			—
Repayment of stockholder note receivable	—		—	—		—	—		—		—			—			—			96			—			96
Comprehensive Loss:
Unrealized income on short-term investments	—		—	—		—	—		—		—			—			1			—			—			1
Net loss	—		—	—		—	—		—		—			—			—			—			(11,542	)		(11,542	)
Total comprehensive loss																										(11,541	)
Balance at March 31, 2003	1,815	$	5,608	—	$	—	19,053	$	19	$	75,927		$	(352	)		—			—		$	(77,721	)	$	(2,127	)

The accompanying notes are an integral part of these financial statements.

39

PHARSIGHT CORPORATION

STATEMENTS OF CASH FLOWS

(In thousands)

			Years Ended March 31,
			2003			2002			2001
Operating activities
Net loss			$	(11,542	)	$	(18,952	)	$	(20,571	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Amortization of deferred stock compensation			1,322			2,993			7,552
	Depreciation and amortization			1,737			1,572			877
	Amortization of intangible assets			—			370			572
	Restructuring charges			10			81			—
	Issuance of options in consideration for services			8			20			—
	Compensation expenses related to accelerated vesting of options			—			35			—
	Changes in operating assets and liabilities:
		Accounts receivable		518			272			(901	)
		Recognized income not yet billed		(32	)		(58	)		123
		Other current assets		(359	)		398			(329	)
		Prepaids and other assets		(45	)		18			(70	)
		Accounts payable		(29	)		123			226
		Accrued expenses		(817	)		971			487
		Accrued compensation		(632	)		504			238
		Deferred revenue		1,568			1,161			326
		Accrued interest and other		—			47			(174	)
Net cash used in operating activities				(8,293	)		(10,445	)		(11,644	)
Investing activities
Purchases of property and equipment				(216	)		(1,409	)		(2,638	)
Purchases of short-term investments				—			(7,501	)		(13,287	)
Maturities of short-term investments				2,995			10,457			18,555
Transfer from (to) restricted cash				150			—			(150	)
Acquisition of Metazoa.com				—			—			(352	)
Net cash provided by investing activities				2,929			1,547			2,128
Financing activities
Proceeds from lease line				—			—			1,000
Proceeds from issuance of notes payable				750			4,500			—
Principal payments on notes payable				(1,406	)		(75	)		(2,218	)
Principal payments on capital lease obligations				(660	)		(614	)		(456	)
Proceeds from the issuance of common stock				55			321			27,277
Payments made on notes receivable from stockholders				96			—			—
Net proceeds from the issuance of redeemable convertible preferred stock				7,232			—			—
Dividends paid to preferred stockholders				(326	)
Redemption of redeemable convertible preferred stock				—			—			(6,109	)
Net cash provided by financing activities				5,741			4,132			19,494
Net (decrease) increase in cash and cash equivalents				377			(4,766	)		9,978
Cash and cash equivalents at the beginning of the year				10,498			15,264			5,286
Cash and cash equivalents at the end of the year			$	10,875		$	10,498		$	15,264

40

Supplemental disclosures of non cash activities
Property and equipment acquired under capital leases		—			—			1,000
Deferred stock compensation		—			114			10,070
Reversal of deferred stock compensation upon cancellation of unvested stock options		(139	)		(505	)		(780	)
Discount on redeemable convertible preferred stock		(1,870	)		—			—
Deemed dividend to preferred stockholders		246			—			—
Preferred stock dividend		49			—			—
Accretion of preferred stock		—			—			443
Conversion of preferred stock to common stock		—			—			9,374
Reversal of preferred stock accretion upon conversion		—			—			3,548
Supplemental disclosure of cash flow information
Cash paid for interest	$	329		$	245		$	319
Cash paid for taxes	$	36		$	37		$	30

The accompanying notes are an integral part of these financial statements.

41

PHARSIGHT CORPORATION

NOTES TO FINANCIAL STATEMENTS

1.     Description of Business

        Pharsight Corporation ("Pharsight" or the "Company") develops and markets integrated products and services that help pharmaceutical and biotechnology companies improve the drug development process. Pharsight's products and services combine proprietary computer-based simulation, statistical and data analysis tools with the sciences of pharmacology, drug and disease modeling, human genetics and biostatistics. Pharsight Corporation was incorporated in California on April 4, 1995 and reincorporated in Delaware in June 2000.

        Pharsight operates in only one business segment comprised of products and services to pharmaceutical and biotechnology companies to improve the drug development process. Sales are primarily generated in the United States and Europe through a direct field sales organization.

        As of March 31, 2003, Pharsight had working capital of $4.1 million and had stockholders' deficit of $2.1 million. During 2003, Pharsight used cash and cash equivalents in operating activities of $8.3 million. The net increase in cash from operating, investing and financing activities in 2003 was approximately $377,000. Management believes that its restructuring activities have reduced its ongoing operating expenses and that it will have sufficient working capital to support Pharsight's planned activities through fiscal year 2004. Pharsight is committed to the successful execution of its operating plan and will take further action as necessary to ensure the Company's cash resources are sufficient to fund Pharsight's presently anticipated operating losses and working capital requirements at least through fiscal 2004.

2.     Summary of Significant Accounting Policies

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents

        Cash and cash equivalents are comprised of highly liquid financial instruments consisting primarily of investments in money market funds, commercial paper, corporate notes and obligations issued by or fully collateralized by the U.S. government or federal agencies with insignificant interest rate risk and with original maturities of three months or less at the time of acquisition.

Short-term Investments

        All investments are designated as available-for-sale and are carried at fair value, with unrealized gains and losses, net of tax, reported in stockholders' equity. The cost of securities sold is based on the specific identification method. Realized gains or losses and declines in value, if any, judged to be other-than-temporary, are reported in interest income and other, net. Short-term investments consist of securities available-for-sale that mature within twelve months of purchase.

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        Short-term investments consisted of the following (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
March 31, 2002
Money market funds, commercial paper and treasury instruments	$	2,495	$	—	$	—		$	2,495
Corporate notes		500		—		(1	)		499
	$	2,995	$	—	$	(1	)	$	2,994

        There were no short-term investments for the year ended March 31, 2003. Gross realized gains and losses were insignificant for all periods presented.

Fair Value of Financial Instruments

        The carrying values of Pharsight's cash and cash equivalents, short-term investments, accounts receivable and payable, and accrued liabilities approximate their fair values due to their short-term nature. The fair values of the capital lease obligations and notes payable are estimated based on current interest rates available to Pharsight for debt instruments with similar terms, degrees of risk, and remaining maturities. The carrying values of these obligations approximate their respective fair values.

Property and Equipment

        Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of three to five years. Property under capital leases is amortized over the lesser of the useful lives of the assets or the lease term. Amortization expense related to these assets is included in depreciation expense.

Internal Use Software

        Pharsight accounts for internal use software costs, in accordance with Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). In accordance with SOP 98-1, Pharsight capitalizes costs to develop software for internal uses when preliminary development efforts are successfully completed and management has authorized and committed project funding and it is probable that the project will be completed and the software will be used as intended. Costs incurred prior to meeting these criteria, together with costs incurred for training and maintenance, are expensed. Costs incurred for upgrades and enhancements that are probable to result in additional functionality are also capitalized. All capitalized costs are included in property, plant and equipment and are amortized to expense over their expected useful lives.

Restricted Cash

        At March 31, 2002 the Company had $150,000 of restricted cash for a lease deposit on the Company's facilities. At March 31, 2003, there was no restricted cash because the lease for the Company's facilities was renegotiated and eliminated this requirement.

Deferred Revenue

        Deferred revenue is primarily comprised of license fees (initial and renewal), which are recognized ratably over the one-year period of the license. In addition, deferred revenue includes services and training revenue, which will be recognized as services are performed and fees for arrangements that include implementation services that have not been completed.

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Income Taxes

        Pharsight accounts for income taxes under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Revenue Recognition

        Pharsight's revenues are derived from two primary sources: initial and renewal fees for product licenses and scientific and training consulting services. Additionally, Pharsight had an insignificant amount of revenue from subscriptions related to Pharsight's information products in fiscal 2002.

        Pharsight's revenue recognition policy is in accordance with Statement of Position No. 97-2, "Software Revenue Recognition," or SOP 97-2 as amended by Statement of Position No. 98-4, "Deferral of the Effective Date of SOP 97-2, "Software Revenue Recognition,' "or SOP 98-4, and Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to Certain Transactions," or SOP 98-9. For each arrangement, Pharsight determines whether evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collection is probable. If any of these criteria are not met, Pharsight defers revenue recognition until such time as all of the criteria are met. Pharsight does not currently offer, has not offered in the past, and does not expect to offer in the future, extended payment term arrangements. If Pharsight does not consider collectibility to be probable, Pharsight recognizes revenue when the fee is collected. No customer has the right of return.

        Contracts from which Pharsight receives solely license and renewal fees consist of one-year software licenses (initial and renewal fees) bundled with post contract support services, or PCS.    Pharsight does not have vendor specific objective evidence to allocate the fee to the separate elements, as Pharsight does not sell PCS separately. Pharsight recognizes each of the initial and renewal license fees ratably over the one year period of the license during which the PCS is expected to be provided as required by paragraph 12 of SOP 97-2.

        Pharsight does not present PCS revenue separately as Pharsight does not have vendor specific objective evidence of PCS, and Pharsight does not believe other allocation methodologies, namely allocation based on relative costs, provide a meaningful and supportable allocation between license and PCS revenues.

        For arrangements consisting solely of services Pharsight recognizes revenue as services are performed.    Arrangements for services may be charged at daily rates for different levels of consultants and out of pocket expenses or may be for a fixed fee. For fixed fee contracts with payments based on milestones or acceptance criteria, Pharsight recognizes revenue as such milestones are achieved or upon acceptance, which approximates the level of services provided. For fixed fee arrangements at the end of each accounting period (i) Pharsight analyzes the appropriateness of the daily rates charged based upon total fees to be charged and total hours to be incurred, and (ii) Pharsight determines if losses should be recognized.

        Pharsight also enters into arrangements consisting of licenses, renewal fees and scientific consulting services.    The scientific consulting services meet the criteria of paragraph 65 of SOP 97-2 for separate accounting. As the only undelivered elements are services and PCS, and the PCS term (expressed or implied) and the period over which Pharsight expects the services to be performed are the same period, Pharsight recognizes revenue based on the lesser of actual services performed and licenses delivered or straight line over the period of the agreement. If the PCS term and the period over which Pharsight expects the services to be performed are not the same period, Pharsight recognizes revenue based on the lesser of actual services performed and licenses delivered or straight line over the longer of the PCS term and the period over which Pharsight expects the services to be performed. Vendor specific

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objective evidence of fair value of scientific services for purposes of revenue recognition in these multiple element arrangements is based on daily rates for different levels of consultants and out of pocket expenses.

        Pharsight also has arrangements that consist of licenses, PCS and implementation/installation services.    For arrangements involving a significant amount of services related to installation and implementation of the Company's software products, the Company recognizes revenue for the entire arrangement fee ratably over the remaining period of the PCS term once the services are completed and accepted by the customer. The Company currently does not have vendor specific objective evidence for its PCS.

        Pharsight has arrangements for subscription fees to information products.    Pharsight recognizes revenue from the subscription to information products over the contract period, provided Pharsight has evidence of an arrangement, the price of the subscription is fixed or determinable and payment is reasonably assured. The subscription fees have been included in license revenues.

        Pharsight has one international distributor. There is no right of return or price protection for sales to the international distributor. Sales are made to the distributor using a sell-in model. Revenue from this distributor in fiscal 2003 was less than 2%. Revenues from this distributor for fiscal 2002 and 2001 were less than 1% of total revenues.

Shipping Costs

        The Company's shipping and handling costs are included under cost of license and renewal for all periods presented.

Research and Development

        Pharsight capitalizes eligible computer software costs as products achieve technological feasibility, subject to net realizable value considerations. Pharsight has defined technological feasibility as completion of a working model. As of March 31, 2003 and 2002, such internal capitalizable costs were insignificant. Accordingly, Pharsight has charged all such internal costs to research and development expenses in the accompanying statements of operations.

Advertising

        Pharsight expenses the cost of advertising as incurred. These costs were insignificant in all periods presented.

Net Loss per Share

        Basic net loss per share is computed using the weighted-average number of outstanding shares of common stock. Diluted net loss per share is computed using the weighted-average number of shares of vested common stock outstanding and, when dilutive, unvested common stock outstanding, potential common shares from options and warrants to purchase common stock using the treasury stock method and from convertible securities using the as-if-converted basis. All potential common shares have been excluded from the computation of diluted net loss per share for all periods presented because the effect would be antidilutive, due to the Company's net loss in each period.

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        The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share amounts):

		Years Ended March 31,
		2003			2002			2001
Net loss		$	(11,542	)	$	(18,952	)	$	(20,571	)
Preferred stock accretion			—			—			(443	)
Preferred stock dividend			(375	)		—			—
Deemed dividend to preferred stockholders			(246	)		—			—
Net loss applicable to common stockholders		$	(12,163	)	$	(18,952	)	$	(21,014	)
Basic and diluted:
	Weighted average common shares outstanding		18,843			18,559			13,317
	Less weighted average common shares subject to repurchase		(43	)		(140	)		(343	)
Shares used to compute basic and diluted net loss per share applicable to common stockholders			18,800			18,419			12,974
Basic and diluted net loss per share applicable to common stockholders		$	(0.65	)	$	(1.03	)	$	(1.62	)

        The number of unvested and potential common shares excluded from the calculation of diluted net loss per share applicable to common stockholders at March 31, 2003, 2002, and 2001 is detailed in the following table (in thousands):

	March 31,
	2003	2002	2001
Outstanding options	3,113	4,452	3,541
Warrants	2,091	276	276
Redeemable convertible preferred stock	7,259	—	—
	12,463	4,728	3,817

        These instruments were excluded because their effect would be antidilutive.

Stock-Based Compensation

        The Company generally grants stock options to its employees for a fixed number of shares with an exercise price equal to the fair market value of the stock on the date of grant. As permitted under the Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation ("FAS 123"), 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 awards to employees. Accordingly, no compensation expense is recognized in the Company's financial statements in connection with employee stock awards where the exercise price of the award is equal to the fair market value of the stock at the date of the award. When stock options are granted with an exercise price that is lower than the fair market value of the stock on the date of grant, the difference is recorded as deferred compensation and amortized to expense on a graded basis over the vesting term of the stock options.

        Pro forma information regarding net loss and net loss per share is required by FAS 123. This information is required to be determined as if the Company had accounted for its employee stock

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options (including shares issued under the Employee Stock Purchase Plan, collectively called "stock-based awards"), under the fair value method of that statement.

        The fair value of the Company's stock based awards to employees was estimated assuming no expected dividends and the following weighted-average assumptions:

	ESPP Years Ended March 31,						Options Years Ended March 31,
	2003		2002		2001		2003		2002		2001
Expected life (years)	.50		.50		.50		3.74		3.9		3.00
Expected stock price volatility	307.0	%	127.0	%	80.0	%	198.0	%	127.0	%	80.0	%
Risk-free interest rate	1.64	%	2.80	%	5.60	%	2.58	%	3.94	%	4.25	%

        For purposes of pro forma disclosures, the estimated fair value of the stock-based awards is amortized to expense over the awards' vesting period. The Company's pro forma information is as follows (in thousands, except per share amount):

		Years Ended March 31,
		2003			2002			2001
Net loss applicable to common stockholders, as reported		$	(12,163	)	$	(18,952	)	$	(21,014	)
Add back:
	Stock-based employee compensation included in reported net loss		1,322			2,993			7,552
Less:
Total stock-based employee compensation expense determined under the fair value method for all awards			(2,305	)		(2,305	)		(9,620	)
Pro forma net loss applicable to common stockholders		$	(13,146	)	$	(18,264	)	$	(23,082	)
Basic and diluted net loss per share applicable to common stockholders, as reported		$	(0.65	)	$	(1.02	)	$	(1.62	)
Pro forma basic and diluted net loss per share applicable to common stockholders		$	(0.70	)	$	(0.98	)	$	(1.78	)

        The option valuation models were developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because Pharsight's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

        Pharsight accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS 123 and Emerging Issues Task Force ("EITF") 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services.

Other Comprehensive Income (Loss)

        Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), requires Pharsight to display comprehensive income (loss) and its components as part of the financial statements. Other comprehensive income (loss) includes certain changes in equity that are

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excluded from net income (loss). Pharsight's only component of other comprehensive income (loss) is unrealized gain (loss) on available-for-sale marketable securities for the years ended March 31, 2003 and 2002, respectively.

Goodwill and Other Intangible Assets

        In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement No. 142 requires that goodwill and other intangible assets with indefinite useful lives no longer be amortized, but instead an entity must perform an assessment of whether these assets are impaired as of the date of adoption and test for impairment at least annually in accordance with the provisions of Statement No. 142. The standards also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed annually for impairment. The Company adopted the provisions of Statement No. 141 on July 1, 2001 and Statement No. 142 on April 1, 2002. The adoption of Statement No. 141 or 142 did not have a significant impact on the Company's financial position and results of operations.

        The following tables present net loss and loss per share applicable to common stockholders as reported and adjusted to exclude the amortization of goodwill and assembled workforce as if these items had not been amortized (in thousands except per share data).

	Year Ended March 31,
	2003						2002						2001
	Net Loss			Loss per share			Net Loss			Loss per share			Net Loss			Loss per share
Net loss applicable to common stockholders	$	(12,163	)	$	(0.65	)	$	(18,952	)	$	(1.03	)	$	(21,014	)	$	(1.62	)
Add back goodwill and assembled workforce amortization		—			—			222			0.01			126			0.01
Adjusted net loss applicable to common stockholders	$	(12,163	)	$	(0.65	)	$	(18,730	)	$	(1.02	)	$	(20,888	)	$	(1.61	)

Recent Accounting Pronouncements

Accounting for Costs Associated with Exit and Disposal Activities

        In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146 ("FAS 146"), Accounting for Costs Associated with Exit and Disposal Activities. This statement revises the accounting for exit and disposal activities under Emerging Issues Task Force Issue 94-3 ("EIFT 94-3"), Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, by spreading out the reporting of expenses related to restructuring activities. Commitment to a plan to exit an activity or dispose of long-lived assets will no longer be sufficient to record a one-time charge for most anticipated costs. Instead, companies will record exit or disposal costs when they are "incurred" and can be measured at fair value, and they will subsequently adjust the recorded liability for changes in estimated cash flows. The provisions of SFAS No. 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. Companies may not restate previously issued financial statements for the effect of the provisions of SFAS No. 146. In addition, liabilities that a company previously recorded under EITF Issue No. 94-3 are grandfathered. The restructuring activities initiated by the Company in November 2001, July 2002 and November 2002 have been accounted for under the

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provisions of EITF 94-3. The Company adopted SFAS 146 on January 1, 2003. The adoption of SFAS No. 146 did not have a material impact on the Company's financial position or results of operations.

Accounting for Stock-Based Compensation-Transition and Disclosure

        In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure" ("Statement 148"). Statement 148 amends Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("Statement 123") and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Statement 148 also amends the disclosure requirements of Statement 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of Statement148 are effective for financial statements issued for fiscal years ending after December 15, 2002 for interim periods beginning after December 15, 2002. Accordingly, the Company adopted the disclosure provisions of this statement in its financial statements of fiscal year 2003.

Guarantor's Accounting Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others

        In December 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45")." FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company has adopted the disclosure requirements of FIN 45 as of December 31, 2002. In addition, the Company is required to adopt the initial recognition and measurement of the fair value of the obligation undertaken in issuing the guarantee on a prospective basis to guarantees issued or modified after December 31, 2002. The Company does not believe FIN 45 will have a material effect on the Company's operations, financial position or cash flows.

3. Property and Equipment

        Property and equipment are stated at cost and consist of the following (in thousands):

	March 31,
	2003			2002
Furniture and fixtures	$	647		$	647
Computers and equipment		5,286			5,125
Leasehold improvements		188			180
		6,121			5,952
Accumulated depreciation and amortization		(4,944	)		(3,244	)
	$	1,177		$	2,708

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        Property and equipment includes assets acquired under capital lease obligations with a cost of $2,491,000 at March 31, 2003 and 2002, and accumulated amortization of $2,343,000 and $1,933,000 at March 31, 2003 and 2002, respectively.

        Depreciation expense was $1,327,000, $924,000 and $163,000 for the years ended March 31, 2003, 2002, and 2001, respectively.

        Amortization expense of assets acquired under capital lease obligations was $410,000, $648,000 and $714,000 for the years ended March 31, 2003, 2002, and 2001, respectively.

4. Acquisition

        In February 2001, Pharsight acquired the assets of Metazoa.com, a privately held company that develops collaborative software for the life science research community. Pharsight purchased the assets of Metazoa.com for cash of $250,000 and incurred acquisition expenses of $102,000. The assets acquired were as follows (in thousands):

Core technology	$	125
Assembled workforce		125
Goodwill		102
Total	$	352

        The value of the assembled workforce was derived by estimating the costs to replace the existing employees, including recruiting and hiring costs and training costs for each category of employee. Goodwill is determined based on the residual difference between the amount paid and the values assigned to identified intangible assets. In February 2001, Pharsight began amortizing goodwill, core technology and assembled workforce on a straight-line basis over the estimated useful lives of these assets of two to three years. These intangible assets were fully amortized as of March 31, 2002.

5. Concentrations of Credit Risk

        Financial instruments that potentially subject Pharsight to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and trade receivables. Pharsight generally invests its excess cash in money market funds, commercial paper, corporate notes and obligations issued by or fully collateralized by the U.S. government or federal agencies. Pharsight places its investments with high-credit quality counterparties and, by policy, limits the amount of credit exposure to any one counterparty.

        Pharsight sells primarily to major pharmaceutical and biotechnology companies. Pharsight evaluates its customers' financial condition when necessary and routinely receives a deposit for services contracts at the time of sale. Pharsight generally requires no collateral from its customers. Pharsight analyzes the need for reserves for potential credit losses and records reserves when necessary. It maintains an allowance for doubtful accounts based on the expected collectibility of accounts receivable. To date, Pharsight has not experienced any significant losses with respect to these balances. For the year ended March 31, 2002, Pharsight wrote-off $1,000 against the allowance for doubtful accounts. For the year ended March 31, 2003, there was no write-off to the allowance for doubtful accounts.

        One customer accounted for 18%, 20% and 11% of total revenues for the year ended March 31, 2003, 2002, and 2001, respectively. Another customer accounted for 10% of total revenues for the year ended March 31, 2003. A third customer represented 17% of total revenues for the year ended March 31, 2001.

        Two customers comprised 16% and 13% of accounts receivable at March 31, 2003. No customers comprised more than 10% of accounts receivable at March 31, 2002.

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6. Debt

        Pharsight has entered into various noncancelable capital lease agreements for equipment and software through a series of sale-leaseback transactions. Capital lease obligations represent the present value of future rental payments under these leases.

        During the year ended March 31, 2002, Pharsight borrowed $3.5 million from its Silicon Valley Bank term loan. The secured term loan principal is payable over forty-eight months, beginning in July 2002, interest is accrued at 1.25% above prime and is payable monthly from the date of borrowing. During the year ended March 31, 2002, Pharsight also borrowed $1 million from its secured revolving credit facility. This secured revolving credit facility expires in June 2003; interest is accrued at 1.00% above prime and is payable monthly from the date of borrowing.

        In June 2001, Pharsight extended and enhanced the previously unused credit facilities with Silicon Valley Bank. Pharsight had up to $7.5 million available under three different facilities (less any amounts drawn down). The credit facilities include $2.5 million of secured revolving credit against 80% of eligible domestic accounts receivable, $1.5 million of secured revolving credit against 90% of eligible foreign accounts receivable and $3.5 million in a term loan secured by certain assets of the Company, excluding intellectual property. The current secured revolving credit facilities for both domestic and foreign accounts receivable expire in June 2003. Please see Note 15 regarding renewal of these credit facilities.

        During fiscal 2003, the following financial covenants applied to Pharsight's Silicon Valley Bank loan facilities: quick ratio greater than 1.0; remaining months liquidity of at least six months (defined as cash used in operating activities for the most recent quarter multiplied by two); liquidity of at least two times the term loan advance; and annual cumulative net loss within 20% of Pharsight's plan, measured at specific quarterly intervals. On October 23, 2002, Pharsight obtained a modification to its Silicon Valley Bank loan agreement. This modification revised Pharsight's allowable net losses for the second half of fiscal 2003. Pharsight is in compliance with each of these covenants as of March 31, 2003.

        Future minimum lease payments under notes payable and capital leases at March 31, 2003 are as follows (in thousands):

	Notes Payable			Capital Leases
2004	$	1,875		$	313
2005		875			57
2006		875			—
2007		219			—
Total minimum payments		3,844			370
Less amounts representing interest		—			(20	)
Present value of minimum lease payments		3,844			350
Less current portion		(1,875	)		(295	)
Long-term portion	$	1,969		$	55

        No amounts representing interest on the notes payable have been calculated in the above table, as the related interest is variable.

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7. Commitments and Contingencies

Operating Leases

        Pharsight leases its office facilities and certain equipment under noncancelable operating leases expiring through 2006. Minimum annual rental commitments, excluding sublease income and including facilities under restructurings, at March 31, 2003 are as follows (in thousands):

2004	$	862
2005		484
2006		291
Total minimum payments	$	1,637

        Sublease income, excluding sublease income related to a facility under the restructurings, for the year ended March 31, 2003 and 2002, was approximately $309,000 and $939,000, respectively. These amounts have been reflected as a reduction of operating expenses. Pharsight expects to receive sublease payments of approximately $75,000 in fiscal 2004.

        Rent expense, net of sublease income, was $1,265,000, $1,344,000 and $1,383,000 for the years ended March 31, 2003, 2002, and 2001, respectively.

Legal Claims

        From time to time and in the ordinary course of business, the Company may be subject to various claims, charges, and litigation. In the opinion of management, final judgments from such pending claims, charges, and litigation, if any, against the Company, would not have a material adverse effect on its financial position, result of operations, or cash flows.

8. Restructuring Charge

        During the year ended March 31, 2002, the Company implemented a restructuring program to better align operating expenses with anticipated revenues. The Company recorded a $676,000 restructuring charge, which consists of $402,000 in facility exit costs, $253,000 in personnel severance costs and $21,000 in other exit costs. The restructuring program resulted in the reduction in force across all company functions of approximately 14%, or 20 employees. As of March 31, 2002, all 20 employees had been terminated as a result of the program. The restructuring actions did not impact the resources assigned to develop and support current and future Pharsight Knowledgebase Server™, WinNonlin®, WinNonMix® and Trial Simulator™ product families. At March 31, 2003, the Company had $16,000 of accrued restructuring costs related to monthly lease expenses for one of the two facilities that were exited during the year ended March 31, 2002, and other exit costs. The restructuring accrual is included within Accrued Expenses in the balance sheets.

        During the year ended March 31, 2003, the Company announced that it was taking two additional actions intended to help further reduce operating expenses across all non-core functional areas. These actions were initiated in July 2002 (the "July 2002 Restructuring Plan") and November 2002 (the "November 2002 Restructuring Plan"). The July 2002 Restructuring Plan included a total reduction of 18 employees, all 18 employees had been terminated as of March 31, 2003. The November 2002 Restructuring Plan included a total reduction in force of 19 employees and the closure of two remote office locations. As of March 31, 2003, all of the employees had been terminated. In July 2002 and November 2002, the Company recorded $324,000 and $364,000 in restructuring charges, respectively, representing employee severance costs and facility exit costs. At March 31, 2003, the Company had $45,000 and $23,000 of remaining accrued restructuring costs associated with the July 2002 Restructuring Plan and the November 2002 Restructuring Plan, respectively. The accrued costs are related to employee severance to be paid out in the first quarter of fiscal 2004 and monthly lease

52

expenses for the two vacated facilities to be paid out in the first and second quarter of fiscal 2004. The restructuring accrual is included within Accrued Expenses in the balance sheets.

        The following table depicts the restructuring activity during the year ended March 31, 2003 (in thousands):

	Expenditures
Category	Balance at March 31, 2002		Additions		Cash			Non-Cash			Adjustments			Balance at March 31, 2003
December 2001 Restructuring
Vacated facilities and operating assets	$	243	$	—	$	(169	)	$	—		$	(58	)	$	16
Other costs		6		—		—			(2	)		(4	)		—
July 2002 Restructuring
Employment related		—		324		(212	)		—			(67	)		45
November 2002 Restructuring
Employment related		—		293		(290	)		—			(3	)		—
Vacated Facilities		—		71		(40	)		(8	)		—			23
Total	$	249	$	688	$	(711	)	$	(10	)	$	(132	)	$	84

        The following table depicts the restructuring activity during the year ended March 31, 2002 (in thousands):

	Expenditures
Category	Balance at March 31, 2001		Additions		Cash			Non-Cash			Adjustments	Balance at March 31, 2002
December 2001 Restructuring
Vacated facilities and operating assets	$	—	$	402	$	(78	)	$	(81	)	—	$	243
Employee severance		—		253		(253	)		—		—		—
Other costs		—		21		(15	)		—		—		6
Total	$	—	$	676	$	(346	)	$	(81	)	—	$	249

9. Stockholders' Equity

Series C and Series D Redeemable Convertible Preferred Stock

        Prior to the Company's initial public offering in August 2000, the Company had Series C and D redeemable convertible preferred stock outstanding. Each share of Series C and Series D redeemable convertible preferred stock (Series C stock and Series D stock, respectively) was convertible, at the holder's option, into one share of common stock subject to certain antidilution adjustments. At conversion, the holders were entitled to any and all declared and unpaid dividends. Each share of preferred stock automatically converted to common stock upon the closing of Pharsight's initial public offering in August 2000. In addition, each share of Series C preferred stock received in cash the original issue price of $2.37 upon conversion.

        The Series C stock was redeemable at any time after May 2002 (five years from issuance), upon the affirmative vote of at least 51% of the Series C stockholders. The Series D stock was redeemable at any time after October 2003 (five years from issuance) upon the affirmative vote of at least 66²/3% of the Series D stockholders. The Series C stock was redeemable at a price of $2.37 per share plus any and all dividends accrued, declared, and unpaid and a payment amount equal to 8% of the original

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issue price of the Series C stock multiplied by the number of full years elapsed between the original issue date and the redemption date. The Series D stock was redeemable at a price of $3.27 per share, plus any and all dividends accrued and unpaid and a payment amount equal to 8% of the original issue price of the Series D stock multiplied by the number of full years elapsed between the original issue date and the redemption date.

        For the Series C stock and the Series D stock, Pharsight recorded accretion of the excess redemption value ratably against earnings over the term of the redemption feature. The accretion resulted in a $174,000 and $489,000 increase to the carrying value of the Series C stock for the years ended March 31, 2001and 2000, respectively. The accretion resulted in a $269,000 and $752,000 increase in the carrying value of the Series D stock for the years ended March 31, 2001, and 2000, respectively.

Preferred Stock

        In August 2000, upon completion of the Company's initial public offering, all outstanding preferred stocks converted to common stock.

        As of March 31, 2003 Pharsight is authorized to issue up to 5,000,000 shares of preferred stock. The Board of Directors designated 2,000,000 shares as Series A preferred stock and 1,200,000 shares as Series B preferred stock. The Board of Directors may determine the rights and preferences of the remaining 1,800,000 shares of preferred stock, subject to limitations provided pursuant to the terms of the Series A and Series B preferred stock.

Series A Redeemable Convertible Preferred Stock and Common Stock Warrants

        On June 26, 2002 and September 11, 2002, the Company completed a private placement of 1,814,662 units (each a "Unit," and, collectively, the "Units") for an aggregate purchase price of $7.5 million to certain entities affiliated with the Company's existing stockholders. The sale and issuance of the Units were made pursuant to a Preferred Stock and Warrant Purchase Agreement (the "Purchase Agreement") and closed in two phases. The first phase was completed on June 26, 2002, pursuant to which the Company sold an aggregate of 761,920 Units for an aggregate purchase price of $3.15 million. The second phase was completed on September 11, 2002, pursuant to which the Company sold an aggregate of 1,052,742 Units for an aggregate purchase price of $4.35 million. Each Unit consists of one share of the Company's Series A redeemable convertible preferred stock (the "Series A Preferred") and a warrant to purchase one share of common stock (each a "Warrant," and, collectively, the "Warrants").

Dividends

        The holders of the Series A Preferred shall be entitled to receive cumulative dividends in preference to any dividend on the common stock, payable quarterly at the rate of 8% per annum, at the election of the holder either in cash or in shares of Series B redeemable convertible preferred stock (the "Series B Preferred" and, together with the Series A Preferred, the "Preferred Stock"). The Series B Preferred has identical rights, preferences and privileges as the Series A Preferred, except that the Series B Preferred is not entitled to the dividend payment right.

Conversion

        The holders of the Preferred Stock shall have the right to convert the Preferred Stock, at any time, into shares of common stock. The initial conversion rate shall be four to one, subject to proportional adjustments for stock splits, stock dividends, recapitalizations and the like.

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        The Preferred Stock shall be automatically converted into common stock, at the then applicable conversion price, (i) in the event that the holders of at least 75% of the outstanding Preferred Stock consent to such conversion or (ii) upon the closing of a firmly underwritten public offering of shares of common stock of the Company for a public offering price of at least $3.006 per share and with gross proceeds to the Company of not less than $40,000,000 (before deduction of underwriters commissions and expenses).

Liquidation Preference

        In the event of any liquidation or winding up of the Company, the holders of the Preferred Stock shall be entitled to receive in preference to the holders of the common stock a per share amount equal to the greater of (a) the original issue price, plus any accrued but unpaid dividends and (b) the amount that such shares would receive if converted to common stock immediately prior thereto (the "Liquidation Preference"). After the payment of the Liquidation Preference to the holders of the Preferred Stock, the remaining assets shall be distributed ratably to the holders of the common stock. A merger, acquisition, sale of voting control of the Company in which the stockholders of the Company do not own a majority of the outstanding shares of the surviving corporation, or a sale of all or substantially all of the assets of the Company, shall be deemed to be a liquidation.

Voting Rights

        The holders of Preferred Stock are entitled to vote together with the common stock. Each share of Preferred Stock shall have a number of votes equal to the number of shares of common stock then issuable upon conversion of such share of Preferred Stock. In addition, consent of the holders of at least 75% of the then outstanding Preferred Stock shall be required for certain actions, including any action that amends the Company's charter documents so as to adversely affect the Preferred Stock.

Redemption

        At the election of the holders of at least 75% of the Preferred Stock, to the extent that the Company may legally do so, the Company shall redeem the outstanding Preferred Stock after the fifth anniversary of the initial issuance of Preferred Stock. Such redemption shall be at a price of $4.008 per share plus accrued and unpaid dividends. If the holders of Preferred Stock shall not have elected to have the Company redeem the Preferred Stock at or after the fifth anniversary of the date of issuance, the Company shall have the option to redeem the Preferred Stock on the same terms as the optional redemption by the holders of Preferred Stock.

Registration Rights

        Pursuant to the Purchase Agreement, within 55 days following the initial closing, the Company agreed to use its best efforts to prepare and file a registration statement on Form S-3 (the "Registration Statement") for the resale of the shares of common stock issuable to the purchasers upon conversion of the Preferred Stock and exercise of the Warrants (the "Shares"), and to use its commercially reasonable efforts to cause the Registration Statement to become effective within 105 days after the initial closing.

        The Company caused the Registration statement to be declared effective on October 31, 2002. In the event that the Company shall fail to keep the Registration Statement effective (other than pursuant to the permissible suspension periods or waivers granted by the holders of the Preferred Stock), the Company shall pay to the holders of Preferred Stock as liquidated damages the amount of 1% per month of the aggregate purchase price for the Shares remaining to be sold pursuant to the Registration Statement.

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Warrants

        The Warrants are exercisable for a period of five years from the date of issuance at a per share price equal to $1.15, subject to proportional adjustments for stock splits, stock dividends, recapitalizations and the like. If not exercised after five years, the right to purchase the common stock will terminate. The Warrants contain a cashless exercise feature. The common stock issuable upon exercise of the Warrants are entitled to the benefits and subject to the terms of the Registration Rights described above.

Summary of Certain Preferred Stock and Warrant Accounting

        Due to the nature of the redemption features of the Series A Preferred, the Company excluded the Series A Preferred from stockholders' equity in its financial statements.

        The amount representing the Series A Preferred with total gross proceeds of $7.5 million was discounted by a total of $2.1 million, including $1.3 million representing the value assigned to the Warrants, $585,000 representing the related beneficial conversion feature of the Series A Preferred, and $268,000 representing issuance costs. The $1.3 million value of the Warrants is subject to accretion over the 5-year redemption period. After reducing the proceeds by the value of the Warrants, the remaining proceeds are used to compute a discounted conversion price in accordance with EITF 00-27, "Application of EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios to Certain Convertible Instruments". The discounted conversion price for each of the two closings is compared to the fair market value of the Company's common stock on June 26, 2002 (the date of issuance of the Series A Preferred) and September 6, 2002 (the date of the shareholder vote approving the second closing) resulting in a total beneficial conversion feature of $585,000, which represents the difference between the fair market value of the Company's common stock and the discounted conversion price. The beneficial conversion feature of $585,000 is subject to accretion over the 5-year redemption period. Issuance costs of $268,000 were accounted for as a discount on the redeemable Preferred Stock and are also subject to accretion over the 5-year redemption period.

        The net discounted value for the Series A Preferred of $5.6 million is recorded as a long-term liability as of March 31, 2003 with the corresponding aggregate value of the Warrants and the beneficial conversion feature of $1.9 million ($1.3 million plus $585,000) recorded as additional-paid-in-capital within equity.

        Deemed dividends were recorded by the Company for the year ended March 31, 2003 totaling approximately $246,000, in aggregate representing accretion of the discount resulting from the value of Warrants, the value of the beneficial conversion feature and the issuance costs. The aggregate deemed dividends recorded were charged against additional-paid-in-capital and included in the calculation of net loss applicable to common stockholders.

        Dividends on the Preferred Stock, calculated at the rate of 8% per annum, were approximately $375,000 for the year ended March 31, 2003. The dividends were charged against additional-paid-in-capital and included in the calculation of net loss applicable to common stockholders.

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Common Stock

        Pharsight is authorized to issue up to 120,000,000 shares of common stock. At March 31, 2003, common stock was reserved for future issuance as follows (in thousands):

Warrants outstanding	2,091
Stock option plans	7,214
Employee stock purchase plan	1,071
Redeemable convertible preferred stock	7,259
	17,635

        Pharsight has sold common stock pursuant to restricted stock purchase agreements containing provisions established by the Board of Directors. Pharsight has a right to repurchase the shares at the original sale price, which generally expires at the rate of 25% after one year and 2.0833% per month thereafter.

        For the year ended March 31, 2000, Pharsight sold 2,981,000 restricted shares. For the year ended March 31, 1999, Pharsight sold 2,169,000 restricted shares. At March 31, 2003 and 2002, 11,000 and 76,000 shares were subject to repurchase.

Notes Receivables from Stockholders

        Pharsight loaned an officer $12,000 in July 1996 and $10,000 in June 1998 in connection with the purchase of common stock. Interest on each of these loans was 6.74% and 5.77% per year, respectively, and compounds annually. The principal and accrued interest on each of these was due in July 2001 and June 2003, respectively, and could be prepaid without penalty. The promissory notes become due and payable 30 days after the officer's employment was terminated. In addition, Pharsight loaned the officer $23,000 in July 1999 to purchase additional shares of common stock. The interest on this loan was 6% per year, with the principal and accrued interest due in May 2003. The officer was on leave from Pharsight from October 2001 to October 2002, and officially left the company in October 2002. These notes were written off in fiscal 2002.

        In January 1998 Pharsight loaned an officer $75,000 in connection with the purchase of common stock. The interest on this loan was 5.93% per year and compounds annually. The principal and accrued interest was due in December 2002 and could be prepaid without penalty. The note was full recourse and the shares of common stock purchased were pledged as repayment of the loans. This loan was paid in full in December 2002.

Warrants

        In connection with various convertible promissory notes and loan agreements entered into throughout fiscal 1999, Pharsight issued warrants to purchase 272,000 shares of common stock at exercise prices ranging from $0.25—$3.27 per share. The fair value assigned to these warrants was immaterial. As of March 31, 2003, all of these warrants remained outstanding. The warrants expire on August 9, 2005.

        In connection with certain equipment leases, Pharsight issued a warrant to purchase 4,000 shares of common stock at an exercise price of $7.20 per share in fiscal 2001. The fair value assigned to these warrants was immaterial. At March 31, 2003, all of these warrants remained outstanding. The warrants expire on August 2005.

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        The following table depicts warrant activity (in thousands) for the three years ended March 31, 2003.

	Number of Warrants Outstanding
Balance at March 31, 2000	272
Warrants granted	4
Balance at March 31, 2001	276
Warrants granted	—
Balance at March 31, 2002	276
Warrants granted	1,815
Balance at March 31, 2003	2,091

10.   Stock-Based Benefit Plans

Stock Option Plans

        In April 2000, the Board of Directors adopted and in May 2000, the stockholders approved, the 2000 Equity Incentive Plan ("Incentive Plan"). The Incentive Plan became effective upon Pharsight's initial public offering in August 2000. The Incentive Plan provides for the granting of stock awards, including incentive stock options, nonstatutory stock options, stock bonuses and rights to acquire restricted stock, to Pharsight's employees and consultants. In addition, the Incentive Plan provides for non-discretionary grants of nonstatutory stock options to Pharsight's non-employee directors.

        Under the Incentive Plan, the Board of Directors determines the term of each award and the award price. In the case of incentive stock options, the exercise price may not be less than the fair market value on the date of grant, while nonstatutory options and restricted stock awards have exercise prices of not less than 85% of fair market value on the date of grant. Stock bonuses may be granted with a zero exercise price in consideration of past services rendered. In general, stock options vest over a four-year period, 25% on the first anniversary of the grant and ratably on a monthly basis thereafter.

        Non-employee directors are eligible to receive nonstatutory stock options with an exercise price equal to fair market value on the date of grant under the Incentive Plan. Each eligible director received an option to purchase 5,000 shares of common stock on the date of Pharsight's initial public offering. In addition, each newly elected director will be granted an option to purchase 5,000 shares of common stock on the date of his election (2,500 shares if he is elected more than six months after the previous Annual Meeting of Stockholders). Each eligible director is also granted an additional option to purchase 5,000 shares of common stock on the day after each Annual Meeting of Stockholders, beginning in 2001. Options granted to non-employee directors generally vest on the date of the Annual Meeting immediately following the grant and have a maximum term of 10 years.

        Pharsight initially reserved 4,000,000 shares for grant under the Incentive Plan. On each January 1, the number of shares reserved will increase automatically by the least of 5% of the total number of common shares outstanding on that date, 2,000,000 shares or such fewer number of shares as determined by the Board of Directors. On January 1, 2002, an additional 932,000 shares were reserved for issuance under the Incentive Plan. The number of shares reserved for issuance did not change on January 1, 2003.

        In April 2001, the Board of Directors approved the UK Company Share Option Plan ("UK Plan"). The UK Plan became effective upon approval of its terms by the Inland Revenue of the United Kingdom ("Inland Revenue"). The UK Plan provides for the granting of stock options to Eligible

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Employees (as defined in the UK Plan). Pharsight has reserved 200,000 shares for grant under the UK Plan.

        Under the UK Plan, the Board of Directors determines the term of each award and the award price (subject to the approval of Inland Revenue). The exercise price of all options may not be less than the fair market value on the date of the grant. In general, stock options vest over a four-year period, 25% on the first anniversary of the grant and ratably on a monthly basis.

        Under the UK Plan, any option granted to an Eligible Employee shall be limited and take effect so that, immediately following such grant, the aggregate Market Value of all the shares which he may acquire on the exercise in full of all unexercised options then held by him under the UK Plan and any share option plan (other than a savings-related share option plan) approved by the Inland Revenue under Schedule 9 and adopted by the Company or any Associated Company (as defined in the Plan) of the Company, shall not exceed 30,000 English Pounds. There have been no shares issued under the UK Plan.

        Pharsight has two predecessor plans to the Incentive Plan, the 1997 Stock Option Plan ("1997 Plan") and the 1995 Stock Option Plan ("1995 Plan"). The 1997 Plan and the 1995 Plan were terminated upon the effective date of the Incentive Plan. Options outstanding under the 1997 Plan and 1995 Plan remain outstanding and may be exercised until they expire or are otherwise cancelled. No new options may be granted under these Plans. Options outstanding under the 1997 Plan and 1995 Plan have terms and vesting periods substantially the same as options outstanding under the Incentive Plan.

        In May 2000, the Board of Directors adopted the 2000 CEO Non-Qualified Stock Option Plan ("CEO Plan"). The sole person eligible to receive an option under the CEO Plan was Pharsight's former Chief Executive Officer, who received an option to purchase all 443,000 shares reserved for issuance under the CEO Plan. The exercise price of the options was $6.83, which was 105% of the fair market value on the date of grant. The options vest in equal monthly installments over 34 months. In certain change in control circumstances, a surviving or acquiring corporation may either assume all outstanding options under the CEO Plan or substitute other awards for the outstanding options. If the surviving or acquiring corporation does not assume or substitute other awards for the options outstanding under the CEO Plan, then the vesting will accelerate and the options will terminate prior to the change in control if they are not otherwise exercised. At March 31, 2003, 287,000 options remained outstanding under the CEO Plan, and 156,000 options had been cancelled.

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        A summary of Pharsight's stock option activity and related information for the three years, in the period ended March 31, 2002, is as follows (in thousands, except per share amounts):

	Number of Options Outstanding		Weighted Average Exercise Price per Share
Balance at March 31, 2000	1,835		$	1.06
Options granted	2,470			5.70
Options exercised	(521	)		0.96
Options canceled	(243	)		3.87
Balance at March 31, 2001	3,541			4.09
Options granted	2,121			1.89
Options exercised	(298	)		0.57
Options canceled	(912	)		3.79
Balance at March 31, 2002	4,452			3.34
Options granted	668			0.80
Options exercised	(77	)		0.26
Options canceled	(1,930	)		3.26
Balance at March 31, 2003	3,113		$	2.91

        At March 31, 2003, 2002, and 2001, 4,101,000, 3,443,000 and 4,061,000 shares were available for future option grants, respectively.

        The following table summarizes information about stock options outstanding and exercisable at March 31, 2003 (in thousands, except per share amounts):

	Options Outstanding				Options Exercisable
Range of Exercise Prices per Share	Number Outstanding	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price per Share		Number Exercisable	Weighted Average Exercise Price per Share
$0.10 - $  0.80	535	7.61	$	0.49	230	$	0.29
$0.82 - $  1.05	531	9.06	$	0.92	182	$	0.91
$1.25 - $  1.80	617	8.45	$	1.72	247	$	1.68
$1.95 - $  3.75	523	8.22	$	2.41	417	$	2.31
$3.88 - $10.00	907	7.15	$	6.61	786	$	6.65
$0.10 - $10.00	3,113	7.99	$	2.91	1,862	$	3.67

        At March 31, 2002 and 2001, options to purchase 1,395,000 and 1,141,000 shares were exercisable, respectively.

Employee Stock Purchase Plan

        In April 2000, the Board of Directors adopted and in May 2000, the stockholders approved, the 2000 Employee Stock Purchase Plan ("Purchase Plan"). The Purchase Plan became effective upon Pharsight's initial public offering in August 2000.

        Pharsight has reserved 600,000 shares for issuance under the Purchase Plan. Each January 1, the number of shares reserved will be increased automatically by the least of 1.5% of the number of shares of common stock outstanding on that date, 600,000 shares or a fewer number as determined by the Board of Directors. On January 1, 2002 the number of shares reserved under the Purchase Plan

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increased by 280,000. The number of shares reserved did not change on January 1, 2003. Eligible employees may purchase common stock through payroll deductions by electing to have up to 20% of their compensation withheld. Each participant is granted an option to purchase common stock on the first day of each six-month offering period and this option is automatically exercised on the last day of the offering period. The purchase price for the common stock under the Purchase Plan is 85% of the lesser of the fair market value of the common stock on the first day and the last day of the offering period. Offering periods begin on February 1 and August 1 of each year. Shares of common stock issued under the Purchase Plan totaled 54,000 and 79,000 in 2003 and 2002, respectively. As of March 31, 2003, 941,000 shares remain available for future issuance.

        In April 2001, the Board of Directors adopted the 2001 UK Employee Stock Purchase Plan ("UK Purchase Plan"). The UK Purchase Plan became effective immediately. Pharsight has reserved 130,000 shares for issuance under the UK Purchase Plan. Each January 1, the number of shares reserved will be increased automatically by the least of 1.5% of the number of shares of common stock outstanding on that date, 130,000 shares or a fewer number as determined by the Board of Directors. On January 1, 2003 and 2002, the number of shares reserved under the UK Purchase Plan did not increase. Eligible employees may purchase common stock through payroll deductions by electing to have up to 20% of their compensation withheld. Each participant is granted an option to purchase common stock on the first day of each six-month offering period and this option is automatically exercised on the last day of the offering period. The purchase price for the common stock under the UK Purchase Plan is 85% of the lesser of the fair market value of the common stock on the first day and the last day of the offering period. Offering periods begin on February 1 and August 1 of each year. There were no shares of common stock issued under the UK Purchase Plan in 2003 and 2002. As of March 31, 2003, 130,000 shares remain available for future issuance.

        The weighted average grant date fair value of stock options, as calculated using the Black Scholes model under FAS 123, was as follows:

	ESPP Years Ended March 31,						Options Years Ended March 31,
	2003		2002		2001		2003		2002		2001
Weighted average fair value	$	1.69	$	1.42	$	2.21	$	0.74	$	1.53	$	3.47

Deferred Compensation

        During the years ended March 31, 2001 and 2000, Pharsight recorded aggregate deferred compensation of $10,070,000 and $5,400,000, respectively, representing the difference between the exercise price of stock options granted and the then deemed fair value of Pharsight's common stock. The amortization of deferred compensation is charged to operations over the vesting period of the options using the graded method for employee options, and the straight-line method for non-employee options. During the year ended March 31, 2002, Pharsight recorded deferred stock compensation of $114,000 representing the intrinsic value of a certain stock award issued to an officer as a bonus. Pharsight amortized $1,322,000, $2,993,000 and $7,552,000 of deferred compensation for the years ended March 31, 2003, 2002, and 2001.

        The amount of deferred stock compensation to be amortized in future periods, ending March 31, is as follows (in thousands):

2004	$	320
2005	$	32

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Options Issued to Consultants and Scientific Advisory Board Members

        During fiscal 2003, Pharsight granted additional options to purchase 5,000 shares of common stock to members of the Scientific Advisory Board at an exercise price of $1.67. These options were fully vested at the date of grant and are exercisable for 10 years. Pharsight valued these options at $7,800 using the Black-Scholes valuation model assuming fair value of the common stock being $1.67 per share, a risk-free interest rate of 1.65%, a volatility factor of 127% and a life of 10 years. Pharsight recorded the fair value of these options as a charge to operations for the year ended March 31, 2003.

        During the year ended March 31, 2002, Pharsight granted options to purchase 30,000 shares of common stock to consultants at an exercise price of $0.99 in exchange for services. The option was fully vested at the date of grant and is exercisable for two years. Pharsight valued these options at $20,000, being their fair value estimated using the Black-Scholes valuation model with the following assumptions: a risk-free interest rate of 6.00%, a volatility factor of 138.0% and lives of 2 years. Pharsight recorded the fair value of these options as a charge to operations for the year ended March 31, 2002.

        During fiscal 2001, Pharsight granted additional options to purchase 23,000 shares of common stock to consultants and members of the Scientific Advisory Board at exercise prices ranging from $3.00 to $3.88. 11,000 and 20,000 of these options had vested as of March 31, 2003 and 2002, respectively. Pharsight valued these options at $50,000, being their fair value estimate using the Black-Scholes valuation model assuming fair values of common stock ranging from $3.00 to $4.00 per share, a risk-free interest rate of 6.00%, a volatility factor of 80.0% and lives ranging from 5 to 7 years. Pharsight recorded the fair value of these options as a charge to operations for the year ended March 31, 2001. The fair value assigned to these warrants in fiscal 2003 was immaterial.

        As of March 31, 2000, Pharsight had granted options to purchase 32,000 shares of common stock to consultants and members of the Scientific Advisory Board at exercise prices ranging from $0.35 to $4.35 per share. The options were granted in exchange for consulting and advisory services to be rendered and vest over four to five years. Pharsight valued these options at $275,000, being their fair value estimated using the Black-Scholes valuation model assuming fair values of common stock ranging from $2.94 to $10.40 per share, a risk-free interest rate of 6.25%, a volatility factor of 50% and a life of 10 years. The value of these options is being amortized over the vesting period. The fair value assigned to these warrants in fiscal 2003 was immaterial.

Accelerated Vesting of Stock Options

        During fiscal year 2002 the Company accelerated the vesting of stock options of certain terminated employees and a former board member and recorded a compensation charge of $35,000 relating to the re-measurement of these options as of the date of the modification.

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11.   Income Taxes

        Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):

			March 31,
			2003			2002
Deferred tax assets:
	Net operating loss carryforwards		$	20,900		$	18,100
	Research and development tax credits			1,100			900
	Capitalized research and development			900			900
	Amortization of intangible assets			100			100
	Other			1,000			600
	Total deferred tax assets			24,000			20,600
	Valuation allowance			(24,000	)		(20,600	)
		Net deferred tax assets	$	—		$	—

        Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance for deferred tax assets increased by approximately, $3,400,000, $7,300,000, and $4,800,000 in the year ended March 31, 2003, 2002, and 2001, respectively.

        As of March 31, 2003, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $58,000,000 and $19,000,000 respectively, which begin to expire in the years 2005 through 2023.

        The Company had federal and state research and development tax credits of approximately $800,000 and $500,000 respectively. The federal research and development credits begin to expire in 2011 through 2023 and the state credits carryforward indefinitely.

        Utilization of the Company's net operating loss and credits may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and credits before utilization.

12.   Segment Information

        Pharsight's revenue base is derived from the sale of software licenses and consulting services to pharmaceutical companies on a worldwide basis. Pharsight operates solely in one operating segment, the sale of licenses and consulting services to pharmaceutical companies. Additionally, the chief operating decision maker evaluates resource allocation not on a product or geographic basis, but rather on an enterprise wide basis. Therefore, Pharsight has concluded that it contains only one reportable segment.

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        Revenues from sales to customers by major geographic area for the years ended March 31 were (in thousands):

	Years Ended March 31,
	2003		2002		2001
United States	$	10,797	$	9,092	$	8,183
Europe		2,735		4,574		3,219
Other		436		583		546
	$	13,968	$	14,249	$	11,948

        No foreign country accounted for 10% or more of the Pharsight's total revenues in the years ended March 31, 2003, 2002, and 2001. All of the Pharsight's significant long-lived assets are located within the United States.

13.   401(k) Plan

        Pharsight has a 401(k) plan, which covers all employees. Pharsight's contributions to the plan are discretionary. Through March 31, 2003, Pharsight has made no contributions to the plan.

14.   Warranties

        The Company generally provides a warranty for its software products and services to its customers for a period of 90 days and accounts for its warranties under the FASB's Statement of Financial Accounting Standards No. 5, "Accounting for Contingencies." The Company's software products' media are generally warranted to be free of defects in materials and workmanship under normal use and the products are also generally warranted to substantially perform as described in certain Company documentation. The Company also provides for a limited performance warranty for its software products for a period of 90 days from the date of installation at the customer premises, if used as permitted under the signed agreement and in accordance with the Company documentation. The sole remedy that the Company provides is that it will, at its own expense, use commercially reasonable efforts to correct any reproducible error in the software during the warranty period, and if it determines that it is unable to correct the error, the Company will refund the license fee paid for the nonconforming component of the licensed software. The Company's services are generally warranted to be performed in a professional manner and to materially conform to the specifications set forth in a customer's signed contract. In the event there is a failure of such warranties, the Company generally will correct or provide a reasonable work around or replacement product. The Company has not provided for a warranty accrual in all periods presented. To date, the Company's product warranty expense has not been significant.

        The Company generally agrees to indemnify its customers against legal claims that the Company's PKS software product infringes certain third-party intellectual property rights and accounts for its indemnification obligation under FAS 5. In the event of such a claim, the Company is obligated to pay those costs and damages finally awarded against customer in any such action that are specifically attributable to such claim, or those costs and damages agreed to in a monetary settlement of such action. In addition, in the event of an infringement, the Company agrees to modify or replace the infringing product, or, if those options are not reasonably possible, in general, to refund the cost of the software paid to date upon the customer's return of the software product. To date, the Company has not been required to make any payment resulting from infringement claims asserted against its customers. As such, the Company has not recorded a liability for infringement costs in all periods presented.

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15.   Subsequent Events

        In May 2003, Pharsight extended its secured revolving credit facility agreement with Silicon Valley Bank for an additional year. Pharsight has $2.0 million available under two accounts receivable facilities. These include $1.4 million of secured revolving credit against 80% of eligible domestic accounts receivable and $600,000 of secured revolving credit against 90% of eligible foreign accounts receivable. Pharsight continues to have $1.0 million of the accounts receivable facility utilized. The following financial covenants apply to the extended Silicon Valley Bank loan facilities: remaining months liquidity of at least six months (defined as cash used in operating activities for the most recent quarter multiplied by two); liquidity of at least two times the term loan advance; and cumulative fiscal year-to-date net loss within 20% of the Company's plan, measured monthly.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Information concerning our directors will be contained under the caption "Proposal 1—Election of Directors" in our definitive Proxy Statement (our "Proxy Statement") with respect to our Annual Meeting of Stockholders, to be held on August 14, 2003, and is incorporated by reference into this report. Information concerning our Executive Officers is set forth in Item 1 under the caption "Executive Officers of the Registrant." Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the section entitled "Section 16(a) Beneficial Ownership Reporting Compliance" contained in our Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

        The information required under this item is incorporated by reference from our definitive proxy statement to be filed with respect to the 2003 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information required under this item, other than as set forth in this item below, is incorporated by reference from our definitive proxy statement to be filed with respect to the 2003 Annual Meeting of Stockholders.

EQUITY COMPENSATION PLAN INFORMATION

        The following table sets forth the number of shares subject to grants under, and available for grant under, our equity compensation plans as of March 31, 2003:

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights(a)	Weighted-average exercise price of outstanding options, warrants and rights(b)		Number of securities remaining available for issuance under equity compensation plans (excluding securities reflected in column (a))(c)
Equity compensation plans approved by security holders(1)		4,905,857	$	1.98	4,873,093
Equity compensation plans not approved by security holders(2)		317,360		6.32	299,125
	Total	5,223,217	$	2.24	5,172,218

(1)

Includes the 1995 Stock Option Plan, 1997 Stock Option Plan, 2000 Equity Incentive Plan, and the 2000 Employee Stock Purchase Plan.

(2)

Includes the 2000 CEO Non-Qualified Stock Option Plan, UK Company Share Option Plan, and the 2001 UK Employee Stock Purchase Plan.

        The following is a description of our equity incentive plans not approved by our stockholders:

2000 CEO Non-Qualified Stock Option Plan

        Our Board of Directors adopted the 2000 CEO Non-Qualified Stock Option Plan on May 15, 2000. The sole person eligible to receive an option under the option plan is Arthur H. Reidel, our

66

former Chief Executive Officer. Mr. Reidel received an option to purchase all 442,750 shares authorized for issuance under the option plan. The exercise price of options issued under the option plan is $6.83, which was 105% of the fair market value of our Common Stock on the date of grant as determined by our Board. The option vests in equal monthly installments over 34 months. In certain change in control circumstances, a surviving or acquiring corporation may either assume all outstanding awards under the option plan or substitute other awards for the outstanding awards. If the surviving or acquiring corporation does not assume or substitute outstanding option, then the vesting will accelerate and the options will terminate prior to the event if not otherwise exercised.

2001 UK Employee Stock Purchase Plan

        Our Board of Directors adopted the 2001 UK Employee Stock Purchase Plan on April 24, 2001. We have authorized the issuance of 130,000 shares of our Common Stock pursuant to purchase rights granted under the plan. As of March 31, 2003, no shares have been issued pursuant to the purchase plan and 130,000 shares remain available for grant. On each January 1, starting with January 2002, the share reserve will automatically be increased by a number of shares equal to the lesser of: 1.5% of our then outstanding shares of common stock; 130,000 shares; or such fewer number of shares determined by the Board.

        Eligibility.    The purchase plan provides a means by which eligible employees may purchase our Common Stock through payroll deductions. We implement the purchase plan by offerings of purchase rights to eligible employees. Generally, all of our employees located in the United Kingdom who are not officers or directors may participate in offerings under the purchase plan. However, no employee may participate in the purchase plan if, immediately after we grant the employee a purchase right, the employee would have voting power over 5% or more of out outstanding capital stock.

        Administration.    Under the purchase plan, the Board may specify offerings of up to 27 months. Unless the Board otherwise determines, Common Stock will be purchased for accounts of participating employees at a price per share equal to the lower of: 85% of the fair market value of a share on the first day of the offering; or 85% of the fair market value of a share on the purchase date.

        If authorized by the Board, participating employees may authorize payroll deductions of up to 20% of their base compensation for the purchase of stock under the purchase plan. Generally, employees may end their participation in the offering at any time. Their participation ends automatically on termination of their employment.

        Other Provisions.    The Board may grant eligible employees purchase rights under the purchase plan only if the purchase rights, together with any other purchase rights granted under other employee stock purchase plans established by us or by our affiliates, if any, do not permit the employee's rights to purchase our stock to accrue at a rate which exceeds $25,000 of fair market value of our stock for each calendar year in which the purchase rights are outstanding.

        Upon the happening of certain corporate transactions, a surviving corporation may assume outstanding purchase rights or substitute other purchase rights therefore. Otherwise, the rights may continue in full force and effect, or the participant's accumulated payroll deductions may be used to purchase Common Stock immediately prior to the transaction and the participant's rights under the offering terminate.

UK Company Share Option Plan

        Our Board of Directors initially adopted our UK Company Share Option Plan on April 24, 2001. We have reserved a total of 200,000 shares of our Common Stock for issuance under the UK Company Share Option Plan. As of March 31, 2003, under the UK Company Share Option Plan (a) options to purchase 30,875 shares of common stock were outstanding and (b) no options have been exercised. The UK Company Share Option Plan provides that it will be administered by the Board, or a committee

67

appointed by the Board, which determines recipients and types of options to be granted, including number of shares under the option and the exercisability of the shares.

        Transactions not involving our receipt of consideration, such as a capitalization, consolidation, subdivision or reduction of share capital, may change the class and number of shares subject to the option plan and to outstanding options. The Board will adjust outstanding options as to the class, number of shares and price per share applicable to such options.

        In the event of a change of control (as defined in section 840 of the United Kingdom's Income and Corporation Taxes Act of 1988), all outstanding options shall be accelerated in full. Pursuant to agreement between an option holder and the surviving entity, outstanding options may be substituted for by the surviving entity. The vesting and exercisability of all other options will terminate the earlier of the end of the option period or six months from the time when the corporate transaction occurs.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information required under this item is incorporated by reference from our definitive proxy statement to be filed with respect to the 2003 Annual Meeting of Stockholders.

ITEM 14. CONTROLS AND PROCEDURES

        Limitations on the Effectiveness of Controls.    Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will provide absolute assurance that all errors will be detected. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Pharsight have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon 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. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

        Evaluation of Disclosure Controls and Procedures.    As of March 31, 2003, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, Shawn O'Connor, and our Chief Financial Officer, Charles Faas, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including Mr. O'Connor and Mr. Faas, concluded that our disclosure controls and procedures were effective as of March 31, 2003. There have been no significant changes in internal controls or, to our knowledge, in other factors that could significantly affect these controls subsequent to March 31, 2003.

        Non-Audit Services.    Consistent with Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for listing the non-audit services approved by our Audit Committee to be performed by Ernst & Young LLP, our independent auditor. Non-audit services are defined as services other than those provided in connection with an audit or a review of our financial statements. The only non-audit services approved by our Audit Committee to be performed by Ernst & Young LLP are the preparation of tax returns, and tax advice in preparing for and in connection with such filings.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)

1.    Financial Statements

        Reference is made to page 32 under "Item 8 Financial Statements and Supplementary Data" for a list of all financial statements and schedules filed as a part of this report.

2.

Financial Statement Schedules

        Schedule II—Valuation and Qualifying Accounts

3.

Exhibits

        The exhibits listed under Item 16(c) hereof are filed as part of this Annual Report on Form 10-K.

(b)

Reports on Form 8-K.

        No reports on Form 8-K were filed during the fourth quarter of the year ended March 31, 2003.

(c)

Exhibits

        The following exhibits are filed with this report:

Exhibit Number	Description Of Document
3.2(6)	Amended and Restated Certificate of Incorporation of Pharsight.
3.3*	Bylaws of Pharsight.
3.4(6)	Certificate of Designations of Series A and Series B Convertible Preferred Stock of Pharsight Corporation.
4.1	Reference is made to Exhibits 3.2, 3.3, and 3.4.
4.2*	Amended and Restated Investors' Rights Agreement, dated as of September 2, 1999, by and among Pharsight and the investors listed on Exhibit A attached thereto.
4.3	Reference is made to Exhibits 10.31 and 10.32.
10.1*	Asset Purchase Agreement dated as of May 27, 1998, by and among Pharsight, Mitchell and Gauthier Associates, Inc., Edward E.L. Mitchell and Joseph S. Gauthier.
10.2*	Lease on Suite 200 at 800 El Camino Real West, Mountain View, California, by and among Pharsight and Asset Growth Partners, dated as of June 11, 1998.
10.3*	Co-Ownership Agreement, dated as of the May 27, 1998, by and between Pharsight and Mitchell and Gauthier Associates, Inc.
10.4*	Noncompetition Agreement, dated as of May 27, 1998, by and between Pharsight and Joseph S. Gauthier.
10.8*	Master Loan and Security Agreement, dated as of February 26, 1999, by and between Pharsight and Transamerica Business Credit Corporation.
10.12*(2)	Promissory note, dated as of July 25, 1996 from Robin Kehoe in favor of Pharsight.
10.13*(2)	Promissory note, dated as of June 2, 1998, from Robin Kehoe in favor of Pharsight.
10.14*(2)	Promissory note, dated as of June 15, 1999 from Robin Kehoe in favor of Pharsight.
10.15*(2)	Promissory note, dated as of January 25, 1998, from Daniel Weiner in favor of Pharsight.
10.16*(2)	Form of Indemnity Agreement to be entered into between Pharsight and each of its officers and directors.

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10.17*(2)	Pharsight's 1997 Stock Option Plan.
10.18*(2)	Pharsight's 1995 Stock Option Plan.
10.19*(2)	Pharsight's 2000 Equity Incentive Plan and related documents.
10.20*(2)	Pharsight's 2000 Employee Stock Purchase Plan and related documents.
10.21*(2)	2000 CEO Non-Qualified Stock Option Plan.
10.22(2)(4)	Employment Letter, dated September 26, 2001, between the Company and Mark Robillard
10.23(2)(5)	Severance Agreement, Dated November 16, 2001, between the Company and Michael Emley
10.24(2)(5)	Employment Letter, Dated December 14, 2001, between the Company and Robin Kehoe
10.25(2)(5)	Services Agreement, Dated October 4, 2001, between the Company and David Powell, Inc.
10.26(3)	Loan and Security Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.1(3)	Negative Pledge Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.2(3)	Notice of Pledge and Security, dated June 28, 2001, by and among Pharsight, Morgan Stanley & Co. Incorporated and Silicon Valley Bank.
10.27(3)	Export-Import Bank Loan and Security Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.27.1(3)	Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.28(2)(6)	Employment Letter, Dated February 5, 2002, between the Company and Michael Perry
10.29(6)	Loan Modification Agreement, dated as of June 18, 2002, by and between Pharsight and Silicon Valley Bank.
10.29.1(6)	Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated as of June 18, 2002, by and between Pharsight and Silicon Valley Bank.
10.30(6)	Loan Modification Agreement, dated as of June 13, 2002, by and between Pharsight and Silicon Valley Bank.
10.31(6)	Preferred Stock and Warrant Purchase Agreement, dated June 25, 2002.
10.32(6)	Form of Warrant for the Purchase of Shares of Common Stock.
10.33(6)	Loan Modification Agreement, dated June 26, 2002 by and between Pharsight and Silicon Valley Bank.
10.34(2)(7)	Employment Letter, dated August 16, 2002, between Company and John Wehrli.
10.35(2)(7)	Employment Letter, dated August 16, 2002, between Company and Charles Faas.
10.36(2)(7)	Employment Letter, dated August 19, 2002, between Company and Robert Powell.
10.37(2)(7)	Employment Letter, dated August 20, 2002, between Company and Arthur Reidel.
10.38(2)(7)	Employment Letter, dated September 4, 2002, between Company and Shawn O'Connor.

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10.39(2)(7)	Employment Letter, dated September 27, 2002, between Company and Daniel Weiner.
10.40(7)	Loan Modification Agreement, dated as of October 23, 2002, by and between Pharsight Corporation and Silicon Valley Bank.
10.41(8)	Letter Agreement dated October 16, 2002 between Pharsight Corporation, Alloy Ventures and Sprout Group.
10.42	Amendment No. 1 to Preferred Stock and Warrant Purchase Agreement and Waiver, dated February 13, 2003.
10.43(2)	Severance Agreement, Dated February 26, 2003, between the Company and Michael Perry.
10.44(2)	Employment Letter, dated March 6, 2003, between Company and Charles Faas.
10.45(2)	Employment Letter, dated March 20, 2003, between Company and Shawn O'Connor.
10.46(2)	Separation Agreement, dated March 21, 2003, between Company and Michael Schwartz.
10.47	Letter Agreement dated May 22, 2003 between Pharsight Corporation, Alloy Ventures and Sprout Group
10.48	Loan Modification Agreement, dated as of May 28, 2003, by and between Pharsight Corporation and Silicon Valley Bank.
10.49	Third Amendment to the Lease dated June 11, 1998 by and between Asset Growth Partners Ltd. as Lessor and Pharsight Corporation as Lessee, dated January 31, 2003
23.1	Consent of Ernst & Young LLP, Independent Auditors.
24.1	Power of Attorney (see signature page hereof).
99.1	Certification by the CEO and CFO of Pharsight Corporation.

*

Filed as the like-numbered exhibit to our Registration Statement on Form S-1 (Registration No. 333-34896), originally filed on April 17, 2000, as amended, and incorporated herein by reference.

(1)

Confidential treatment has been granted for portions of this exhibit.

(2)

Management contract or compensatory plan or arrangement.

(3)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q/A (Commission No. 000-31253) for the three month period ended June 30, 2001.

(4)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended September 30, 2001.

(5)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended December 31, 2001.

(6)

Filed as the like-numbered exhibit to the Registrant's Annual Report on Form 10-K (Commission No. 000-31253) for the period ended March 31, 2002.

(7)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended September 30, 2002.

(8)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended December 31, 2002.

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(d)

FINANCIAL STATEMENT SCHEDULES.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
PHARSIGHT CORPORATION
March 31, 2003
(amounts in thousands)

Description			Balance as of Beginning of Year		Additions Charged to Costs and Expenses		Deductions(1)		Balance as of End of Year
Year ended March 31, 2003
	Deducted from asset accounts:
		Allowance for doubtful accounts	$	94	$	—	$	—	$	94
Year ended March 31, 2002
	Deducted from asset accounts:
		Allowance for doubtful accounts	$	95	$	—	$	1	$	94
Year ended March 31, 2001
	Deducted from asset accounts:
		Allowance for doubtful accounts	$	27	$	98	$	30	$	95

(1)

represents amounts written-off as uncollectible

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SIGNATURES

        Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Mountain View, California, on the 9th day of June 2003.

PHARSIGHT CORPORATION
By:	/s/  SHAWN M. O'CONNOR Shawn M. O'Connor Chief Executive Officer and President

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POWER OF ATTORNEY

        KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Shawn M. O'Connor and Charles K. Faas, as true and lawful attorneys-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign this Annual Report on Form 10-K filed herewith and any or all amendments to said report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission granting unto said attorneys-in-fact and agents the full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his substitute, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Act of 1933, as amended, this report has been signed by the following persons in the capacities and on the dates indicated below.

Signature	Title	Date
/s/  SHAWN M. O'CONNOR Shawn M. O'Connor	President, Chief Executive Officer (Principal Executive Officer) & Director	June 9, 2003
/s/  CHARLES K. FAAS Charles K. Faas	Vice President, Finance and Chief Financial Officer	June 9, 2003
/s/  ARTHUR H. REIDEL Arthur H. Reidel	Chairman of the Board	June 9, 2003
/s/  STEVEN D. BROOKS Steven D. Brooks	Director	June 9, 2003
/s/  PHILIPPE O. CHAMBON, M.D., PH.D. Philippe O. Chambon, M.D., Ph.D.	Director	June 9, 2003
/s/  ROBERT B. CHESS Robert B. Chess	Director	June 9, 2003
/s/  DOUGLAS E. KELLY, M.D. Douglas E. Kelly, M.D.	Director	June 9, 2003
/s/  DEAN O. MORTON Dean O. Morton	Director	June 9, 2003
/s/  W. FERRELL SANDERS W. Ferrell Sanders	Director	June 9, 2003

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CERTIFICATIONS

I, Shawn M. O'Connor, certify that:

        1.     I have reviewed this annual report on Form 10-K of Pharsight Corporation;

        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;

        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 the registrant as of, and for, the periods presented in this annual report;

        4.     The registrant's other certifying officer and I are 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 officer 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 (or persons performing the equivalent functions):

        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 officer 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.

/s/  SHAWN M. O'CONNOR Shawn M. O'Connor
Chief Executive Officer

Date: June 9, 2003

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I, Charles K. Faas, certify that:

        1.     I have reviewed this annual report on Form 10-K of Pharsight Corporation;

        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;

        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 the registrant as of, and for, the periods presented in this annual report;

        4.     The registrant's other certifying officer and I are 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 officer 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 (or persons performing the equivalent functions):

        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 officer 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.

/s/  CHARLES K. FAAS Charles K. Faas
Chief Financial Officer

Date: June 9, 2003

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INDEX TO EXHIBITS

Exhibit Number	Description Of Document
3.2(6)	Amended and Restated Certificate of Incorporation of Pharsight.
3.3*	Bylaws of Pharsight.
3.4(6)	Certificate of Designations of Series A and Series B Convertible Preferred Stock of Pharsight Corporation.
4.1	Reference is made to Exhibits 3.2, 3.3, and 3.4.
4.2*	Amended and Restated Investors' Rights Agreement, dated as of September 2, 1999, by and among Pharsight and the investors listed on Exhibit A attached thereto.
4.3	Reference is made to Exhibits 10.31 and 10.32.
10.1*	Asset Purchase Agreement dated as of May 27, 1998, by and among Pharsight, Mitchell and Gauthier Associates, Inc., Edward E.L. Mitchell and Joseph S. Gauthier.
10.2*	Lease on Suite 200 at 800 El Camino Real West, Mountain View, California, by and among Pharsight and Asset Growth Partners, dated as of June 11, 1998.
10.3*	Co-Ownership Agreement, dated as of the May 27, 1998, by and between Pharsight and Mitchell and Gauthier Associates, Inc.
10.4*	Noncompetition Agreement, dated as of May 27, 1998, by and between Pharsight and Joseph S. Gauthier.
10.8*	Master Loan and Security Agreement, dated as of February 26, 1999, by and between Pharsight and Transamerica Business Credit Corporation.
10.12*(2)	Promissory note, dated as of July 25, 1996 from Robin Kehoe in favor of Pharsight.
10.13*(2)	Promissory note, dated as of June 2, 1998, from Robin Kehoe in favor of Pharsight.
10.14*	Promissory note, dated as of June 15, 1999 from Robin Kehoe in favor of Pharsight.
10.15*	Promissory note, dated as of January 25, 1998, from Daniel Weiner in favor of Pharsight.
10.16*	Form of Indemnity Agreement to be entered into between Pharsight and each of its officers and directors.
10.17*	Pharsight's 1997 Stock Option Plan.
10.18*	Pharsight's 1995 Stock Option Plan.
10.19*	Pharsight's 2000 Equity Incentive Plan and related documents.
10.20*	Pharsight's 2000 Employee Stock Purchase Plan and related documents.
10.21*	2000 CEO Non-Qualified Stock Option Plan.
10.22(2)(4)	Employment Letter, dated September 26, 2001, between the Company and Mark Robillard
10.23(2)(5)	Severance Agreement, Dated November 16, 2001, between the Company and Michael Emley
10.24(2)(5)	Employment Letter, Dated December 14, 2001, between the Company and Robin Kehoe
10.25(2)(5)	Services Agreement, Dated October 4, 2001, between the Company and David Powell, Inc.
10.26(3)	Loan and Security Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.

10.26.1(3)	Negative Pledge Agreement, dated as of June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.26.2(3)	Notice of Pledge and Security, dated June 28, 2001, by and among Pharsight, Morgan Stanley & Co. Incorporated and Silicon Valley Bank.
10.27(3)	Export-Import Bank Loan and Security Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.27.1(3)	Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated June 13, 2001, by and between Pharsight and Silicon Valley Bank.
10.28(2)(6)	Employment Letter, Dated February 5, 2002, between the Company and Michael Perry
10.29(6)	Loan Modification Agreement, dated as of June 18, 2002, by and between Pharsight and Silicon Valley Bank.
10.29.1(6)	Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement, dated as of June 18, 2002, by and between Pharsight and Silicon Valley Bank.
10.30(6)	Loan Modification Agreement, dated as of June 13, 2002, by and between Pharsight and Silicon Valley Bank.
10.31(6)	Preferred Stock and Warrant Purchase Agreement, dated June 25, 2002.
10.32(6)	Form of Warrant for the Purchase of Shares of Common Stock.
10.33(6)	Loan Modification Agreement, dated June 26, 2002, by and between Pharsight and Silicon Valley Bank.
10.34(2)(7)	Employment Letter, dated August 16, 2002, between Company and John Wehrli.
10.35(2)(7)	Employment Letter, dated August 16, 2002, between Company and Charles Faas.
10.36(2)(7)	Employment Letter, dated August 19, 2002, between Company and Robert Powell.
10.37(2)(7)	Employment Letter, dated August 20, 2002, between Company and Arthur Reidel.
10.38(2)(7)	Employment Letter, dated September 4, 2002, between Company and Shawn O'Connor.
10.39(2)(7)	Employment Letter, dated September 27, 2002, between Company and Daniel Weiner.
10.40(7)	Loan Modification Agreement, dated as of October 23, 2002, by and between Pharsight Corporation and Silicon Valley Bank.
10.41(8)	Letter Agreement dated October 16, 2002 between Pharsight Corporation, Alloy Ventures and Sprout Group.
10.42	Amendment No. 1 to Preferred Stock and Warrant Purchase Agreement and Waiver, dated February 13, 2003.
10.43(2)	Severance Agreement, Dated February 26, 2003, between the Company and Michael Perry.
10.44(2)	Employment Letter, dated March 6, 2003, between Company and Charles Faas.
10.45(2)	Employment Letter, dated March 20, 2003, between Company and Shawn O'Connor.
10.46(2)	Separation Agreement, dated March 21, 2003, between Company and Michael Schwartz.
10.47	Letter Agreement dated May 22, 2003 between Pharsight Corporation, Alloy Ventures and Sprout Group

10.48	Loan Modification Agreement, dated as of May 28, 2003, by and between Pharsight Corporation and Silicon Valley Bank.
10.49	Third Amendment to the Lease dated June 11, 1998 by and between Asset Growth Partners Ltd. as Lessor and Pharsight Corporation as Lessee, dated January 31, 2003
23.1	Consent of Ernst & Young LLP, Independent Auditors.
24.1	Power of Attorney (see signature page hereof).
99.1	Certification by the CEO and CFO of Pharsight Corporation.

*

Filed as the like-numbered exhibit to our Registration Statement on Form S-1 (Registration No. 333-34896), originally filed on April 17, 2000, as amended, and incorporated herein by reference.

(1)

Confidential treatment has been granted for portions of this exhibit.

(2)

Management contract or compensatory plan or arrangement.

(3)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q/A (Commission No. 000-31253) for the three month period ended June 30, 2001.

(4)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended September 30, 2001.

(5)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended December 31, 2001.

(6)

Filed as the like-numbered exhibit to the Registrant's Annual Report on Form 10-K (Commission No. 000-31253) for the period ended March 31, 2002.

(7)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended September 30, 2002.

(8)

Filed as the like-numbered exhibit to the Registrant's Quarterly Report on Form 10-Q (Commission No. 000-31253) for the three month period ended December 31, 2002.

QuickLinks

TABLE OF CONTENTS
PART I

ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISKS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS
Management's Report
Report of Ernst & Young LLP, Independent Auditors
PHARSIGHT CORPORATION BALANCE SHEETS (In thousands, except share and per share amounts)
PHARSIGHT CORPORATION STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
PHARSIGHT CORPORATION STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) (In thousands)
PHARSIGHT CORPORATION STATEMENTS OF CASH FLOWS (In thousands)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. CONTROLS AND PROCEDURES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS PHARSIGHT CORPORATION March 31, 2003 (amounts in thousands)
SIGNATURES
POWER OF ATTORNEY
CERTIFICATIONS
INDEX TO EXHIBITS

EX-10.42

Exhibit 10.42

AMENDMENT NO. 1

TO

PREFERRED STOCK AND WARRANT

PURCHASE AGREEMENT

AND WAIVER

                This Amendment No. 1 to Preferred Stock and Warrant Purchase Agreement and Waiver (this “Amendment”) is entered into as of this 13^th day of February, 2003, by and among Pharsight Corporation, a Delaware corporation (the “Company”), and each of those persons and entities, severally and not jointly, listed as a Purchaser on the Schedule of Purchasers attached as Exhibit A hereto (each, a “Purchaser” and collectively, the “Purchasers”).

RECITALS

                Whereas, the Company and the Purchasers entered into that certain Preferred Stock and Warrant Purchase Agreement, dated as of June 25, 2002 (the “Purchase Agreement”), which provided for the sale and issuance by the Company to the Purchasers of up to one million eight hundred fourteen thousand six hundred sixty two (1,814,662) Units, each Unit comprised of one (1) share of Series A Convertible Preferred Stock (the “Preferred Stock”) and one (1) warrant to purchase one (1) share of Common Stock (each, a “Warrant Share”);

                Whereas, the Purchase Agreement provided for, among other things, the registration of the shares of Common Stock to be issued upon conversion of the Preferred Stock (the “Conversion Shares”), the Warrant Shares and shares of Common Stock to be issued as (or issuable upon the conversion or exercise of any convertible preferred stock, warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the Conversion Shares or the Warrant Shares (the “Dividend Shares”), with the Securities and Exchange Commission (the “SEC”) for resale by the Purchasers from time to time;

                Whereas, the Company and the Purchasers now wish to amend the provisions relating to such resale registration of the Conversion Shares, the Warrant Shares and the Dividend Shares pursuant to the terms herein, and the Purchasers wish to agree to waive certain liquidated damages to which they are entitled under the Purchase Agreement; and

                Whereas, the undersigned Purchasers hold at least 75% of the Registrable Securities.

                Now, Therefore, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree hereto as follows:

                1.             Defined Terms.  All capitalized but undefined terms used herein shall have the meanings ascribed to them in the Purchase Agreement.

                2.             Amendment of the Purchase Agreement.  Section 9 of the Purchase Agreement is hereby amended in its entirety as follows:

“SECTION 9.               Registration of the Shares; Compliance with the Securities Act.

9.1          Registration Procedures.  The Company is obligated to do the following:

(a)           No later than 55 calendar days after the Initial Closing Date (the “Filing Deadline”), the Company shall prepare and file with the SEC one or more registration statements (collectively, the “Initial Registration Statement”) on Form S-3 (unless the Company is not then eligible to register for resale on Form S-3, in which case on another appropriate form) in order to register with the SEC the resale by the Purchasers, from time to time, of the Conversion Shares and the Warrant Shares (collectively, the “Initial Securities”) through Nasdaq or the facilities of any national securities exchange on which the Company’s Common Stock is then traded, or in privately negotiated transactions. Unless otherwise directed by the Purchasers or as required by the SEC or the rules and regulations of the SEC as then in effect, the Initial Registration Statement shall contain the Plan of Distribution attached hereto as Exhibit E.  The Company shall use its commercially reasonable efforts to cause the Initial Registration Statement to be declared effective as soon thereafter as possible, but in any event prior to 157 days after the Initial Closing Date (the “Effectiveness Deadline”).

(b)           (i)  At any time after the first anniversary of the date the Initial Closing Date, if the Company receives a written request from the holders (the “Initiating Holders”) of at least 75% of the Dividend Shares (as defined below) (together with the Initial Securities, the “Registrable Securities”), which have not been previously registered with the SEC for resale, that the Company file on Form S-3 (unless the Company is not then eligible to register for resale on Form S-3, in which case on another appropriate form) covering the registration of at least 75% of the Dividend Shares then outstanding and which have not been previously registered with the SEC for resale (the “Dividend Registration Statement”), in order to register with the SEC the resale by the Purchasers, from time to time, of such unregistered Dividend Shares, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all holders of Dividend Shares, and subject to the limitations of this Section 9.1(b), effect, as expeditiously as reasonably possible, the registration of all Dividend Shares requested to be registered; provided, that the Company shall (i) prepare and file with the SEC each such Dividend Registration Statement within thirty (30) days of receipt of a written request from the Initiating Holders (each, a “Dividend Filing Deadline”), and (ii) use its commercially reasonable efforts to cause each such Dividend Registration Statement to be declared effective within ninety (90) days after the date of such written request (each, a “Dividend Effectiveness Deadline”).   “Dividend Shares” shall mean shares of then outstanding Common Stock issued as (or issuable upon the conversion or exercise of any convertible preferred stock, warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Conversion Shares or the Warrant Shares.

(ii)  The Company shall not be required to effect a registration pursuant to this Section 9.1(b):

                (1)           if the Company shall furnish to the Initiating Holders a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period; or

                (2)           if the Company has, within the twelve (12) month period preceding the date of such request, already effected a registration pursuant to this Section 9.1(b).

(iii)  Unless otherwise directed by the Purchasers or as required by the SEC or the rules and regulations of the SEC as then in effect, each Dividend Registration Statement shall contain the Plan of Distribution attached hereto as Exhibit E.

(c)           (i)  The Company shall notify all holders of Dividend Shares in writing at least ten (10) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including registrations statements relating to secondary offerings of securities of the Company), other than a registration statement relating to any employee benefit plan (the “Subsequent Registration Statement” and together with the Initial Registration Statement and Dividend Registration Statement, a “Registration Statement”) and will afford each such holder an opportunity to include in such Subsequent Registration Statement all or part of such Dividend Shares held by such holder.  Each holder desiring to include in any such Subsequent Registration Statement all or any part of the Dividend Shares held by it shall, within ten (10) days after the above-described notice from the Company, so notify the Company in writing.  Such notice shall state the intended method of disposition of the Dividend Shares by such holder, if other than as set forth in Exhibit E.  If a holder decides not to include all of its Dividend Shares in any registration statement thereafter filed by the Company, such holder shall nevertheless continue to have the right to include any Dividend Shares in any subsequent registration statement or registration statement as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.

                                                (ii)  If the Subsequent Registration Statement under which the Company gives notice under this Section 9.1(c) is for an underwritten offering, the Company shall so advise the holders of Dividend Shares.  In such event, the right of any such holder to be included in a registration pursuant to this Section 9.1(c) shall be conditioned upon such holder’s participation in such underwriting and the inclusion of such holder’s Dividend Shares in the underwriting to the extent provided herein.  Notwithstanding any other provision of this Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the holders on a pro rata basis based on the total number of Dividend Shares held by the holders; and third, to any stockholder of the Company (other than a holder) on a pro rata basis. If any holder disapproves of the terms of any such underwriting, such holder may elect to withdraw therefrom by written notice to the

Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the Subsequent Registration Statement.  Any Dividend Shares excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration.

(iii)          The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 9.1(c) prior to the effectiveness of such registration whether or not any holder has elected to include securities in such registration.

(d)           Not less than five trading days prior to the filing of a Registration Statement or any prospectus contained in a Registration Statement (a “Prospectus”) or any amendment or supplement thereto, the Company shall, (i) furnish to the Purchasers for their review copies of all such documents proposed to be filed (including documents incorporated or deemed incorporated by reference), and (ii) notify each Purchaser in writing of the information the Company requires from each such Purchaser to be included in such Registration Statement. The Company will cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as the Purchasers shall deem reasonably necessary as soon as practicable after having received such inquiries.  Unless otherwise directed by the Purchasers or as required by the SEC or the rules and regulations of the SEC as then in effect, each Registration Statement shall contain the Plan of Distribution attached hereto as Exhibit E.

(e)           The Company shall (i) prepare and file with the SEC (x) such amendments and supplements to each Registration Statement and the Prospectus used in connection therewith, and (y) such other filings required by the SEC, and (ii) take such other actions, in each case as may be necessary to keep the Registration Statement continuously effective and so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, until the earlier of (A) the date that the Purchasers have completed the distribution related to the Registrable Securities, (B) such time that all Registrable Securities then held by the Purchasers can be sold without compliance with the registration requirements of the Securities Act pursuant to Rule 144(k) under the Securities Act, or (C) such time as all Purchasers shall hold less than one percent of the Common Stock then outstanding as set forth under Rule 144(e)(1) under the Securities Act (the “Effectiveness Period”). The Company shall not, during such period, voluntarily take any action that would result in the Purchasers not being able to offer and sell Registrable Securities during that period, unless such action is taken by the Company in good faith in compliance with Section 9.2(g) below.

(f)            (i) Furnish to the Purchasers with respect to the Registrable Securities registered under the Registration Statement such number of copies of the Registration Statement (including pre-effective and post-effecive amendments), Prospectuses (including supplemental prospectuses) and preliminary versions of the Prospectus filed with the SEC (“Preliminary Prospectuses”) in conformity with the requirements of the Securities Act and such other documents as the Purchasers may reasonably request, in order to facilitate the public sale or other disposition of all or any of the Registrable Securities by the Purchasers; and (ii) upon request, inform each Purchaser who so requests that the Company has complied with its obligations in

Section 9.1(f)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Purchaser to that effect, will use its reasonable efforts to secure the effectiveness of such post-effective amendment as promptly as reasonably possible and will promptly notify the Purchaser pursuant to Section 9.1(f)(i) hereof when the amendment has become effective).

(g)           Notify the Purchasers as promptly as reasonably possible and (if requested by any such Person) confirm such notice in writing no later than one trading day following the day (i) (A) when the SEC notifies the Company whether there will be a review of a Registration Statement and whenever the SEC comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Purchasers); and (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; and (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement, such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

(h)           File documents required of the Company for normal blue sky clearance in states reasonably specified in writing by the Purchasers prior to the effectiveness of the Registration Statement; provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented.

(i)            Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption therefrom) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(j)            Cooperate with the Purchasers to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to any transferee pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Purchasers may reasonably request.

(k)           In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Purchaser participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(l)            In the event of any underwritten public offering, use its commercially reasonable efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and (ii) a letter, dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering addressed to the underwriters.

(m)          Cause all such Registrable Securities registered pursuant hereto to be listed on Nasdaq, if the Common Stock is then listed on Nasdaq, and each other securities exchange on which similar securities issued by the Company are then listed.

(n)           The Company understands that each of the Purchasers disclaims being an underwriter, but any Purchasers being deemed an underwriter by the SEC shall not relieve the Company of any obligations it has hereunder.

9.2          Transfer of Shares After Registration; Suspension; Damages.

(a)           Each Purchaser, severally and not jointly, agrees (i) that it will not sell, offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right with respect to the Registrable Securities or otherwise take an action that would constitute a sale within the meaning of the Securities Act, other than transactions exempt from the registration requirements of the Securities Act, except as contemplated in the Registration Statement referred to in Section 9.1 and as described below, (ii) that it shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Purchaser that such Purchaser shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be required to effect the registration of such Registrable Securities, (iii) that it shall execute such documents in connection with such registration, that are customary for registration statements, as the Company may reasonably request, (iv) to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Purchaser has notified the Company in writing of such Purchasers election to exclude all of such Purchasers Registrable Securities from such Registration Statement and (v) that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Purchaser or its plan of distribution. Any delay of a Purchaser in taking the actions set forth in clauses (ii), (iii), (iv) and (v) of this Section 9.2(a), or caused solely as a result of the use of the Plan of Distribution filed as Exhibit E hereto, shall be deemed a “Purchaser Delay” for purposes of this Agreement.

(b)           Subject to paragraph (c) below, in the event: (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Initial Registration Statement or any Dividend Registration Statement for amendments or supplements to such Registration Statements or related Prospectuses or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of the Initial Registration Statement or any Dividend Registration Statement or the initiation of any proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose; or (iv) of any event or circumstance which necessitates the making of any changes in the Initial Registration Statement or any Dividend Registration Statement or related Prospectuses, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of such Registration Statements, they will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectuses, they will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall promptly deliver a certificate in writing to each Purchaser (a “Suspension Notice”) to the effect of the foregoing and, upon receipt of such Suspension Notice, the Purchaser will refrain from selling any Registrable Securities pursuant to such Registration Statements (a “Suspension”) until the Purchasers’ receipt of copies of supplemented or amended Prospectuses prepared and filed by the Company, or until it is advised in writing by the Company that the current Prospectuses may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus.

(c)           In the event of any Suspension, the Company will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable but in any event within forty-five (45) days after delivery of a Suspension Notice to Purchasers; provided, however, that Purchasers shall not be prohibited from selling Registrable Securities under the Initial Registration Statement or any Dividend Registration Statement as a result of Suspensions on more than three occasions of not more than forty-five (45) days each and not more than ninety (90) days in the aggregate in any twelve month period.  Notwithstanding the foregoing, if the Company ceases to be eligible to register the Registrable Securities on Form S-3 and resolution of any Suspension requires the Company to file a post-effective amendment on Form S-1, (i) the Company will use its commercially reasonable efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable but in any event within ninety (90) days after delivery of a Suspension Notice to Purchasers, and (ii) the Purchasers shall not be prohibited from selling Registrable Securities under the Initial Registration Statement or any Dividend Registration Statement as a result of Suspensions on or after the date that the Company ceases to be eligible to register the Registrable Securities on Form S-3 on more than three occasions of not more than sixty (60) days each in any twelve month period.  In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Purchaser, the Purchaser shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 9.2(c).

(d)           Provided that a Suspension in accordance with paragraphs (b) and (c) of this Section 9.2 is not then in effect a Purchaser may sell Registrable Securities under the Registration Statement, provided that it arranges for delivery of a current Prospectus to the transferee of such Registrable Securities. Upon receipt of a request therefor, the Company will provide an adequate number of current Prospectuses to the Purchaser and to any other parties requiring such Prospectuses.

(e)           In the event of a sale of Registrable Securities by a Purchaser, unless such requirement is waived by the Company in writing, such Purchaser shall deliver to the Company’s transfer agent, with a copy to the Company, of a Seller’s Certificate of Sale substantially in the form attached hereto as Appendix III.

(f)            If (i) the Initial Registration Statement or a Dividend Registration Statement covering all of the Registrable Securities to which it is required to cover (a) is not filed with the SEC on or prior to the Filing Deadline or the Dividend Filing Deadline, as the case may be, or (b) has not been declared effective by the SEC on or prior to the Effectiveness Deadline or the Dividend Effectiveness Deadline, as the case may be, or (ii) the Initial Registration Statement or the Dividend Registration Statement, as the case may be, ceases to be effective as to, or ceases to be available to the Purchasers with respect to, all Registrable Securities to which it is required to relate at any time prior to the expiration of the Effectiveness Period other than during the continuance and for the enumerated time periods of any Suspension in accordance with paragraphs (c) and (d) of this Section 9.2 (any such event, a “Registration Default”), then the Company shall pay each Purchaser liquidated damages in an amount equal to (i) with respect to the Initial Securities under the Initial Registration Statement, one percent (1.0%) of the aggregate purchase price paid by such Purchaser for the Initial Securities available for sale under the Initial Registration Statement at the time of the Registration Default per calendar month, including a pro rata portion thereof for any partial calendar month, that such Registration Default continues, and (ii) with respect to the Dividend Shares under any Dividend Registration Statement, one percent (1.0%) of the Original Issue Price (as defined in the Certificate of Designations of Series A and Series B Convertible Preferred Stock of Pharsight Corporation) for each Dividend Share available for sale under such Dividend Registration Statement at the time of the Registration Default per calendar month, including a pro rata protion thereof for any partial calendar month, that such Registration Default continues (collectively, “Liquidated Damages”); provided, however, that no Purchaser shall be entitled to Liquidated Damages with respect to any Registrable Securities previously sold or then eligible to be sold within a three (3) month period without compliance with the registration requirements of the Securities Act under Rule 144 of the Securities Act. The Company shall not in any event be required to pay Liquidated Damages for more than one Registration Default at any given time, and upon cure of a Registration Default (by the filing or the declaration of effectiveness of the Registration Statement, as applicable) such Liquidated Damages shall cease to accrue. All accrued Liquidated Damages shall be paid in cash to the Purchasers entitled thereto, in proportion to the aggregate number of Registrable Securities beneficially owned by each such Purchaser to which the Initial Registration Statement or the Dividend Registration Statement relates. Notwithstanding anything in the foregoing to the contrary, all periods in clauses (i) and (ii) shall be tolled to the extent of any delays caused solely by any Purchaser Delay.

9.3          Expenses of Registration.  Except as specifically provided herein, all expenses incurred by the Company in complying with Section 9 hereof, including, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and expenses of one counsel to the Purchasers (which shall be in addition to any fees pursuant to Sections 12.9 but which shall not exceed, in the aggregate, $10,000), blue sky fees and expenses, fees and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company) (collectively, the “Registration Expenses”) shall be borne by the Company. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 9.1(b), the request of which has been subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders were not aware at the time of such request, or (b) the holders of at least 75% of the Dividend Shares agree to forfeit their right to one requested registration pursuant to Section 9.1(b), in which event such right shall be forfeited by all holders of Dividend Shares.  All underwriting discounts and selling commissions applicable to a sale incurred in connection with any registrations hereunder shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so sold.

9.4          Delay of Registration; Furnishing Information.  The Purchasers shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. Furthermore, each Purchaser, severally and not jointly, agrees to promptly notify the Company of any changes in the information set forth in a Registration Statement regarding such Purchaser or its plan of distribution set forth in such registration statement.

9.5          Indemnification.  In the event any Registrable Securities are included in a Registration Statement under this Section 9.

(a)           The Company will indemnify and hold harmless each Purchaser, the partners, officers and directors of each Purchaser, any underwriter (as defined in the Securities Act) for such Purchaser and each person, if any, who controls such Purchaser or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such Registration Statement; and the Company will pay as incurred to each such Purchaser, partner, officer, director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with

investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 9.5 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, unless such settlement (x) includes an unconditional release of the Company from all liability on any claims that are the subject matter of such action, and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of the Company; provided, further, that the Company shall not be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which (i) occurs in reliance upon and in conformity with written information furnished expressly for inclusion in such Registration Statement, prospectus, amendment or supplement by such Purchaser, partner, officer, director, underwriter or controlling person of such Purchaser or (ii) based upon a claim that a Preliminary Prospectus contained an untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such person was not sent or given a copy of the Prospectus (or the Prospectus as amended or supplemented) at or prior to the written confirmation of the sale of such Registrable Securities to such person and the untrue statement contained in or omission from such Preliminary Prospectus was corrected in the final Prospectus (or the Prospectus as amended or supplemented) unless such failure is the result of noncompliance by the Company of Section 9.1(d) or (f) hereof; provided, further, that this indemnification agreement will be in addition to any liability which the Company may otherwise have to the Purchasers.

(b)           Each Purchaser will, if Registrable Securities held by such Purchaser are included in the securities as to which such Registration Statement, prospectus, amendment or supplement is being filed, severally and not jointly, indemnify and hold harmless the Company, each of its directors, its officers and each person, if any, who controls the Company within the meaning of the Securities Act or Exchange Act, any underwriter and any other Purchaser selling securities under such Registration Statement or any of such other Purchasers partners, directors or officers or any person who controls such Purchaser, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Purchaser, or partner, director, officer or controlling person of such other Purchaser may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Purchaser specifically for use in connection with such Registration Statement, prospectus, amendment or supplement; and each such Purchaser will pay as incurred any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other person registering shares under such registration, or partner, officer, director or controlling person of such other person registering shares under such Registration Statement in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 9.5 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Purchaser, which consent shall not be unreasonably withheld, unless such settlement (x) includes an unconditional release of such Purchaser from all liability on any

claims that are the subject matter of such action, and (y) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of such Purchaser; provided, further, that in no event shall any indemnity under this Section 9.5 exceed the dollar amount of the proceeds to be received by such Purchaser from the sale of such Purchasers Registrable Securities pursuant to the Registration Statement.

(c)           Promptly after receipt by an indemnified party under this Section 9.5 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 9.5, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel reasonably satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Section 9.5, unless and to the extent that such failure is materially prejudicial to the indemnifying party’s ability to defend such action, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 9.5.

(d)           If the indemnification provided for in this Section 9.5 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the sale of the Registrable Securities pursuant to the Registration Statement, or (ii) if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Purchaser hereunder exceed the dollar amount of the proceeds to be received by such Purchaser from the sale of such Purchaser’s Registrable Securities pursuant to the Registration Statement.

(e)           The obligations of the Company and the Purchasers under this Section 9.5 shall survive completion of any offering of Registrable Securities in a Registration Statement and the termination of this Agreement.

9.6          Agreement to Furnish Information.  In connection with an underwritten registration in which such Purchaser is participating, each Purchaser agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter.  In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Purchaser shall provide such information related to such Purchaser as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a Registration Statement filed under the Securities Act.

9.7          Assignment of Registration Rights.  The rights to cause the Company to register Registrable Securities pursuant to this Section 9 may be assigned (but only with the related obligations) by a Purchaser, provided (i) each transfer to each transferee or designee involves either (X) all Registrable Securities held by such Purchaser, (Y) not less than twenty-five thousand (25,000) shares of Preferred Stock, or (Z) an affiliate, partner or former partner of such Purchaser, (ii) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee, (iii) such transferee or assignee agrees in writing to assume the obligations of this Section 9 and (iv) such assignment shall be effective only if immediately following such transfer the further disposition of such shares by the transferee or assignee is restricted under the Securities Act (for purposes of this statement, if the transferee (x) is able to sell all of the Restricted Securities held by such transferee pursuant to Rule 144(k) or (y) holds less than 1% of the Company’s Common Stock following such transfer and has the ability to sell all of such Common Stock under Rule 144 within a three month period, then further disposition will not be deemed to be restricted under the Securities Act).

9.8          Rule 144 Reporting.  With a view to making available to the Purchasers the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its commercially reasonable efforts to:

(a)           Make and keep public information available, as those terms are understood and defined in SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act;

(b)           File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and

(c)           So long as a Purchaser owns any Registrable Securities, furnish to such Purchaser forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as a Purchaser

may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration.

9.9          S-3 Eligibility.  The Company will use its commercially reasonable efforts to meet the requirements for the use of Form S-3 for registration of the resale by the Purchasers of the Registrable Securities. The Company will use its commercially reasonable efforts to file all reports required to be filed by the Company with the SEC in a timely manner and take all other necessary action so as to maintain such eligibility for the use of Form S-3.

9.10        Termination of Registration Rights.  Subject to the rights of transferees under Section 9.7 hereof, the Company’s obligations pursuant to this Section 9 shall terminate with respect to each Purchaser severally upon the earlier of (A) the date that such Purchaser has completed the distribution related to such Purchaser’s Registrable Securities, (B) such time that all Registrable Securities then held by such Purchaser can be sold without compliance with the registration requirements of the Securities Act pursuant to Rule 144(k) under the Securities Act, or (C) such time as such Purchaser shall hold less than one percent of the Common Stock then outstanding as set forth under Rule 144(e)(1) under the Securities Act and has the ability to sell all of such Purchaser’s Registrable Securities under Rule 144 within a three month period.  Following a termination of the Companys obligations pursuant to the preceding sentence with respect to a Purchaser, any Securities held by such Purchaser shall not be deemed to be Registrable Securities thereafter, and the obligations of such Purchaser pursuant to this Section 9 shall also terminate.

9.11        Amendment of Registration Rights.  Provisions of this Section 9 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Purchasers who then hold not less than 75% of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 9.11 shall be binding upon each Purchaser and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities.

9.12        Legends.  Each certificate representing Shares and the Dividend Shares shall (unless such Shares or Dividend Shares are then eligible for transfer pursuant to Rule 144(k) under the Securities Act or as otherwise permitted under applicable law or the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws or as provided elsewhere in this Agreement):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN THE FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

Nothing in this Section 9.12 or elsewhere in this Agreement shall be deemed to restrict the ability of the holder of any Securities or Dividend Shares to transfer any such Securities or Dividend Shares to an affiliate, partner or former partner of such holder in compliance with the Securities Act, nor shall any legal opinion be required in connection therewith.”

                3.             Waiver.  The Purchasers hereby waive all of their respective rights to any liquidated damages they may have pursuant to Section 9.2(f) of the Purchase Agreement for the period beginning November 30, 2002 through the date hereof.  The Purchasers hereby acknowledge that the Company shall not be obligated to make any payment of liquidated damages to any Purchaser for any Registration Default with respect to any period ending on or prior to the date hereof.

                4.             Full Force and Effect.  Except as otherwise provided herein, all other provisions of the Purchase Agreement shall remain in full force and effect.

                5.             Binding Effect.  Upon execution of this Amendment by Purchasers who hold at least 75% of the Registrable Securities, this Amendment shall be binding against all Purchasers pursuant to Section 9.11 of the Agreement.

                6.             Governing Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of California as applied to contracts entered into and performed entirely in California by California residents, without regard to conflicts of law principles.

                7.             Successors and Assigns.  Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto

                8.             Counterparts.  This Amendment may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties.

                IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed as of the date first written above.

COMPANY:

PHARSIGHT CORPORATION

By:		/s/ Shawn M. O’Connor
		Name:	Shawn M. O’Connor
		Title:	President and Chief Executive Officer
PURCHASERS:
ALLOY PARTNERS 2000, L.P.
ALLOY VENTURES 2000, L.P.
ALLOY CORPORATE 2000, L.P.
ALLOY INVESTORS 2000, L.P.
By:		Alloy Ventures 2000, LLC, its General Partner
By:		/s/ Tony DiBona
	Name:		Tony DiBona
	Title:		Managing Member
	Address:		480 Cowper Street
			Second Floor
			Palo Alto, California
			Attn:  Tony Di Bona
	Email:		cfo@alloyventures.com
	Facsimile:		(650) 687-5010

PURCHASERS CONTINUED:

DONALDSON, LUFKIN & JENRETTE

SECURITIES CORPORATION, as nominee

for DLJ First ESC, L.P., EMA 2001 Plan, L.P.,

CSFB 2001 Investors, L.P., Credit Suisse First

Boston Private Equity, Inc., Docklands 2001

Plan, L.P., and Paradeplatz 2001 Plan, L.P.

By:		/s/ Philippe Chambon
		Name:	Philippe Chambon
		Its:
	Address:		Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
	Email:
	Facsimile:		(646) 935-7094
SPROUT ENTREPRENEURS FUND, L.P.
By:		DLJ Capital Corp., its General Partner
By:		/s/ Philippe Chambon
	Name:		Philippe Chambon
	Its:
	Address:		Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
	Email:
	Facsimile:		(646) 935-7094

PURCHASERS CONTINUED:

SPROUT CAPITAL IX, L.P.

By: DLJ Capital Corp., its Managing General Partner

By:		/s/ Philippe Chambon
		Name:	Philippe Chambon
		Its:
	Address:		Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
	Email:
	Facsimile:		(646) 935-7094
SPROUT CAPITAL VII, L.P.
By:		DLJ Capital Corp., its Managing General Partner
By:		/s/ Philippe Chambon
	Name:		Philippe Chambon
	Its:
	Address:		Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
	Email:
	Facsimile:		(646) 935-7094

PURCHASERS CONTINUED:

SPROUT CEO FUND, L.P.

By:  DLJ Capital Corp., its Managing General Partner

By:		/s/ Philippe Chambon
		Name:	Philippe Chambon
		Its:
	Address:		Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
	Email:
	Facsimile:		(646) 935-7094
DLJ CAPITAL CORP.
By:		/s/ Philippe Chambon
	Name:		Philippe Chambon
	Its:
	Address:		Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
	Email:
	Facsimile:		(646) 935-7094
DLJ FIRST ESC L.P.
By:	DLJ LBO Plans Management Corporation, its General Partner
By:	/s/ Philippe Chambon
	Name:		Philippe Chambon
	Its:
	Address:		Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
	Email:
	Facsimile:		(646) 935-7094

Exhibit A

Purchasers

Alloy Partners 2000, L.P.

Alloy Ventures 2000, L.P.

Alloy Corporate 2000, L.P.

Alloy Investors 2000, L.P.

Donaldson, Lufkin & Jenrette Securities Corporation¹

Sprout Entrepreneurs Fund, L.P.

Sprout Capital IX, L.P.

Sprout Capital VII, L.P.

Sprout CEO Fund, L.P.

DLJ Capital Corp.

DLJ First ESC L.P.

¹As nominee for:  DLJ First ESC, L.P., EMA 2001 Plan, L.P., CSFB 2001 Investors, L.P., Credit Suisse First Boston Private Equity, Inc., Docklands 2001 Plan, L.P. and Paradeplatz 2001 Plan, L.P.

EX-10.43

February 11, 2003

Dr. Michael Perry

c/o Pharsight Corporation

800 West El Camino Real

Suite 200

Mountain View, CA 94040

Dear Michael:

This letter sets forth the substance of the separation agreement (the “Agreement”) that Pharsight Corporation (the “Company”) is offering to you to aid in your employment transition.

1.             Resignation.  Effective February 10, 2003, you resigned, and the Company accepted your resignation, as President, Chief Executive Officer and Director of the Company, and effective February 26, 2003 (the “Separation Date”), you hereby resign, and the Company hereby accepts your resignation, from any other offices or positions that you may hold with the Company.  For purposes of your offer letter with the Company dated February 5, 2002 (the “Offer Letter”)(attached hereto as Exhibit A), the Company shall deem your termination a termination without Cause (as that term is defined in the Offer Letter).

2.             Accrued Salary and Paid Time Off.  On the Separation Date, the Company will pay you all accrued salary, and all accrued and unused vacation earned through the Separation Date, subject to standard payroll deductions and withholdings and the withholdings authorized by section 5 of this Agreement.  You are entitled to these payments by law.  Your final paycheck will also include payment of the $113,000 cash retention bonus (less standard payroll deductions and withholdings) due on the first anniversary of your hire date as provided in the Offer Letter, and payment of a 2003 fiscal year incentive bonus in the amount of $31,200, less standard payroll deductions and withholdings.  You acknowledge and agree that you are not entitled to receive any additional amounts as 2002 or 2003 fiscal year incentive bonuses.

3.             Consulting Agreement.  The Company agrees to retain you, and you agree to make yourself available and to perform, as a consultant under the terms specified below.

(a)           Consulting Period.  The Company will engage you as a consultant commencing on the Separation Date and continuing for six (6) months thereafter (the “Consulting Period”).

(b)           Consulting Services.  During the Consulting Period, you will perform such duties as are assigned to you by the Company’s Board of Directors and Chief Executive Officer (the “Consulting Services”).  You agree to perform up to one hundred and twenty (120) hours of Consulting Services during the Consulting Period, at times to be mutually agreed

between you and the Company, however the Company’s obligation to provide the consulting fees set forth below in section (c) remains in effect even if the Company requests you to provide fewer than the 120 maximum hours.  Your obligation to provide the Consulting Services shall not preclude you from accepting full-time employment during the Consulting Period with another company.  You agree to exercise the highest degree of professionalism and to utilize your reasonable best efforts, expertise and creative talents in performing the Consulting Services.  You agree not to represent or purport to represent the Company in any manner whatsoever to any third party during the Consulting Period unless authorized by the Company in writing to do so.  The Company will reimburse you for documented business expenses incurred in connection with performing the Consulting Services, provided that these expenses have been pre-approved by the Company in writing.

(c)           Consulting Fees.  During the Consulting Period, the Company will compensate you for the Consulting Services at the rate of $26,667 per month, payable semi-monthly on the Company’s regular payroll dates.  Additionally, after you complete the first three (3) months of the Consulting Period, the Company will pay you a lump-sum consulting fee in the amount of $80,000, payable on the first regularly-scheduled payroll date following your completion of the first three (3) months of the Consulting Period.  (This lump-sum consulting fee, together with the monthly consulting fees, shall be referred to in total as the “Consulting Fees.”)  Because you will be providing the Consulting Services as an independent contractor, the Company will not withhold any amount for taxes, social security or other payroll deductions from the Consulting Fees.  The Company will report the Consulting Fees on an IRS Form 1099.  You acknowledge that you will be entirely responsible for payment of any taxes that may be due on the Consulting Fees, and you hereby indemnify and save harmless the Company from any liability for any taxes, penalties or interest that may be assessed by any taxing authority with respect to the Consulting Fees, with the exception of the employer’s share of social security, if any.

(d)           Severance Payment.  If you sign the release attached hereto as Exhibit B on August 26, 2003, and allow that release to become effective, then at the end of the Consulting Period, the Company will make a lump-sum severance payment to you in the amount of $80,000.  This amount shall be paid on or before September 5, 2003, and will be subject to standard payroll deductions and withholdings.  This amount will not be paid unless you sign the release attached hereto as Exhibit B, and allow that release to become effective.

(e)           Protection of Confidential Information.  You agree that during the Consulting Period and thereafter, you will not use or disclose any confidential or proprietary information or materials of the Company that you obtain or develop in the course of performing the Consulting Services, except with the written permission of the Company’s Chief Executive Officer.  Any and all work product you create in connection with the Consulting Services will be the sole and exclusive property of the Company. You hereby assign to the Company all right, title, and interest in all inventions, techniques, processes, materials, and other intellectual property developed in the course of performing the Consulting Services.

4.             Health Insurance.  To the extent provided by federal COBRA law and the Company’s current group health insurance policies, you are eligible to continue your current health insurance benefits at your own expense.  Later, you may be able to convert to an

individual policy through the provider of the Company’s health insurance.  If you timely elect continued coverage under COBRA, then the Company will pay the premiums necessary to continue your health care coverage for both you and your dependents through the Consulting Period.  The Company’s obligation to continue these payments will cease if you become eligible for coverage under another employer’s insurance plan.

5.             Stock Grant and Stock Options.  Pursuant to your Offer Letter, on July 29, 2002, the Company granted you 162,857 shares of the Company’s common stock.  Although pursuant to your Offer Letter, those shares are to be held in escrow until August 26, 2003 (eighteen months following your date of hire), if you sign this Agreement, the Company will release those shares to you within ten (10) days after the Effective Date of this Agreement (as defined in section 14 of this Agreement).  You acknowledge and agree that those shares are subject to taxation, and hereby authorize the Company to make the required withholdings out of the final paycheck you are receiving from the Company pursuant to section 2 of this Agreement.  The certificates representing such shares shall bear no restrictive legend and shall be freely tradable.  Any stock options that you received during your employment with the Company will continue to be governed by the terms of the applicable stock option plan documents and stock option agreement between you and the Company.

6.             Other Compensation Or Benefits.  You acknowledge and agree that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance or benefits after the Separation Date, with the sole exception of any benefit the right to which has vested under the express terms of a Company benefit plan document.  You acknowledge and agree that the compensation and benefits that you are receiving under this Agreement (including, without limitation, the consulting agreement, severance payment, paid COBRA premiums, and release of your stock grant) are being provided to you in lieu of the severance benefits set forth in your Offer Letter.

7.             Expense Reimbursements.  You agree that within forty-five (45) days of the Separation Date, you will submit a documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement.  The Company will reimburse you for these expenses pursuant to its regular business practice.

8.             Return Of Company Property.  By the Separation Date, you must return to the Company all Company documents (and all copies thereof) and other Company property in your possession or control, including, but not limited to:  Company files, notes, memoranda, correspondence, agreements, draft documents, notebooks, logs, drawings, records, plans, proposals, reports, forecasts, financial information, sales and marketing information, research and development information, personnel information, specifications, computer-recorded information, tangible property and equipment, credit cards, entry cards, identification badges and keys; and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part).  You agree to make a diligent search for any Company documents and property (as described above) in your possession or control prior to the Effective Date.  Notwithstanding the foregoing, the Company agrees that you may keep an electronic copy and a paper copy of your Outlook contacts database.

9.             Proprietary Information Obligations.  You acknowledge your continuing obligations under your Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit C.

10.          Nondisparagement.  Both you and the Company (through its directors and officers) agree not to disparage the other party, and the other party’s officers, directors, employees, shareholders and agents, in any manner likely to be harmful to them or their business, business reputation or personal reputation; provided that both you and the Company may respond accurately and fully to any question, inquiry or request for information when required by legal process.

11.          Release by You.  In exchange for the consulting agreement and severance payment set forth in section 3, the paid COBRA premiums set forth in section 4, the release of your stock grant as set forth in paragraph 5, and other benefits you are receiving under the terms of this Agreement to which you would not otherwise be entitled, you hereby generally and completely release the Company and Execustaff, Inc., and their directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent or subsidiary entities, insurers, affiliates and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions prior to or on the date you sign this Agreement.  This general release includes, but is not limited to: (1) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (2) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination or breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), or the California Fair Employment and Housing Act (as amended).

12.          Release by the Company.  The Company hereby releases, acquits and forever discharges you and your agents, successors, assigns, attorneys and affiliates, from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys’ fees, damages, indemnities and obligations of any kind and nature, in law, equity or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed, arising out of or in any way related to agreements, events, acts or conduct at any time within the authorized course and scope of your employment with the Company.

13.          Waiver Of Unknown Claims.  In giving the releases herein, which include claims that may be unknown at present, the parties acknowledge that they have read and understand Section 1542 of the California Civil Code which reads as follows:  “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”  The parties expressly waive and relinquish all rights

and benefits under that section and any law of any jurisdiction of similar effect with respect to the releases herein.

14.          ADEA Waiver.  You hereby acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, and that the consideration given for the foregoing waiver is in addition to anything of value to which you were already entitled.  You have been advised by this writing, as required by the ADEA that: (a) your waiver and release do not apply to any claims that may arise after your signing of this Agreement; (b) you should consult with an attorney prior to executing this release; (c) you have twenty-one (21) days within which to consider this release (although you may choose to voluntarily execute this release earlier); (d) you have seven (7) days following the execution of this release to revoke the Agreement; and (e) this Agreement will not be effective until the eighth day after this Agreement has been signed both by you and by the Company (“Effective Date”).

15.          Reference Letter.  The Company will provide you with the reference letter attached hereto as Exhibit D.

16.          Miscellaneous.  This Agreement, together with its exhibits, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to this subject matter.  It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises or representations.  In particular, and without limitation, this Agreement supersedes the severance provisions contained in your Offer Letter, and extinguishes the Company’s obligation to make any severance payments to you pursuant to the Offer Letter.  (This Agreement does not, however, supersede any other terms of your Offer Letter, nor does it supersede the Arbitration Agreement between you, the Company and Execustaff dated December 3, 2002.)  This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company.  This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns.  In the event of your death, any benefits due and payable to you under this Agreement (including, without limitation, the Consulting Fees) shall be paid to your surviving spouse.  The failure to enforce any breach of this Agreement shall not be deemed to be a waiver of any other or subsequent breach.  For purposes of construing this Agreement, any ambiguities shall not be construed against either party as the drafter.  If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible.  This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California.  This Agreement may be executed in counterparts which shall be deemed to be part of one original, and facsimile signatures shall be equivalent to original signatures.

If this Agreement is acceptable to you, please sign below and return the original to me.

I wish you the best in your future endeavors.

Sincerely,
PHARSIGHT CORPORATION
By:	/s/  Shawn O’Connor
	Shawn O’Connor
	Senior Vice President and Chief Financial Officer
ACCEPTED AND AGREED:		ACCEPTED AND AGREED:
/s/  Michael Perry		/s/  Susan Jochheim
Michael Perry		Susan Jochheim, Execustaff, Inc.

Exhibit A:  Offer Letter dated February 5, 2002

Exhibit B:  Termination of Consulting Period Release

Exhibit C:  Proprietary Information and Inventions Agreement
Exhibit D:  Reference Letter

EXHIBIT A

OFFER LETTER DATED FEBRUARY 5, 2002

February 5, 2002

Dr. Michael Perry

10010 Sundial Lane

Beverly Hills, California 90210

Dear Mike,

On behalf of Pharsight Corporation (“Pharsight” or the “Company”), I am pleased to offer you the position of President and Chief Executive Officer on the terms described below.  We are convinced that by combining your outstanding experience in drug development, leadership stature in the pharmaceutical industry, and demonstrated management capability, with our current organizational strengths, proven technology, and established customer base, you will catalyze tremendous value for yourself and all Pharsight shareholders.  Further, we believe that the support of our world-class board of directors will significantly enhance your success in this significant career step—your first assignment as CEO of a publicly traded company.

Reporting Relationship, Salary, Annual Bonus and Benefits:

In this position you will report to the Company’s Board of Directors (the “Board”).  Your annual base salary will be $320,000, and will be paid semi-monthly on the Company’s normal payroll schedule.   In FY2002 (begins April 1, 2002) you are eligible to participate in an incentive annual bonus program targeted at 65 percent of your annual base salary, with a total compensation potential (if you earn the target bonus of 65 percent) of $528,000.  Your annual bonus will be governed by the terms and conditions of the Company’s management incentive plan, as administered by the Company’s Compensation Committee, including a cap on bonus payments at 160 percent of target in the event of overachievement of plan.  In addition, you will be eligible for Pharsight’s regular employee benefits programs, including health, dental, life and disability insurance, 401(k) plan and an annual accrual of 20 paid personal time-off days.

Sign-On and Retention Bonus

In order to ensure your ability to join us at the earliest possible date, and provided you commence full time employment no later than February 25, 2002, you will be eligible for a one time sign-on and retention bonus of cash and stock valued at a total of approximately $340,000 which will be paid as follows:  1/3 of the bonus will be paid as a cash bonus of $113,000 (subject to taxes and withholdings) during the first pay period following your first day of employment; another 1/3 of the bonus will be paid as a cash bonus of $113,000 (subject to taxes and withholdings) on the first anniversary of your hire date; and the remaining 1/3 of the sign-on bonus will be provided in the form of a stock grant of Pharsight Common Stock valued at approximately $114,000 (valuation is based on the fair market value of the stock on the date of grant).  The stock grant will be issued promptly by the Compensation Committee after your hire date, and the grant will placed into and

held in escrow for a period of 18 months.  In addition, if you voluntarily terminate your employment prior to 12 months following your hire date, you will forfeit the pro-rated shares of the stock grant which will be released to the Company (pro-rated based on your termination date), and the cash portion of the bonus previously paid to you will be immediately due and payable to Pharsight Corporation according to the following schedule (which the Company can deduct from any amounts owed to you):

Termination date:	Portion of Cash Bonus and Stock Grant Owed to Company:
1-90 days after hire	100%
91-180 days after hire	70%
181-365 days after hire	40%
After 1 year	0%

Stock Option Grant

In addition, I will recommend to the Board that you be granted an option to purchase 700,000 shares of Pharsight Common Stock (the “Option”).  The Option will vest over four years during your continued employment (25 percent of the shares vesting after one year of employment, with the remaining 75 percent of shares vesting in equal installments on a monthly basis thereafter over the following three years), and will be subject to the terms and conditions of the Company’s 2000 Equity Incentive Plan (the “Plan”) and your grant agreement.  The exercise price of the Option will be the fair market value of the stock as determined by the closing price on the business day immediately preceding the day you start work as an employee of Pharsight.  In the event of a change of control (as defined in the Plan), 50 percent of your remaining unvested Option shares will vest immediately.  In the event that your employment is terminated without Cause (as defined below) as a direct result of and within twelve (12) months following such a change of control, the remainder of your unvested Option shares will vest.  Your performance and compensation will be reviewed annually, after the completion of each fiscal year.  Based on your performance and other factors considered by the Compensation Committee, you will be eligible to receive further stock option grants at the sole discretion of the Compensation Committee.

Relocation To Bay Area and Living Expenses

As we discussed, we expect that you will relocate to the San Francisco Bay Area within six (6) months after your hire.  To assist in your relocation, upon your submission of appropriate documentation (including receipts) and in accordance with the Company’s expense reimbursement policies and practices, Pharsight will reimburse you for your reasonable relocation expenses, up to a maximum reimbursement aggregate amount of $200,000.

Prior to your relocation to the Bay Area, Pharsight will reimburse you for your reasonable and necessary living expenses while in the Bay Area, upon your submission of appropriate documentation (including receipts) and in accordance with the Company’s expense reimbursement policies and practices.  For example, at its election, the Company will either provide you with

corporate rental housing for your use in the Bay Area, or will reimburse you for your reasonable local rental housing costs.  In addition, prior to your relocation to the Bay Area, the Company will reimburse you for your out-of-pocket costs to fly (coach or business class) between the Bay Area and Southern California as required, upon your submission of appropriate documentation (including receipts).  You agree to book such flights as far in advance as possible in order to obtain the lowest available fares.

Severance Payments

In the event that your employment is involuntarily terminated without Cause (as defined below), the Company will continue to pay your base salary in effect on the termination date for one (1) year following the termination date as your sole severance benefits (the “Severance Payments”).  As a condition of your receipt of the Severance Payments, you must first enter into a separation agreement with the Company that includes your general release of claims, in a form acceptable to the Company.  The Severance Payments will be paid on the Company’s normal payroll schedule and will be subject to standard deductions and withholdings.

For the purposes of this letter, “Cause” for your termination shall mean:  (a) your conviction of any felony or of any crime involving dishonesty; (b) your participation in any fraud or act of dishonesty against the Company; (c) the material breach of your duties to the Company, including persistent unsatisfactory performance of job duties; (d) your intentional damage to, or willful misappropriation of, any property of the Company; (e) your material breach of any written agreement with the Company (including this letter agreement); or (f) conduct that in the good faith and reasonable determination of the Company’s Board demonstrates gross unfitness to serve.

Company Policies and Procedures; Proprietary Information and Inventions Agreement

As a Pharsight employee, you will be expected to abide by Pharsight’s policies and procedures, as may be in effect from time to time, and to acknowledge in writing that you have read Pharsight’s Employee Handbook.  As a condition of your employment with Pharsight, you will be required to sign and abide by the Company’s Proprietary Information and Inventions Agreement, two originals of which are enclosed.  Please sign both originals and return one to me with your acceptance of this offer.

At-Will Employment Relationship

Your employment relationship with Pharsight will be at-will.  This offer does not constitute a guarantee of employment for any specific period of time, and either you or Pharsight may terminate the employment relationship at any time, with or without cause or advance notice.

Miscellaneous

This letter, together with your Proprietary Information and Inventions Agreement, forms the complete and exclusive statement of your employment agreement with Pharsight.  It supersedes any other agreements or promises made to you by anyone, whether oral or written, and it cannot be

modified except in a written agreement signed by you and a duly authorized officer of Pharsight.  As required by law, this offer is subject to satisfactory proof of your right to work in the United States.

I am personally excited by the opportunity to work with you to build a great business while implementing our shared vision for the pharmaceutical industry. We look forward to having you join us and expect your employment with Pharsight to begin on or before February 25, 2002.  Please sign the enclosed copy of this offer letter to indicate your acceptance of the Company’s offer under the above terms and return it to me by Friday, February 8, 2002.

Sincerely,

/s/ Arthur Reidel

Arthur Reidel

Chairman of the Board

AGREED AND ACCEPTED:

/s/ Dr. Michael Perry

Dr. Michael Perry

February 6, 2002

Date

Enclosure:  Proprietary Information and Inventions Agreement

EXHIBIT B

TERMINATION OF CONSULTING PERIOD RELEASE

I understand that, pursuant to the separation letter agreement between me and the Company, which I signed on ________________________, 2003 (the “Agreement”), I am required to sign this Termination of Consulting Period Release as a condition to receiving the severance payment set forth in paragraph 3(d) of the Agreement.

In consideration for the severance payment set forth in paragraph 3(d) of the Agreement, I hereby generally and completely release the Company, Execustaff, Inc., and their directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Agreement.  This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company, the termination of that employment, my consulting relationship with the Company and the termination of that relationship; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, as amended.  I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled.  I further acknowledge that I have been advised by this writing, as required by the ADEA, that:  (a) my waiver and release do not apply to any rights or claims that may arise after the execution date of this Agreement; (b) I have been advised hereby that I have the right to consult with an attorney prior to executing this Agreement; (c) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date.

I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.  In giving this release, which includes claims that may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows:  “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”  I expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims I may have against the Company.

HAVING READ AND UNDERSTOOD THE FOREGOING, I HEREBY AGREE TO THE TERMS AND CONDITIONS STATED ABOVE.

By:
	Michael Perry
Date:

EXHIBIT C

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

Pharsight Corporation

Proprietary Information and Inventions Agreement

In consideration of, and as a condition of, my employment with Pharsight Corporation, a Delaware corporation (the “Company”), I hereby represent to and agree with the Company as follows:

1.             Purpose of Agreement; Effective Date.  I understand that the Company is engaged in a continuous program of research, development, production, and marketing in connection with its business and that it is critical for the Company to preserve and protect its Proprietary Information (as defined below) and its rights in Inventions (as defined below) and all related intellectual property rights.  Accordingly, whether or not I am expected to create inventions of value for the Company, I am entering into this Proprietary Information and Inventions Agreement (this “Agreement”) as a condition of my employment with the Company.  This Agreement shall be effective as of the first day of my employment with the Company.

2.             Definition of Proprietary Information.  Proprietary Information is any information of a confidential nature (i.e., not generally known or publicly available) that may be disclosed to me that relates to the business of the Company or to the business of any parent, subsidiary, affiliate, customer, or supplier of the Company or to the business of any other party with whom the Company agrees to hold the information disclosed by such party in confidence.   Proprietary Information includes but is not limited to Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, customer lists, and product sales and pricing information.

3.             Confidentiality.  Iunderstand that my employment by the Company creates a relationship of confidence and trust with respect to Proprietary Information.  At all times, both during my employment with the Company and after the termination of such employment, I will keep and hold all Proprietary Information in confidence and trust, and I will not use or disclose any Proprietary Information without the prior written consent of the Company, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company.  Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me any documents or materials or copies thereof containing any Proprietary Information.

4.             Work for Hire.  I acknowledge and agree that any copyrightable works prepared by me within the scope of my employment are “works for hire” under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works.

             5.          Additional Activities.  I agree that during the period of my employment by the Company I will not, without the Company’s express written consent, engage in any employment or business activity which is competitive with, or would otherwise conflict with, my employment

by the Company.  I agree further that for the period of my employment by the Company and for one (l) year after the date of termination of my employment by the Company I will not, either directly or through others, solicit or attempt to solicit any employee, independent contractor or consultant of the company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity.

6.       Definition of Invention.  The term Invention includes all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, algorithms, computer software programs, databases, mask works, and trade secrets that either (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company’s business or to its current or anticipated research or development.

7.             Disclosure and Assignment of Inventions.   I will promptly disclose in confidence to the Company all Inventions that I make or conceive or create or first reduce to practice, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment and whether or not such Inventions are patentable, copyrightable, or protectable as trade secrets.  I agree that all Inventions that (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company’s business or to its current or anticipated research or development will be the sole and exclusive property of the Company and are hereby irrevocably assigned by me to the Company.

8.             Assignment of Other Rights.  In addition to the foregoing assignment of Inventions to the Company, I hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets, and any other intellectual property rights in any and all Inventions, and (b) any and all Other Rights (as defined below) that I may have in or with respect to any Invention.  I also hereby forever waive and agree never to assert any Other Rights I may have in or with respect to any Invention, even after termination of my employment with the Company.  “Other Rights” means any right to claim author’s rights with respect to an Invention, to object to or prevent the modification of any Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether such right is denominated or generally referred to as a “moral right” or otherwise.

9.             Labor Code Notice.  Ihave been notified and understand that the provisions of paragraphs 6 and 7 of this Agreement do not apply to any Invention that qualifies fully under the provisions of Section 2870 of the California Labor Code, which states as follows:

Any provision in an employment agreement which provides that an employee shall assign or offer to assign any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer, or (2) result from any work performed by the employee for the employer.  To the extent a

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provision in an employee agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under California Labor Code section 2870 (a), the provision is against the public policy of this state and is unenforceable.

10.           Assistance.  Iagree to assist the Company in every proper way to obtain for the Company and to enforce patents, copyrights, mask work rights, trade secret rights, and other legal protections for the Company’s Inventions in any and all countries.  I will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secret rights and other legal protections.  My obligations under this paragraph will continue beyond the termination of my employment with the Company, provided that the Company will compensate me at a reasonable rate after such termination for time and expenses actually spent by me at the Company’s request on such assistance.

11.           No Breach of Prior Agreement.  Irepresent that my performance of all the terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, or similar agreement with any former employer or other party. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person, or unless the items have been legally transferred to the Company or are generally available to the public.  I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided, developed or owned by the Company.

12.           Prior Inventions.  If, in the course of my employment with the Company, I incorporate a prior invention made by me into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such prior invention.  Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, prior inventions in any Company Inventions without the Company’s prior written consent.

13.        Notification. Ihereby authorize the Company to notify my future employers of the terms of this Agreement and my responsibilities hereunder.

14.           Injunctive Relief.  Iunderstand that in the event of a breach or threatened breach of this Agreement by me, the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement.

15.           Governing Law; Severability.  This Agreement will be governed and interpreted in accordance with the laws of the State of California, without regard to application of choice of

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law rules or principles.  In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable, then such provision shall not be voided but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect.

16.           No Duty to Employ.  Iunderstand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time.

17.           FDA Debarrment.  I represent that I have never been debarred under Section 306(a) or (b) of the Federal Food Drug or Cosmetic Act and that I will immediately notify the Company in the event that any debarrment proceedings are commenced against me.

Pharsight Corporation		/s/ Dr. Michael Perry
By	/s/ Stacy Murphy	February 6, 2002
Stacy Murphy Vice President, Human Resources		Date:

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EXHIBIT D

REFERENCE LETTER

Letter of Reference re: Dr. Michael S. Perry February 12, 2003

As Chairman of the Board and a Founder of Pharsight Corporation (OTCBB:PHST) I am pleased to write this letter of recommendation on behalf of Dr. Mike Perry.

After personally having spent seven years as President and CEO of Pharsight, our Board recruited Dr. Perry to join the company as my successor i.e. as President, CEO and member of the Board of Directors.  We appointed Mike to this position with explicit appreciation of his extensive technical expertise in Pharmaceutical R&D, his successful track record of management and leadership in this sector as well as his extensive network of contacts in the industry i.e. our customer base.

Mike’s departure from Pharsight was exclusively due to a disagreement with the Board over the strategic direction of the company.

During his tenure at Pharsight, the company benefited from Mike’s industry insights, experience, operational aptitude, integrity and leadership and it is in this spirit that I recommend him without reservation for future employment in the Pharma/Biotech sector.

Sincerely,

/s/ Art Reidel

Art Reidel

Chairman of the Board

Pharsight  Corporation

EX-10.44

Exhibit 10.44

March 6, 2003

VIA HAND DELIVERY

Charles K. Faas

Pharsight Corporation

Dear Charlie:

As we have discussed with you, Pharsight Corporation (the “Company”) in conjunction with Execustaff, Inc., is pleased to offer you a promotion to the position of Chief Financial Officer under the terms set forth in this letter.  Your promotion and the terms set forth in this letter agreement (“Agreement”) shall be effective as of February 12, 2003.

Promotion and New Position

You will be promoted from your current position of Vice President of Finance to the position of Chief Financial Officer.  In your new position, you will report to the Company’s Chief Executive Officer (“CEO”).  Your areas of responsibility will include management of the following departments: legal, human resources, accounting, IT, QA management and public relations and any other tasks requested of you by the CEO or the Company’s Board of Directors (the “Board”).  Your office will continue to be located at the Company’s headquarters in Mountain View, California.  The Company continues to retain the discretion to change your position, duties, reporting relationship and work location, as it deems necessary.

Base Salary and Bonus Potential

As a result of your promotion, your annual base salary will be increased to two hundred fifteen thousand dollars ($215,000), subject to standard payroll deductions and required withholdings, and paid on the Company’s normal payroll schedule.

Pursuant to the terms and conditions of the Company’s Management Incentive Bonus Program for its Executive Officers, you will be eligible to receive an annual performance bonus of up to thirty-five percent (35%) of your previous and increased base salaries, each on a pro rata basis, subject to standard payroll deductions and required withholdings.  The Company’s Compensation Committee will determine in its sole discretion whether you have earned an annual bonus, and the amount of any earned annual bonus.

The Company may modify your compensation from time to time as it deems necessary.

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Stock Options

Your current stock options are not affected by your promotion or this Agreement, and your stock option agreements will remain in full force and effect in accordance with their terms.  Subject to Board approval, the Company may grant you additional stock options at the next regularly scheduled meeting in April 2003.

Employee Benefits

Your eligibility for Company-sponsored employee benefits is not affected by your promotion or this Agreement.

Proprietary Information and Inventions Agreement; Company Policies and Procedures

Your Proprietary Information and Inventions Agreement with the Company dated July 31, 2000 (the “Proprietary Information Agreement”) is not affected by your promotion or this Agreement, and the Proprietary Information Agreement will remain in full force and effect in accordance with its terms.  You will continue to be required to abide by the Proprietary Information Agreement as a condition of your employment.

In addition, you will continue to be required to abide by Pharsight’s policies and procedures, as may be in effect from time to time.

At-Will Employment Relationship

Your employment continues to be terminable at-will, and either you or the Company may terminate your employment relationship at any time, with or without Cause (defined below) or advance notice.

Severance Benefits

In the event that your employment is involuntarily terminated by the Company without Cause, as your sole severance benefits, for six (6) months following the termination date, the Company will continue to pay your base salary in effect on the termination date (the “Severance Payments”) and will pay the costs to continue your health care coverage under COBRA at the same level of coverage as in effect as of the termination date if you timely elect continued health care coverage (collectively, the “Severance Benefits”).  As a condition of your receipt of the Severance Benefits, you must first enter into a separation agreement with the Company that includes your general release of all known and unknown claims, in a form provided by the Company.  The Severance Payments will be paid on the Company’s normal payroll schedule and will be subject to standard deductions and withholdings.

For the purposes of this letter, “Cause” for your termination shall mean:  (a) your conviction of any felony or of any crime involving dishonesty; (b) your participation in any fraud or act of dishonesty against the Company; (c) the material breach of your duties to the Company, including persistent unsatisfactory performance of job duties; (d) your intentional damage to, or willful misappropriation of, any property of the Company; (e) your material breach of any written agreement with the Company (including this Agreement or your Proprietary Information Agreement); or (f) conduct, that in the good faith and reasonable determination of the Board demonstrates gross unfitness to serve.

In addition, if, after a Change in Control (defined below), you resign from your employment with the Company and such resignation qualifies as a Resignation for Good Reason (defined below), you shall be entitled to receive the Severance Benefits, provided that you must first enter into a separation agreement

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with the Company that includes your general release of all known and unknown claims, in a form provided by the Company.

For the purposes of this letter, the occurrence of either of the following events shall constitute a “Change in Control”:  (a) the sale or lease of all or substantially all of the assets of the Company; or (b) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in each case in which the holders of the Company’s outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity purchasing such assets or surviving such transaction.

For purposes of this letter, a “Resignation for Good Reason” shall mean a resignation by you due to any of the following events which occur after and as a direct result of a Change in Control: (1) a material reduction in compensation, unless such a reduction is applied, by resolution of the Board of Directors, to all members of the Company’s officers; (2) a material adverse change in your title due to a demotion; or (3) a material adverse reduction in your role and responsibilities.

You will not be eligible for any severance benefits in the event of a termination with Cause or any resignation that does not qualify as a Resignation for Good Reason.

If the relationship between Execustaff and the Company is terminated for any reason, you will agree that the Company will become solely responsible as your employer for all payroll, workers’ compensation and benefits, including severance and vacation pay, and you will agree to seek the same only from the Company.

Miscellaneous

This Agreement sets forth and forms the complete and exclusive statement of your employment agreement with the Company concerning your promotion and employment terms, and this Agreement supersedes any other agreements or promises made to you by anyone, whether oral or written, concerning the subject matters set forth in this letter including, but not limited to, your original offer letter with the Company dated July 31, 2000 and your letter agreement with the Company dated August 16, 2002.  This letter agreement cannot be changed except in a writing signed by you and a duly authorized officer of the Company.

We are very pleased to offer you this promotion.  Please sign and date this letter, and return it to me by March 7, 2003, if you wish to accept this promotion under the terms described above.

Sincerely,
Pharsight Corporation
/s/  Shawn M. O’Connor
Shawn M. O’Connor
President & Chief Executive Officer
ACCEPTED:
/s/  Charles K. Faas	March 7, 2003
Charles K. Faas	Date

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EX-10.45

Exhibit 10.45

March 20, 2003

VIA HAND DELIVERY

Shawn M. O’Connor

Pharsight Corporation

Dear Shawn:

As we have discussed with you, Pharsight Corporation (the “Company”) in conjunction with Execustaff, Inc., is pleased to offer you a promotion to the position of Chief Executive Officer under the terms set forth in this letter.  Your promotion and the terms set forth in this letter agreement (“Agreement”) shall be effective as of February 13, 2003.

Promotion and New Position

You will be promoted from your current position of Chief Operating Officer to the position of Chief Executive Officer.  In your new position, you will report to the Company’s Board of Directors ( the “Board”).  Your areas of responsibility will include general management of and responsibility for the entire Company, and any other tasks requested by the Board.  Your office will continue to be located at the Company’s headquarters in Mountain View, California.  The Company continues to retain the discretion to change your position, duties, reporting relationship and work location, as it deems necessary.

Board Membership

In connection with your promotion, you were elected to the Board effective February 13, 2003.

Base Salary and Bonus Potential

As a result of your promotion, your annual base salary will be increased to two hundred eighty thousand dollars ($280,000), subject to standard payroll deductions and required withholdings, and paid on the Company’s normal payroll schedule.

Pursuant to the terms and conditions of the Company’s Management Incentive Bonus Program for its Executive Officers, you will be eligible to receive an annual performance bonus for Fiscal Year 2003 (“FY2003”) targeted at fifty percent (50%) of your previous and increased base salaries, each on a pro rata basis, subject to standard payroll deductions and required withholdings.  The Company’s Compensation Committee will determine in its sole discretion whether you have earned an annual bonus for FY2003, and the amount of any earned annual bonus, provided that, if you are actively employed as an employee in good standing as of the date that the FY2003 bonuses are paid, you are guaranteed to receive a FY2003 bonus of at least $30,000, subject to standard payroll deductions and required withholdings.

The Company may modify your compensation from time to time as it deems necessary.

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Stock Options

Your current stock options are not affected by your promotion or this Agreement, and your stock option agreements will remain in full force and effect in accordance with their terms.  Subject to Board approval, the Company may grant you additional stock options at the next regularly scheduled meeting in April 2003.

Your September 2002 stock option grant of 250,000 shares will fully vest upon a Change in Control as defined below.

Employee Benefits

Your eligibility for Company-sponsored employee benefits is not affected by your promotion or this Agreement.

Proprietary Information and Inventions Agreement; Company Policies and Procedures

Your Proprietary Information and Inventions Agreement with the Company dated September 9, 2002 (the “Proprietary Information Agreement”) is not affected by your promotion or this Agreement, and the Proprietary Information Agreement will remain in full force and effect in accordance with its terms.  You will continue to be required to abide by the Proprietary Information Agreement as a condition of your employment.

In addition, you will continue to be required to abide by Pharsight’s policies and procedures, as may be in effect from time to time.

At-Will Employment Relationship

Your employment continues to be terminable at-will, and either you or the Company may terminate your employment relationship at any time, with or without Cause (defined below) or advance notice.

Severance Benefits

In the event that your employment is involuntarily terminated by the Company without Cause, as your sole severance benefits, for twelve (12) months following the termination date, the Company will continue to pay your base salary in effect on the termination date (the “Severance Payments”) and will pay the costs to continue your health care coverage under COBRA at the same level of coverage as in effect as of the termination date if you timely elect continued health care coverage (collectively, the “Severance Benefits”).  As a condition of your receipt of the Severance Benefits, you must first enter into a separation agreement with the Company that includes your general release of all known and unknown claims, in a form provided by the Company, and you must resign from your membership on the Board with such resignation to be effective on or before your employment termination date.  The Severance Payments will be paid on the Company’s normal payroll schedule and will be subject to standard deductions and withholdings.

For the purposes of this letter, “Cause” for your termination shall mean:  (a) your conviction of any felony or of any crime involving dishonesty; (b) your participation in any fraud or act of dishonesty against the Company; (c) the material breach of your duties to the Company, including persistent unsatisfactory performance of job duties; (d) your intentional damage to, or willful misappropriation of, any property of the Company; (e) your material breach of any written agreement with the Company (including this

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Agreement or your Proprietary Information Agreement); or (f) conduct, that in the good faith and reasonable determination of the Board demonstrates gross unfitness to serve.

In addition, if, after a Change in Control (defined below), you resign from your employment with the Company and such resignation qualifies as a Resignation for Good Reason (defined below), you shall be entitled to receive the Severance Benefits, provided that you must first enter into a separation agreement with the Company that includes your general release of all known and unknown claims, in a form provided by the Company, and you must resign from your membership on the Board with such resignation to be effective on or before your employment termination date.

For the purposes of this letter, the occurrence of either of the following events shall constitute a “Change in Control”:  (a) the sale or lease of all or substantially all of the assets of the Company; or (b) an acquisition of the Company by another corporation or entity by consolidation, merger or other reorganization in each case in which the holders of the Company’s outstanding voting stock immediately prior to such transaction own, immediately after such transaction, securities representing less than fifty percent (50%) of the voting power of the corporation or other entity purchasing such assets or surviving such transaction.

For purposes of this letter, a “Resignation for Good Reason” shall mean a resignation by you due to any of the following events which occur after and as a direct result of a Change in Control: (1) a material reduction in compensation, unless such a reduction is applied, by resolution of the Board of Directors, to all members of the Company’s officers; (2) a material adverse change in your title due to a demotion; or (3) a material adverse reduction in your role and responsibilities.

You will not be eligible for any severance benefits in the event of a termination with Cause or any resignation that does not qualify as a Resignation for Good Reason.

If the relationship between Execustaff and the Company is terminated for any reason, you will agree that the Company will become solely responsible as your employer for all payroll, workers’ compensation and benefits, including severance and vacation pay, and you will agree to seek the same only from the Company.

Miscellaneous

This Agreement sets forth and forms the complete and exclusive statement of your employment agreement with the Company concerning your promotion and employment terms, and this Agreement supersedes any other agreements or promises made to you by anyone, whether oral or written, concerning the subject matters set forth in this letter including, but not limited to, your original offer letter with the Company dated September 4, 2002.  This letter agreement cannot be changed except in a writing signed by you and a duly authorized member of the Board, and such writing must be approved by the Compensation Committee to be effective.

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We are very pleased to offer you this promotion.  Please sign and date this letter, and return it to me by March __, 2003, if you wish to accept this promotion under the terms described above.

Sincerely,
Pharsight Corporation
/s/  Arthur Reidel
Arthur Reidel
Chairman of the Board of Directors
ACCEPTED:
/s/  Shawn M. O’Connor	March 31, 2003
Shawn M. O’Connor	Date

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EX-10.46

Exhibit 10.46

March 13, 2003

VIA HAND DELIVERY

Michael Schwartz

Pharsight Corporation

Dear Michael:

As we have discussed, Pharsight Corporation (“Pharsight” or the “Company”) is offering you continued employment through April 30, 2003 and severance benefits under the terms and conditions set forth below (the “Agreement”).

1.             Continued Employment.  Provided that you continue to satisfactorily perform your job duties, and comply with Company policies and procedures, subject to Paragraph 4 below, the Company may continue to employ you through April 30, 2003 (the “Separation Date”) and you will continue to be paid your regular base salary as of the date of this Agreement during the period of such continued employment.

2.             Accrued Salary, and Paid Time Off.  On the Separation Date, the Company will pay you all accrued and unpaid salary, and all accrued and unused vacation, earned through the Separation Date, less required payroll deductions and withholdings.  You are entitled to these payments regardless of whether you sign this Agreement.

3.             Severance Benefits.  If you fully comply with all conditions of this Agreement (including continuing to work through the Separation Date), and sign and return the Supplemental Release (attached hereto as Exhibit A) on or after the Separation Date, the Company will provide you with a severance payment equal to fifty thousand dollars ($50,000), subject to required payroll deductions and required withholdings, (the “Severance Payment”).  The Severance Payment will be provided within ten (10) business days after the Effective Date of the Supplemental Release (as defined therein).   In addition, provided you timely elect COBRA continuation coverage as provided in Section 5 below, the Company will reimburse you for your COBRA premiums from the Separation Date through July 31, 2003.

4.             Termination of Employment Prior To Separation Date.  The Company can terminate your employment prior to the Separation Date with or without Cause, upon notice to you.  In addition, you can terminate your employment prior to the Separation Date for any reason upon notice to the Company.  If, prior to the Separation Date, the Company terminates your employment without Cause, and provided that you must first sign and return the Supplemental Release to the Company, you will be entitled to receive, as your sole severance

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compensation, the Severance Payment.  You will not be entitled to receive the payment referenced in the immediately preceding sentence if your employment is terminated for Cause or you resign for any reason prior to the Separation Date.  For the purposes of this Agreement, Cause for termination of your employment by the Company shall mean:  (a) your conviction (including a guilty or no contest plea) of any felony or any other crime involving dishonesty; (b) your participation in any fraud against the Company; (c) your breach of any obligation under this Agreement; (d) your damage to any Company property; or (e) conduct by you which in the good faith and reasonable determination of the Company’s Board of Directors demonstrates gross unfitness to serve.

5.             Health Insurance.  To the extent provided by the federal COBRA law or, if applicable, state insurance laws, and by the Company’s current group health insurance policies, you will be eligible to continue your group health insurance benefits at your own expense after the Separation Date.  Later, you may be able to convert to an individual policy through the provider of the Company’s health insurance, if you wish.  You will be provided a separate notice describing your rights and obligations under COBRA on or after the Separation Date.

6.             Other Compensation or Benefits.  You acknowledge that, except as expressly provided in this Agreement you will not receive any additional compensation, severance, stock option vesting, or benefits before or after the Separation Date.  By way of example, but not limitation, you acknowledge and agree that you are not eligible for any bonus or other incentive compensation.

7.             Expense Reimbursements.  Within ten (10) business days following the Separation Date (or any earlier termination date), you must submit your final documented expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement.  The Company will reimburse you for these expenses pursuant to its regular business practices.

8.             Return of Company Property.  You agree to return to the Company, no later than the Separation Date or at the Company’s earlier request, all Company documents (and all copies thereof) and other Company property that you have in your possession or control, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property (including, but not limited to, computers), credit cards, entry cards, identification badges and keys; and, any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof).  The timely return of such property is a condition precedent to the Company providing you with the severance benefits contained herein.

9.             Proprietary Information Obligations.  You hereby acknowledge and reaffirm your continuing obligations under your Proprietary Information and Inventions Agreement, which apply both during and after your employment. A copy of your Proprietary Information and Inventions Agreement is attached hereto as Exhibit B.

10.          Confidentiality.  The provisions of this Agreement will be held in strictest confidence by you and the Company and will not be publicized or disclosed in any manner whatsoever; provided, however, that:  (a) you may disclose this Agreement in confidence to your immediate family; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose

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this Agreement to investors or potential investors and to fulfill standard or legally required corporate reporting or disclosure requirements; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law.  In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former employee, consultant or independent contractor of the Company.

11.          Nondisparagement.  You agree that you will not at any time disparage the Company or its directors, officers, shareholders, agents, or employees in any manner likely to be harmful to the personal or business reputation of it or them, and the Company (through its officers and directors) agrees that it will not disparage you in any manner likely to be harmful to your personal or business reputation, provided that both you and the Company shall respond accurately and fully to any question, inquiry, or request for information when required by legal process.

12.          Cooperation.  You agree to cooperate with the Company in responding to the Company’s requests in connection with any existing or future litigation, arbitrations, mediations or investigations brought by or against the Company or any of its affiliates, agents, officers, directors or employees, whether administrative, civil or criminal in nature, in which the Company reasonably deems your cooperation necessary or desirable.  In such matters, you agree to provide the Company with reasonable advice, assistance and information, including offering and explaining evidence, providing sworn statements, and participating in discovery and trial preparation and testimony.  You also agree to promptly send the Company copies of all correspondence (for example, but not limited to, subpoenas) received by you in connection with any such legal proceedings, unless you are expressly prohibited by law from so doing.  You will act in good faith to furnish the information and cooperation required by this paragraph and the Company will act in good faith so that the requirement to furnish such information and cooperation does not create an undue hardship for you.  The Company will reimburse you for reasonable out-of-pocket expenses incurred by you as a result of your cooperation, with the exception of lost compensation, within ten (10) days of the presentation of appropriate documentation thereof, in accordance with the Company’s standard reimbursement policies and procedures.

13.          Nonsolicitation of Company Employees.  You hereby agree that during your continued employment and for six (6) months after the termination of your employment for any reason, you will not, either directly or indirectly, solicit, attempt to solicit, induce or otherwise cause any employee of the Company to terminate his or her employment with the Company.

14.          Release of Claims.In consideration for, and as a condition of, your continued employment and other consideration provided to you by the Company under this Agreement, to which you are not otherwise entitled, you hereby generally and completely release the Company and Execustaff, Inc., its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement.  This general release includes, but is not limited to: (1) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (2) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract,

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wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

15.          ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which you were already entitled.  You further acknowledge that you have been advised by this writing that:  (a) your waiver and release do not apply to any rights or claims that may arise after the date you sign this Agreement; (b) you should consult with an attorney prior to signing this Agreement (although you may not choose to do so); (c) you have twenty-one (21) days to consider this Agreement (although you may choose voluntarily to sign this Agreement earlier); (d) you have seven (7) days following the date you sign this Agreement to revoke the Agreement; and (e) this Agreement will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date you sign this Agreement (the “Effective Date”).

16.          Release of Unknown Claims.  You acknowledge that you have read and understand Section 1542 of the California Civil Code:  “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”  You hereby expressly waive and relinquish all rights and benefits under that section and any law of or legal principle of similar effect in any jurisdiction with respect to your release of claims herein, including but not limited to the release of unknown and unsuspected claims.

17.          Arbitration.To ensure rapid and economical resolution of any disputes which may arise under this Agreement, you and the Company agree that any and all disputes or controversies of any nature whatsoever arising from or regarding the interpretation, performance, enforcement or breach of this Agreement shall be resolved, to the fullest extent allowed by law, by confidential, final and binding arbitration conducted before a single arbitrator with Judicial Arbitration and Mediation Services, Inc. (“JAMS”) in San Francisco, California, under the then-existing JAMS employment rules.  The parties acknowledge that by agreeing to this arbitration procedure, they each waive the right to resolve any such dispute through a trial by jury, judge or administrative proceeding.  The arbitrator shall:  (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award.  The Company shall pay all JAMS’ arbitration fees in excess of those which would be required if the dispute were decided in a court of law.  Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration.  Notwithstanding the foregoing, you and the Company each have the right to resolve any issue or dispute involving Company trade secrets or invention rights by court action instead of arbitration.

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18.          Miscellaneous.  This Agreement, including Exhibits A and B, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matters.  It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. (This Agreement does not however, supersede the Arbitration Agreement between you, the Company and Execustaff, Inc. dated December 3, 2002.)  This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company.  This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns.  If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified by the court so as to be rendered enforceable.  This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California.

We hope the foregoing terms are acceptable to you.  If you agree to the terms set forth in this Agreement, please sign below and return the original to me.  You have up to twenty-one (21) calendar days to decide whether you want to accept the Company’s offer contained herein.  If you have any questions regarding these matters, feel free to contact me.

We wish you good luck in your future endeavors.

Sincerely,

Pharsight Corporation

By:	/s/  Shawn O’Connor
Shawn O’Connor
President and Chief Executive Officer

Exhibit A — Supplemental Release

Exhibit B — Proprietary Information and Inventions Agreement

Agreed:		Accepted and Agreed:
/s/  Michael Schwartz		/s/ Susan Jochheim
Michael Schwartz		Susan Jochheim, Execustaff, Inc.
Date:	March 21, 2003	Date:	March 24, 2003

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Exhibit A

SUPPLEMENTAL RELEASE

(to be signed on or after the Separation Date)

In consideration for the severance payment and other consideration provided to me by Pharsight Corporation (the “Company”) and Execustaff, Inc., and as required by the Agreement between the Company and me dated March 13, 2003, I hereby give the following Supplemental Release.

I hereby generally and completely release the Company and Execustaff, Inc. and their directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Supplemental Release.  This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given for the waiver and release in the preceding paragraph is in addition to anything of value to which I am already entitled.  I further acknowledge that I have been advised by this writing that:  (a) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Supplemental Release; (b) I should consult with an attorney prior to signing this Supplemental Release (although I may choose not to do so); (c) I have twenty-one (21) days to consider this Supplemental Release (although I may choose to voluntarily sign it earlier); (d) I have seven (7) days following the date I sign this Supplemental Release to revoke it; and (e) this Supplemental Release will not be effective until the date upon which the revocation period has expired, which will be the eighth calendar day after the date I sign it (the “Effective Date”).

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I UNDERSTAND THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.  I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows:  “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.”  I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have.

By:	/s/ Michael Schwartz
Date:	April 30, 2003

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Exhibit B

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

Pharsight Corporation

Proprietary Information and Inventions Agreement

In consideration of, and as a condition of, my employment with Pharsight Corporation, a Delaware corporation (the “Company”), I hereby represent to and agree with the Company as follows:

1.             Purpose of Agreement; Effective Date.  I understand that the Company is engaged in a continuous program of research, development, production, and marketing in connection with its business and that it is critical for the Company to preserve and protect its Proprietary Information (as defined below) and its rights in Inventions (as defined below) and all related intellectual property rights.  Accordingly, whether or not I am expected to create inventions of value for the Company, I am entering into this Proprietary Information and Inventions Agreement (this “Agreement”) as a condition of my employment with the Company.  This Agreement shall be effective as of the first day of my employment with the Company.

2.             Definition of Proprietary Information.  Proprietary Information is any information of a confidential nature (i.e., not generally known or publicly available) that may be disclosed to me that relates to the business of the Company or to the business of any parent, subsidiary, affiliate, customer, or supplier of the Company or to the business of any other party with whom the Company agrees to hold the information disclosed by such party in confidence.   Proprietary Information includes but is not limited to Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, customer lists, and product sales and pricing information.

3.             Confidentiality.  Iunderstand that my employment by the Company creates a relationship of confidence and trust with respect to Proprietary Information.  At all times, both during my employment with the Company and after the termination of such employment, I will keep and hold all Proprietary Information in confidence and trust, and I will not use or disclose any Proprietary Information without the prior written consent of the Company, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company.  Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me any documents or materials or copies thereof containing any Proprietary Information.

4.             Work for Hire.  I acknowledge and agree that any copyrightable works prepared by me within the scope of my employment are “works for hire” under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works.

5.             Definition of Invention.  The term Invention includes all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, algorithms, computer software programs, databases, mask works, and trade secrets that either (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company’s business or to its current or anticipated research or development.

6.             Disclosure and Assignment of Inventions.   I will promptly disclose in confidence to the Company all Inventions that I make or conceive or create or first reduce to practice, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment

and whether or not such Inventions are patentable, copyrightable, or protectable as trade secrets.  I agree that all Inventions that (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company’s business or to its current or anticipated research or development will be the sole and exclusive property of the Company and are hereby irrevocably assigned by me to the Company.

7.             Assignment of Other Rights.  In addition to the foregoing assignment of Inventions to the Company, I hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets, and any other intellectual property rights in any and all Inventions, and (b) any and all Other Rights (as defined below) that I may have in or with respect to any Invention.  I also hereby forever waive and agree never to assert any Other Rights I may have in or with respect to any Invention, even after termination of my employment with the Company.  “Other Rights” means any right to claim author’s rights with respect to an Invention, to object to or prevent the modification of any Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether such right is denominated or generally referred to as a “moral right” or otherwise.

8.             Labor Code Notice.  Ihave been notified and understand that the provisions of paragraphs 6 and 7 of this Agreement do not apply to any Invention that qualifies fully under the provisions of Section 2870 of the California Labor Code, which states as follows:

Any provision in an employment agreement which provides that an employee shall assign or offer to assign any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) relate at the time of conception or reduction to practice of the invention to the employer’s business, or actual or demonstrably anticipated research or development of the employer, or (2) result from any work performed by the employee for the employer.  To the extent a provision in an employee agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under California Labor Code section 2870(a), the provision is against the public policy of this state and is unenforceable.

9.             Assistance.  Iagree to assist the Company in every proper way to obtain for the Company and to enforce patents, copyrights, mask work rights, trade secret rights, and other legal protections for the Company’s Inventions in any and all countries.  I will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secret rights and other legal protections.  My obligations under this paragraph will continue beyond the termination of my employment with the Company, provided that the Company will compensate me at a reasonable rate after such termination for time and expenses actually spent by me at the Company’s request on such assistance.

10.           No Breach of Prior Agreement.  Irepresent that my performance of all the terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, or similar agreement with any former employer or other party. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of

2

confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person, or unless the items have been legally transferred to the Company or are generally available to the public.  I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided, developed or owned by the Company.

11.         Prior Inventions.  If, in the course of my employment with the Company, I incorporate a prior invention made by me into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such prior invention.  Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, prior inventions in any Company Inventions without the Company’s prior written consent.

12.           Notification. Ihereby authorize the Company to notify my future employers of the terms of this Agreement and my responsibilities hereunder.

13.           Injunctive Relief.  Iunderstand that in the event of a breach or threatened breach of this Agreement by me, the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement.

14.           Governing Law; Severability.  This Agreement will be governed and interpreted in accordance with the laws of the State of California, without regard to application of choice of law rules or principles.  In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid, or unenforceable, then such provision shall not be voided but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect.

15.           No Duty to Employ.  Iunderstand that this Agreement does not constitute a contract of employment or obligate the Company to employ me for any stated period of time.

16.           FDA Debarrment.  I represent that I have never been debarred under Section 306(a) or (b) of the Federal Food Drug or Cosmetic Act and that I will immediately notify the Company in the event that any debarrment proceedings are commenced against me.

Pharsight Corporation		/s/ Michael J. Schwartz
By	/s/ Stacy Murphy	November 22, 2000
Stacy Murphy		Date:
Vice President, Human Resources

3

EX-10.47

Exhibit 10.47

May 22, 2003

Alloy Ventures

480 Cowper Street

Second Floor

Palo Alto, California

Attn:  Tony Di Bona

Sprout Group

11 Madison Avenue

13^th Floor

New York, NY 10010

Attn: Kathleen D. La Porte

Re:          Waiver of Filing Post-Effective Amendment on Form S-1

Ladies and Gentlemen:

Reference is hereby made to that certain Preferred Stock and Warrant Purchase Agreement dated as of June 25, 2002, as amended on February 13, 2003, (the “Purchase Agreement”) by and among Pharsight Corporation (“Pharsight”) and each of the purchasers named therein (collectively, the “Purchasers”).  All capitalized but undefined terms used herein shall have the meanings ascribed to them in the Purchase Agreement.

Pursuant to Section 9.2(b) of the Purchase Agreement, Pharsight hereby notifies each of the Purchasers that, effective upon the filing of Pharsight’s Annual Report on Form 10-K for Pharsight’s fiscal year ended March 31, 2003, the Initial Registration Statement shall cease to be effective for the resale of the Registrable Securities as Pharsight shall cease to be eligible to register the resale of the Registrable Securities on Form S-3.   Consequently, Pharsight is obligated to use its commercially reasonable efforts to file a post-effective amendment on Form S-1 and cause such post-effective amendment to become effective within 90 days after the delivery notice of this Suspension Notice.

Pharsight hereby requests each of the Purchasers to waive the requirement under the Purchase Agreement that Pharsight file a post-effective amendment on Form S-1 when and for so long as Pharsight ceases to be eligible to register the resale of the Registrable Securities on Form S-3.  Further, Pharsight hereby requests each of the Purchasers to waive any rights to any Liquidated Damages it may have pursuant to Section 9.2(f) of the Purchase Agreement as a result of the failure to file a post-effective amendment on Form S-1.  In this regard, each of the Purchasers hereby acknowledges that if this waiver is given: (a) Pharsight will rely on this waiver in connection with its determination not to file a post-effective amendment on Form S-1; and (b) Pharsight shall not be obligated to make any payment of Liquidated Damages to any Purchaser for failure to cause the use of the suspended Prospectus to be resumed during the period during which this waiver is in effect.

Notwithstanding the foregoing, in the event that any Purchaser shall notify Pharsight that it is

terminating this waiver (the “Waiver Termination Notice”), then, in such case: (a) the waiver set forth herein shall cease to be effective from that day forward; (b) Pharsight shall file such post-effective amendment on Form S-1, as set forth in the Purchase Agreement, within thirty (30) days of receipt of such Waiver Termination; (c) for all purposes of the Purchase Agreement, including without limitation the liquidated damages provisions thereof, Pharsight’s obligations with respect to the filing of such post-effective amendment on Form S-1 shall resume as if Pharsight had first given the Suspension Notice on the date that Pharsight receives the Waiver Termination; and (d) no Registration Default shall have been deemed to occur unless and until the earlier of (x) failure by Pharsight to file such post-effective amendment on Form S-1 within thirty (30) days of delivery of the Waiver Termination Notice and (y) failure of such post-effective amendment on Form S-1 to become effective within ninety (90) days of delivery of the Waiver Termination Notice.

Pharsight covenants and agrees (a) to use its commercially reasonable efforts to become eligible to register the resale of the Registrable Securities on Form S-3 as promptly as practicable after the date hereof, and (b) except to the extent contractually obligated pursuant to contracts existing on the date hereof, not to file a registration statement with respect to any securities of Pharsight, other than a registration statement on Form S-8 and the post-effective amendment on Form S-1, without the prior written consent of Purchasers who hold at last 75% of the Registrable Securities.

In the event that Purchasers who hold at least 75% of the Registrable Securities countersign this waiver, then, in accordance with Section 9.11 of the Agreement, this waiver will be binding against all Purchasers.

All other provisions of the Purchase Agreement shall remain in full force and effect.

Please indicate your waiver with respect to such rights by countersigning and returning this Waiver Letter as soon as possible.

Sincerely,

PHARSIGHT CORPORATION

/s/  Shawn M. O’Connor

Shawn M. O’Connor

President and Chief Executive Officer

The undersigned have read the foregoing and hereby agree to be bound by its terms.  This Waiver Letter may be countersigned in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one instrument.

PURCHASER(S):

ALLOY PARTNERS 2000, L.P.

ALLOY VENTURES 2000, L.P.

ALLOY CORPORATE 2000, L.P.

ALLOY INVESTORS 2000, L.P.

By:	Alloy Ventures 2000, LLC, its General Partner
By:	/s/  Douglas E. Kelly
		Name:
		Title:  Managing Member
		Address:	480 Cowper Street
			Second Floor
			Palo Alto, California
			Attn:  Tony Di Bona
		Email:	cfo@alloyventures.com
		Facsimile:	(650) 687-5010

PURCHASER(S) CONTINUED:

DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, as nominee for DLJ First ESC, L.P., EMA 2001 Plan, L.P., CSFB 2001 Investors, L.P., Credit Suisse First Boston Private Equity, Inc., Docklands 2001 Plan, L.P., and Paradeplatz 2001 Plan, L.P.

By:	/s/  Philippe Chambon
		Name:  Philippe Chambon
		Its: Attorney-in-Fact
		Address:	Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
		Email:
		Facsimile:	(646) 935-7094

SPROUT ENTREPRENEURS FUND, L.P.

By:	DLJ Capital Corp., its General Partner
By:	/s/  Philippe Chambon
		Name:  Philippe Chambon
		Its:  Managing Director
		Address:	Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
		Email:
		Facsimile:	(646) 935-7094

PURCHASER(S) CONTINUED:

SPROUT CAPITAL IX, L.P.

By:	DLJ Capital Corp., its Managing General Partner
By:	/s/  Philippe Chambon
		Name:  Philippe Chambon
		Its:  Managing Director
		Address:	Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
		Email:
		Facsimile:	(646) 935-7094

SPROUT CAPITAL VII, L.P.

By:	DLJ Capital Corp., its Managing General Partner
By:	/s/  Philippe Chambon
		Name:  Philippe Chambon
		Its:  Managing Director
		Address:	Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
		Email:
		Facsimile:	(646) 935-7094

PURCHASER(S) CONTINUED:

SPROUT CEO FUND, L.P.

By:	DLJ Capital Corp., its Managing General Partner
By:	/s/  Philippe Chambon
		Name:  Philippe Chambon
		Its:  Managing Director
		Address:	Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
		Email:
		Facsimile:	(646) 935-7094

DLJ CAPITAL CORP.

By:	/s/  Philippe Chambon
		Name:  Philippe Chambon
		Its:  Managing Director
		Address:	Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
		Email:
		Facsimile:	(646) 935-7094

DLJ FIRST ESC L.P.

By:	DLJ LBO Plans Management Corporation, its General Partner
By:	/s/  Philippe Chambon
		Name:  Philippe Chambon
		Its:  Attorney-in-Fact
		Address:	Sprout Group
			11 Madison Avenue
			13th Floor
			New York, NY 10010
		Email:
		Facsimile:	(646) 935-7094

EX-10.48

Exhibit 10.48

LOAN MODIFICATION AGREEMENT

This Loan Modification Agreement is entered into as of May 28, 2003, by and between Pharsight Corporation (the “Borrower”) and Silicon Valley Bank (“Bank”).

1.             DESCRIPTION OF EXISTING OBLIGATIONS:  Among other Obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other documents, a Loan and Security Agreement, dated June 13, 2001, as amended or modified from time to time, (the “Domestic Loan Agreement”). The Domestic Loan Agreement provides for, among other things, a Committed Revolving Line in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000) and a Committed Term Loan in the original principal amount of Three Million Five Hundred Thousand Dollars ($3,500,000).  Furthermore, Borrower is indebted to Bank pursuant to, among other documents, an Export-Import Bank Loan and Security Agreement, dated June 13, 2001, as may be amended from time to time (the “EXIM Loan Agreement”).  The EXIM Loan Agreement provided for, among other things, an EXIM Committed Line in the original principal amount of One Million Five Hundred Thousand Dollars ($1,500,000).  The Domestic Loan Agreement and the EXIM Loan Agreement are collectively defined as the “Loan Agreements”.  Defined terms used but not otherwise defined herein shall have the same meanings as set forth in the Loan Agreement.

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as the “Obligations.”

2.             DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement.  Additionally, repayment of the EXIM Committed Line is guaranteed by the Export-Import Bank of the United States “EXIM Bank” pursuant to a master Guarantee Agreement between EXIM Bank and Bank.

Hereinafter, the above-described security documents and guaranties, together with all other documents securing repayment of the Obligations shall be referred to as the “Security Documents”.  Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

3.DESCRIPTION OF CHANGE IN TERMS.

A.Modification(s) to Domestic Loan Agreement.

1.Section 6.6 entitled “Primary Accounts: Minimum and Target Balances” is hereby amended in part to provide that Borrower agrees that it shall deposit or invest through Bank (in the sweep account or one of IPS Mutual Funds) at least two-third (2/3) of its cash and cash equivalents (as determined pursuant to GAAP and as reflected in Borrower’s monthly financial statements).

2.Sub letter (a) under Section 6.2 entitled “Financial Statements, Reports, Certificates” is hereby amended in its entirety to read as follows:

(a)  Borrower will deliver to Bank:  (i) as soon as available, but no later than 30 days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s consolidated operations during the period certified by a Responsible Officer and in a form acceptable to Bank; (ii) as soon as available, but no later than 90 days after the last day of Borrower’s fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with a an unqualified opinion of the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) a prompt report of any legal actions pending or threatened against Borrower or any Subsidiary that could result in

damages or costs to Borrower or any Subsidiary of $100,000 or more; (iv) board of directors’ approved budgets, sales projections or other financial information Bank request, and, in any event, within 30 days after the end of Borrower’s fiscal year.

3.Sub letter (b) under Section 6.2 entitled “Financial Statements, Reports, Certificate” is hereby amended in part to also include deferred revenue schedules within 20 days after the last day of each month end.

4.Sub letter (e) under Section 6.2 entitled “Financial Statements, Reports, Certificate” is hereby incorporated to read as follows:

(e) On or prior to April 30^th of each year, Borrower will deliver to Bank its board of directors’ approved operating plan.

5.Section 6.7 entitled “Financial Covenants” is hereby amended in its entirety to read as follows:

Borrower will maintain on the last day of each month:

(a)Liquidity.  Maintain Liquidity of at least twice the amount of the outstanding aggregate balance of the Term Loan Advances.

(b)Remaining Months Liquidity.  Maintain at least six months Remaining Months Liquidity.  Remaining Months Liquidity is defined as Liquidity minus the outstanding Term Loan Advances divided by Net Cash Loss.  Net Cash Loss is defined as a trailing three months average change in cash from operations.

(c)Maximum Cumulative Losses.  Beginning with the month ending June 30, 2003 through the month ending May 31, 2004, Borrower’s cumulative monthly losses shall not exceed the levels forecast in its operating plan as provided and approved by Borrower’s board of directors on April 24, 2003 and as submitted to Bank on May 5, 2003 by more than 20%.  Bank may, in its discretion, reset this covenant annually no later than May 31^st of each year.

7.The following defined terms under Section 13.1 entitled “Definitions” are hereby amended to read as follows:

                “Committed Revolving Line” is an extension of up to $1,400,000.

                “Revolving Maturity Date” is May 27, 2004.

                B.            Modification(s) to EXIM Loan Agreement.

1.The following defined terms under Section 13 entitled “Definitions” are hereby amended to read as follows:

                                “Exim Committed Line” is an Advance of up to $600,000.

                                “Exim Maturity Date” is May 27, 2004.

2.Sub letters (a), (c) and (r) under the defined term “Exim Eligible Foreign Accounts” under Section 13 entitled “Definitions” are hereby amended and replaced to read as follows:

(a)Accounts with terms of sale greater than 90 days.

(c)  Credit balances over 60 days past original invoice due date.

(r)Accounts with open account terms with balance more than 25% concentration of total foreign Accounts, unless pre-approved by Bank.

4.             CONSISTENT CHANGES.  The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

5.             NO DEFENSES OF BORROWER.  Borrower (and each guarantor and pledgor signing below) agrees that, as of the date hereof, it has no defenses against paying any of the Obligations.

6.             PAYMENT OF LOAN FEE.  Borrower shall pay Bank a fee in the amount of Seven Thousand Dollars ($7,000) (“Domestic Loan Fee”) and Nine Thousand Dollars ($9,000) (“EXIM Loan Fee”) plus all out-of-pocket expenses.

7.             CONTINUING VALIDITY.  Borrower (and each guarantor and pledgor signing below) understands and agrees that in modifying the existing Indebtedness, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents.  Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect.  Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations.  Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations.  It is the intention of Bank and Borrower to retain as liable parties all makers and endorsers of Existing Loan Documents, unless the party is expressly released by Bank in writing.  Unless expressly released herein, no maker, endorser, or guarantor will be released by virtue of this Loan Modification Agreement.  The terms of this paragraph apply not only to this Loan Modification Agreement, but also to all subsequent loan modification agreements.

8.             CONDITIONS.  The effectiveness of this Loan Modification Agreement is conditioned upon payment of the Domestic Loan Fee and EXIM Loan Fee.

                This Loan Modification Agreement is executed as of the date first written above.

BORROWER:				BANK:
PHARSIGHT CORPORATION				SILICON VALLEY BANK
By:	/s/  Charles Faas			By:	/s/  Ron Kundich
Name:			Charles Faas	Name:			Ron Kundich
Title:		Chief Financial Officer		Title:		Vice President

EX-10.49

Exhibit 10.49

THIRD AMENDMENT TO THE LEASE

DATED JUNE 11, 1998 BY AND BETWEEN

ASSET GROWTH PARTNERS, LTD as LESSOR

and PHARSIGHT CORPORATION as LESSEE

This Third Amendment dated January 31, 2003 shall amend the above referenced agreement, as amended, (the “Lease”) as follows:

1.As of February 1, 2003 (the “Effective Date”), the Lessee shall receive a monthly credit of Thirty-Three Thousand Seven Hundred Fifty and 00/100 dollars ($33,750.00) through the end of the Lease term, for a total credit of Two Hundred Seventy Thousand and 00/100 dollars ($270,000.00).

2.Within fifteen (15) days of the Effective Date, the letter of credit security deposit as described in Section 1.9 of the Lease shall be returned to Lessee.  Lessor shall retain the cash security deposit of One Hundred Sixteen Thousand Eight Hundred and 00/100 dollars ($116,800.00).

3.Lessor shall build out approximately 726 sq. ft. of office space adjacent to Suite 240, for use by Sublessee, Mobilearia, as shown in Exhibit A (the “Sublessee Expansion Space”).  Lessor and Sublessee shall be responsible for any and all costs associated with such build-out.

4.Lessor shall provide an allowance of $20,228 toward the cost of Lessee’s relocation to the approximate 10,114 sq. ft. designated as the “New Pharsight Suite” on the attached Exhibit A, said allowance to be given as a credit against Lessee’s April 2003 rent.

5.No later than June 15, 2003, Lessee shall vacate the 16,000 sf in the existing Suite 200 (the “Vacated Premises”) and relocate to the New Pharsight Suite. Lessee shall surrender possession of Suite 200 to Lessor and shall leave all furniture, wiring and racking in place in the existing Suite 200, and title to said furniture, wiring and racking shall transfer to Lessor as of June 15, 2003.  In addition, Lessee shall surrender possession of the furniture, wiring and racking in place in Suite 240.

6.Upon occupation, the New Pharsight Suite shall be known as Suite 200, and shall be temporarily redefined to be 10,114 rentable square feet.  The actual final rentable square footage shall be confirmed upon completion of final build-out and prior to Lessee’s occupation of the New Pharsight Suite.

7.Lessor will endeavor to lease the Vacated Premises and any rent received by Lessor from the time of Lessee’s vacation of the Vacated Premises until the expiration of Lessee’s original Lease term on September 26, 2003 shall be shared equally with Lessee, after deducting the amortized cost of tenant improvements and lease commissions from rent.

8.As of September 25, 2003, the Premises shall be redefined to be Suite 200, consisting of approximately 10,114 sq. ft. as indicated on Exhibit B.

9.The Lease shall be extended for a period of two years, to expire on September 30, 2005.

10.Rent for the extended term shall be as follows:

9/25/03 — 9/26/04                                $2.50 sq. ft.

9/26/04 — 9/30/05                                $2.60 sq. ft.

11.The Base Year during the extended term shall be revised to be 2004, and Lessee’s Share of Operating Expense Increase under Paragraph 1.10 of the Lease shall be revised to be 8.62%.

12.The parties hereby represent that there are no brokers due a commission in connection with this transaction.  Should either party elect to have representation, then that party shall be responsible for payment of any leasing commissions due.

13.All other terms and conditions of the Lease shall remain unchanged.

[SIGNATURE PAGE TO FOLLOW.]

LESSOR:		LESSEE:
ASSET GROWTH PARTNERS, LTD.		PHARSIGHT CORPORATION
A California Limited Partnership		a Delaware Corporation
By:	Rees Properties, Inc.
	General Partner
/s/  Thomas J. Rees		/s/ Charles Faas
Thomas J. Rees		Charles Faas
President		Vice President, Finance
Date:	February 18, 2003	Date:	March 3, 2003

EX-23.1

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Exhibit 23.1

Consent of Ernst & Young LLP, Independent Auditors

         We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-44462, 333-44756, 333-60138 and 333-60136) pertaining to the 2000 Employee Stock Purchase Plan, 1995 Stock Option Plan, 1997 Stock Option Plan, 2000 CEO Non-Qualified Stock Option Plan, 2000 Equity Incentive Plan, 2001 UK Employee Stock Purchase Plan and the UK company Share Option Plan, and in the Registration Statement (Form S-3 No. 333-98095) of Pharsight Corporation and in the related Prospectus of our report dated April 23, 2003 (except Note 15, as to which the date is May 28, 2003), with respect to the financial statements and schedule of Pharsight Corporation included in the Annual Report (Form 10-K) for the year ended March 31, 2003.

/s/  ERNST & YOUNG LLP

San Jose, California
June 4, 2003

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Exhibit 23.1

Consent of Ernst & Young LLP, Independent Auditors

EX-99.1

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Exhibit 99.1

CERTIFICATION*

        Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Shawn O'Connor, Chief Executive Officer of Pharsight Corporation (the "Company"), and Charles Faas, the Chief Financial Officer of the Company, each hereby certify that, to the best of their knowledge:

1.  The Company's Annual Report on Form 10-K for the period ended March 31, 2003, and to which this Certification is attached as Exhibit 99.1 (the "Annual Report") fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and

2.  The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

        IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 9th day of June 2003.

/s/  SHAWN O'CONNOR SHAWN O'CONNOR, CHIEF EXECUTIVE OFFICER

/s/  CHARLES FAAS CHARLES FAAS, CHIEF FINANCIAL OFFICER

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission ("SEC") or its staff upon request.

        * This certification accompanies the Form 10-K to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing

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Exhibit 99.1

CERTIFICATION