-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
 MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
 TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
 UVjHr98Sss7CBL2df/AY7r5fpnW7eF2KiyvqV7QPyCvRkkot+J2FmDC9oKXxhjzQ
 Q4airjkRU8Z0Of0jgmK0gg==

<SEC-DOCUMENT>0000950124-04-001973.txt : 20040430
<SEC-HEADER>0000950124-04-001973.hdr.sgml : 20040430
<ACCEPTANCE-DATETIME>20040430163140
ACCESSION NUMBER:		0000950124-04-001973
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20040331
FILED AS OF DATE:		20040430

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			TARGETED GENETICS CORP /WA/
		CENTRAL INDEX KEY:			0000921114
		STANDARD INDUSTRIAL CLASSIFICATION:	BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836]
		IRS NUMBER:				911549568
		STATE OF INCORPORATION:			WA
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-23930
		FILM NUMBER:		04770184

	BUSINESS ADDRESS:	
		STREET 1:		1100 OLIVE WAY
		STREET 2:		STE 100
		CITY:			SEATTLE
		STATE:			WA
		ZIP:			98101
		BUSINESS PHONE:		2066237612

	MAIL ADDRESS:	
		STREET 1:		1100 OLIVE WAY
		STREET 2:		STE 100
		CITY:			SEATTLE
		STATE:			WA
		ZIP:			98101
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>v98506e10vq.htm
<DESCRIPTION>FORM 10-Q FOR QUARTER ENDED 3/31/04
<TEXT>
<HTML>
<HEAD>
<TITLE>e10vq</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<HR size="4" noshade color="#000000" style="margin-top: -5px">
<HR size="1" noshade color="#000000" style="margin-top: -10px">





<P align="center" style="font-size: 14pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>


<P align="center" style="font-size: 10pt"><HR size="1" noshade width="25%" align="center">


<P align="center" style="font-size: 18pt"><B>FORM 10-Q</B>


<P align="center" style="font-size: 10pt"><HR size="1" noshade width="25%" align="center">



<P align="left" style="font-size: 10pt"><B>(Mark One)</B>



<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD><FONT face="Wingdings">&#120;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES<BR>
EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><B>For the quarterly period ended March&nbsp;31, 2004</B>



<P align="center" style="font-size: 10pt"><B>OR</B>


<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE<BR>
SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="95%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><B>For the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></B></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>Commission File Number No.&nbsp;0-23930</B>



<P align="center" style="font-size: 10pt"><HR size="1" noshade width="25%" align="center">


<P align="center" style="font-size: 24pt"><B>TARGETED GENETICS CORPORATION</B>

<DIV align="center" style="font-size: 10pt"><B>(Exact name of Registrant as specified in its charter)</B></DIV>



<P align="center" style="font-size: 10pt"><HR size="1" noshade width="25%" align="center">


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><B>Washington</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>91-1549568</B></TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><B>(State of Incorporation)</B>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>(IRS Employer Identification No.)</B></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>1100 Olive Way, Suite&nbsp;100<BR>
Seattle, WA 98101<BR>
(Address of principal executive offices, including zip code)</B>



<P align="center" style="font-size: 10pt"><B>(206)&nbsp;623-7612<BR>
(Registrant&#146;s telephone number, including area code)</B>



<P align="center" style="font-size: 10pt"><HR size="1" noshade width="25%" align="center">



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant: (1)&nbsp;has filed all reports
required to be filed by Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12&nbsp;months (or for such shorter period that the
registrant was required to file such reports), and (2)&nbsp;has been subject to such
filing requirements for the past 90&nbsp;days. Yes <FONT face="Wingdings">&#120;</FONT> No <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule&nbsp;12b-2 of the Exchange Act). Yes <FONT face="Wingdings">&#120;</FONT> No <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate the number of shares outstanding of each of the issuer&#146;s classes
of common stock, as of the latest practicable date.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Common Stock, $0.01 par value</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>81,597,933</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:10px; text-indent:-10px"><B>(Class)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>(Outstanding at April 26,2004)</B><BR></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<HR size="1" noshade color="#000000" style="margin-top: -2px">
<HR size="4" noshade color="#000000" style="margin-top: -10px">








<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>

<DIV style="font-family: 'Times New Roman',Times,serif">







<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B><BR>
Quarterly Report on Form&nbsp;10-Q<BR>
For the quarter ended March&nbsp;31, 2004



<P align="center" style="font-size: 10pt">TABLE OF CONTENTS


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="94%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Page No.</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#101">PART I FINANCIAL INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#102">Item&nbsp;1. Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#103">a) Condensed Consolidated Balance Sheets at March&nbsp;31, 2004 and December&nbsp;31, 2003</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#104">b) Condensed Consolidated Statements of Operations for the three months ended March&nbsp;31,
2004 and 2003</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#105">c) Condensed Consolidated Statements of Cash Flows for the three months ended March&nbsp;31,
2004 and 2003</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px"><A href="#106">d) Notes to Condensed Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#107">Item&nbsp;2. Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#108">Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#109">Item&nbsp;4. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#110">PART II OTHER INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#111">Item&nbsp;1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">

<TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#112">Item&nbsp;2.
Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#113">Item&nbsp;3. Defaults Upon Senior Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#114">Item&nbsp;4. Submission of Matters to a Vote of Security Holders</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#115">Item&nbsp;5. Other Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#116">Item&nbsp;6. Exhibits and Reports on Form&nbsp;8-K</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#117">SIGNATURES</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#118">EXHIBIT INDEX</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v98506exv31w1.txt">EXHIBIT 31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v98506exv31w2.txt">EXHIBIT 31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v98506exv32w1.txt">EXHIBIT 32.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="v98506exv32w2.txt">EXHIBIT 32.2</A></FONT></TD></TR>
</TABLE>
</DIV>


<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt">i
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left">
<A name="101"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART I&nbsp;FINANCIAL INFORMATION</B>

<DIV align="left">
<A name="102"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;1. </B><B><I>Financial Statements</I></B>



<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B>


<DIV align="left">
<A name="103"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED BALANCE SHEETS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3"><B>(unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,119,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,057,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Prepaid expenses and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">409,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,482,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,632,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,159,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,423,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,649,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,649,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">826,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">968,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">77,116,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">57,672,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:50px; text-indent:-10px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts payable and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,464,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,271,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrued employee expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">622,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,564,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrued restructure charges</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,325,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,404,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,784,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,180,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current portion of long-term obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,280,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,290,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,475,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,709,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accrued restructure charges and deferred rent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,422,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,507,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,035,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,227,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Commitments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Minority interest in preferred stock of subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">750,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shareholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Preferred stock, $0.01 par value, 6,000,000 shares authorized:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Series&nbsp;A preferred stock, 800,000 shares designated, none
issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Series&nbsp;B preferred stock, 0 shares designated, issued and
outstanding at March&nbsp;31, 2004 and 12,015 shares designated,
issued and outstanding at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Common stock, $0.01 par value, 120,000,000 shares authorized,
81,597,933 shares issued and outstanding at March&nbsp;31, 2004 and
66,206,230 shares issued and outstanding at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">816,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">662,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">273,808,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,399,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(221,440,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(216,582,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,184,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,479,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">77,116,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">57,672,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">See accompanying notes to condensed consolidated financial statements



<P align="center" style="font-size: 10pt">1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B>


<DIV align="left">
<A name="104"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS</B>


<DIV align="center" style="font-size: 10pt"><B>(Unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revenue under collaborative agreements </DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,320,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,639,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Research and development </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,237,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,542,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">General and administrative </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,336,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Restructure charges </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total operating expenses </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,182,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,159,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss from operations </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,862,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(520,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment income </DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest expense </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(120,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(362,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss </DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,858,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(830,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss per common share (basic and diluted)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Shares used in computation of basic and diluted net loss
per common
share
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,874,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,566,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">See accompanying notes to condensed consolidated financial statements



<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B>


<DIV align="left">
<A name="105"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</B>


<DIV align="center" style="font-size: 10pt"><B>(Unaudited)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="67%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,858,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(830,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Adjustments to reconcile net loss to net cash used in
operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">773,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Non cash interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">302,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Changes in assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Decrease in accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">158,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,170,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Decrease (increase)&nbsp;in prepaid expenses and other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(240,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Decrease in other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">142,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Decrease in current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(749,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(172,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Increase (decrease)&nbsp;in deferred revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,604,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(717,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Decrease in accrued restructure expenses and
deferred rent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(387,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash used in operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,410,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(57,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchases of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(84,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(84,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(32,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net proceeds from sales of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,813,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Payments under leasehold improvements and equipment
financing arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(257,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(286,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net cash provided by (used in) financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,556,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(286,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,062,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(375,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents, beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,057,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,606,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents, end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,119,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,231,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Supplemental information:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash paid for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,000</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">See accompanying notes to condensed consolidated financial statements



<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B>
<DIV align="left">
<A name="106">
</A>
 </DIV>
<P align="center" style="font-size: 10pt"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</B>



<P align="center" style="font-size: 10pt"><B>(Unaudited)</B>



<P align="left" style="font-size: 10pt"><B>1. Basis of Presentation</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unaudited condensed consolidated financial statements included in this
quarterly report have been prepared by Targeted Genetics Corporation, or
Targeted Genetics, without audit, according to the rules and regulations of the
Securities and Exchange Commission, or SEC. Our condensed consolidated
financial statements include the accounts of Targeted Genetics, our
wholly-owned subsidiaries Genovo, Inc. and TGCF Manufacturing Corporation
(inactive), and our majority-owned subsidiary, CellExSys, Inc. The condensed
consolidated balance sheet as of December&nbsp;31, 2003 and our results of
operations for the three months ended March&nbsp;31, 2003, do not include the
accounts of Emerald Gene Systems, Ltd., or Emerald, our majority-owned research
and development joint venture with Elan International Services Ltd., or Elan,
because we did not have operating control of Emerald. In connection with a
termination agreement with Elan, effective March&nbsp;31, 2004, we acquired Elan&#146;s
equity interest in Emerald. As a result, Emerald became a wholly-owned
subsidiary as of March&nbsp;31, 2004, and is consolidated into our financial
statements as of that date. The operations of Emerald terminated during 2002
and we are in the process of dissolving the joint venture. As a result, the
impact of consolidating the accounts of Emerald into our financial results is
not significant. All significant inter-company transactions have been
eliminated in consolidation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted in accordance with the SEC&#146;s
rules and regulations. The financial statements reflect, in the opinion of
management, all adjustments (which consist solely of normal recurring
adjustments) necessary to present fairly our financial position and results of
operations as of and for the periods indicated. Certain reclassifications have
been made to conform prior year results to the current year presentation.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not believe that our results of operations for the three months
ended March&nbsp;31, 2004 are necessarily indicative of the results to be expected
for the full year.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The unaudited condensed consolidated financial statements included in this
quarterly report should be read in conjunction with our audited consolidated
financial statements and related footnotes included in our annual report on
Form 10-K for the year ended December&nbsp;31, 2003.


<P align="left" style="font-size: 10pt"><B>2. Adoption of New Accounting Pronouncement</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2003, the Financial Accounting Standards Board issued FIN No.
46, <I>&#147;Consolidation of Variable Interest Entities.&#148; </I>This interpretation of
Accounting Research Bulleting No.&nbsp;51, <I>&#147;Consolidated Financial Statements&#148;</I>
addresses consolidation of business enterprises of variable interest entities
in which: (1)&nbsp;the equity investment at risk is not sufficient to permit the
entity to finance its activities without additional subordinated financial
support from other parties, which is provided through other interests that will
absorb some or all of the expected losses of the entity and (2)&nbsp;the equity
investors lack one or more of certain essential characteristics of a
controlling interest. FIN No.&nbsp;46 applies immediately to variable interest
entities created after January&nbsp;31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. In December&nbsp;2003, the
FASB revised FIN No.&nbsp;46 to postpone the effective date to January&nbsp;1, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although Emerald became a wholly-owned subsidiary on March&nbsp;31, 2004, FIN
No.&nbsp;46 applies to Emerald effective January&nbsp;1, 2004, which had not been
previously consolidated because of certain control rights held by Elan that
prevented us from exercising operating control over the joint venture. Both
Targeted Genetics and Elan funded the operations of Emerald in proportion to
their equity ownership. As a result, the application of FIN No.&nbsp;46 did not
have a significant impact on our financial results.


<P align="center" style="font-size: 10pt">4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B>



<P align="center" style="font-size: 10pt"><B>NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS&#151;</B><B><I>(Continued)</I></B>



<P align="center" style="font-size: 10pt"><B>(Unaudited)</B>



<P align="left" style="font-size: 10pt"><B>3. Long-Term Obligations</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term obligations consisted of the following:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loan payable to Biogen, due August&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,000,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Equipment financing obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,243,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,501,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other long-term obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,072,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,016,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,315,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,517,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,280,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,290,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,035,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,227,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future aggregate principal payments related to long-term obligations are
$1,078,000 for the remainder of 2004, $1,084,000 in 2005, $10,140,000 in 2006
and $13,000 in 2007.


<P align="left" style="font-size: 10pt"><B>4. Accrued Restructure Charges</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We record accrued restructure charges as they relate to the leases on our
facilities in Bothell, Washington and Sharon Hill, Pennsylvania. In December
2002, we began to pursue options to sublease or terminate our lease on the
Bothell facility and in February&nbsp;2003, we closed our Sharon Hill facility.
Accrued restructure charges represent our best estimate of the fair value of
the liability as determined under Statement of Financial Accounting
Standards, or SFAS, No.&nbsp;146, <I>&#147;Accounting for Costs
Associated with Exit or Disposal Activities,&#148; </I>and is computed as the fair value
of the difference between the remaining lease payments due on these leases and
the estimated sub-lease market rates. During the three months ended March&nbsp;31,
2004, we recorded a restructure charge of $195,000 to recognize accretion
expense due to the passage of time. Accretion expense results from the
difference between the fair value of payments in the estimate of accrued
restructure liability compared to actual payments made during the quarter.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we proceed with further development or commercialization of any of our
product candidates, we may need to resume use of the Bothell facility to
fulfill our manufacturing requirements. If we decide to resume use of this
facility, any remaining accrued restructure charges related to the facility
will be reversed. This will be reflected as a one-time credit to restructure
charges, reflected in the period in which use is resumed. Any decision to
resume use of the facility will be based on a number of factors including the
progress of our product candidates in clinical development, the estimated
duration of facility design and construction, the estimated timing of
product manufacturing
requirements, the ability of our current manufacturing capabilities to meet
demand, and the availability of resources. However, unless we resume use of the
Bothell facility, we will continue to account for the lease in accordance with
SFAS No.&nbsp;146 and will periodically evaluate the assumptions and record
additional restructure charges if necessary. Because we compute restructure
charges using estimates and assumptions regarding the timing and amounts of
future events, further significant adjustments to the accrual may be necessary
based on the actual outcome of events and as we become aware of new facts and
circumstances.


<P align="center" style="font-size: 10pt">5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B>



<P align="center" style="font-size: 10pt"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-</B><B><I>(Continued)</I></B>



<P align="center" style="font-size: 10pt"><B>(Unaudited)</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tables below present our total estimated restructure charges and a
reconciliation of the associated liability:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Incurred in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Incurred in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Incurred in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total expected to</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Restructure charges</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>future charges</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>be incurred</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Employee termination benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">725,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">730,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Contract termination costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,601,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,153,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,949,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other associated costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,326,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,190,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">195,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,711,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="36%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Incurred in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Reconciliation</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>liability</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Adjustments</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>liability</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Employee termination benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Contract termination costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,870,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(370,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,695,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other associated costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,870,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">195,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(370,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,695,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>5. Shareholders&#146; Equity</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Common Stock Offering</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2004, we issued 10,854,257 shares of our common stock in a
public offering at a price of $2.35 per share and received net proceeds of
approximately $23.8&nbsp;million.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Purchase of Minority Interest in CellExSys</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2004, we issued 158,764 shares of our common stock to Itochu
Corporation valued at $375,000 for Itochu&#146;s interest in the preferred stock of
CellExSys. The carrying value of the minority interest prior to purchase was
$750,000. The difference between the carrying value of the minority interest
over the value of the common stock issued is reflected as additional
paid-in-capital in the accompanying Balance Sheet as of March&nbsp;31, 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Series&nbsp;B Convertible Preferred Stock</I>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;1999, we issued shares of our Series&nbsp;B convertible exchangeable
preferred stock, valued at $12&nbsp;million, to Elan in exchange for our 80.1%
interest in Emerald. The Series&nbsp;B preferred stock was convertible at Elan&#146;s
option into shares of our common stock, at a conversion price of $3.32 per
share. Compounding dividends accrue semi-annually at 7% per year on the $1,000
per share face value of the preferred stock until July&nbsp;2005. Dividends are not
paid in cash, but rather result in an increase in the number of shares of
common stock to be issued upon conversion. Prior to conversion, the number of
shares issuable upon conversion of the preferred stock and accrued dividends
totaled approximately 4.9&nbsp;million shares.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;31, 2004, we entered into a termination agreement with Elan. The
termination agreement provided for, among other things, our acquisition of
Elan&#146;s equity interest in Emerald, the termination of technology license
agreements between Emerald and both Targeted Genetics and Elan in accordance
with the original terms of those license agreements, the full conversion of the
Series&nbsp;B preferred stock held by Elan into shares of our common stock, and
certain restrictions under which Elan could sell its holdings in our common
stock. Elan also waived its right to nominate a director to our board of
directors. In accordance with the termination agreement the Series&nbsp;B preferred
stock was converted into 4.33&nbsp;million shares of our common stock. Following
conversion of the Series&nbsp;B preferred stock, Elan held approximately 12.1
million shares of our common stock.


<P align="center" style="font-size: 10pt">6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B>



<P align="center" style="font-size: 10pt"><B>NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-</B><B><I>(Continued)</I></B>



<P align="center" style="font-size: 10pt"><B>(Unaudited)</B>



<P align="left" style="font-size: 10pt"><I>Stock Compensation</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As permitted by the provisions of SFAS No.&nbsp;123, &#147;<I>Accounting for
Stock-Based Compensation</I>,&#148; we have elected to follow Accounting Principles
Board Opinion No.&nbsp;25, <I>&#147;Accounting for Stock Issued to Employees,&#148; </I>and related
interpretations in accounting for employee stock option grants. In addition, we
follow the disclosure requirements of SFAS No.&nbsp;148, <I>&#147;Accounting for Stock-Based
Compensation &#150; Transition and Disclosure &#150; an amendment of SFAS No.&nbsp;123,&#148; </I>which
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. We do not recognize any
compensation expense for options granted to employees because we grant all
options at fair market value on the date of grant. Options granted to
consultants are recorded as an expense over their service period based on their
fair value, which is determined using the Black-Scholes method.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
allowed by SFAS No.&nbsp;123, we do not recognize compensation expense on
stock options granted to employees and directors. If we had elected to
recognize compensation expense based on the fair market value at the grant
dates for stock options granted, the pro forma net loss and net loss per common
share would have been as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="63%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net loss:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(4,858,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(830,000</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">stock-based compensation (expense)&nbsp;credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(235,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,093,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(684,000</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Basic net loss per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(0.02</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.07</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><I>Reserved Shares</I>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective March&nbsp;31, 2004, Elan converted the Series&nbsp;B preferred stock into
4,330,000 shares of our common stock. Our reserved shares are as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>

    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stock options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,096,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,097,687</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Available for future grants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">269,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">322,927</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stock purchase warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,003,826</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Conversion of Series&nbsp;B preferred stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,765,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total reserved shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,365,932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,189,940</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="107"></A>
</DIV>
<P align="left" style="font-size: 10pt"><B>Item&nbsp;2. </B><B><I>Management&#146;s Discussion and Analysis of Financial Condition and
Results of Operations</I></B>



<P align="left" style="font-size: 10pt"><B>Forward-Looking Statements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This quarterly report on Form 10-Q contains forward-looking statements
that involve risks and uncertainties. Forward-looking statements include
statements about our product development and commercialization goals and
expectations, potential market opportunities, our plans for and anticipated
results of our clinical development activities and the potential advantage of
our product candidates, and other statements that are not historical facts.
Words such as &#147;may,&#148; &#147;will,&#148; &#147;believes,&#148; &#147;estimates,&#148; &#147;expects,&#148; &#147;anticipates,&#148;
&#147;plans,&#148; &#147;intends,&#148; or statements concerning &#147;potential&#148; or &#147;opportunity&#148; and
other words of similar meaning or the negative thereof, may identify
forward-looking statements, but the absence of these words does not mean that
the statement is not forward-looking. In making these statements, we rely on a
number of assumptions and make predictions about the future. Our actual results
could differ materially from those stated in or implied by forward-looking
statements for a number of reasons, including the risks described in the
section entitled &#147;Factors Affecting Our Operating Results, Our Business and Our
Stock Price&#148; in Part&nbsp;II, Item&nbsp;2 of this quarterly report.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should not unduly rely on these forward-looking statements, which
speak only as of the date of this quarterly report. We undertake no obligation
to publicly revise any forward-looking statement after the date of this
quarterly report to reflect circumstances or events occurring after the date of
this quarterly report or to conform the statement to actual results or changes
in our expectations. You should, however, review the factors, risks and other
information we provide in the reports we file from time to time with the
Securities and Exchange Commission, or SEC.


<P align="left" style="font-size: 10pt"><B>Business Overview</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Targeted Genetics Corporation develops gene therapy products and
technologies for treating both acquired and inherited diseases. Our gene
therapy product candidates are designed to treat disease by regulating cellular
function at a genetic level. This involves introducing genetic material into
target cells and activating it in a manner that provides the desired effect. We
have assembled a broad base of proprietary intellectual property that we
believe gives us the potential to address the significant diseases that are the
primary focus of our business. Our proprietary intellectual property includes
genes, methods of transferring genes into cells, processes to manufacture our
gene delivery product candidates and other proprietary technologies and
processes. In addition, we have established expertise and development
capabilities focused in the areas of preclinical research and biology,
manufacturing and manufacturing process scale-up, quality control, quality
assurance, regulatory affairs and clinical trial design and implementation. We
believe that our focus and expertise will enable us to develop products based
on our proprietary intellectual property.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gene therapy products involve the use of delivery vehicles, called
vectors, to place genetic material into target cells. Our proprietary vector
technologies include both viral and synthetic vectors. Our viral vector
development activities, which use modified viruses to deliver genes into cells,
focus primarily on adeno-associated virus, or AAV, a common human virus that
has not been associated with any human disease or illness. We believe that AAV
provides a number of safety and gene delivery advantages over other viruses for
several of our potential gene therapy products. Our synthetic vectors deliver
genes into cells using lipids, which are fatty, water-insoluble organic
substances that can promote gene uptake through cell membranes. We believe that
synthetic vectors may provide a number of gene delivery advantages for
repeated, efficient delivery of therapeutic genes into rapidly dividing cells,
such as certain types of tumor cells. Although our current product development
candidates utilize AAV as the delivery vector, we believe that possessing
capabilities in both viral and synthetic approaches provides advantages in our
corporate partnering efforts and increases the range of our potential products
that may reach the market.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have an AAV-based product candidate under development for treating
cystic fibrosis that has been evaluated in a Phase II clinical trial. In June
2003, final data from this repeat dosing trial was presented that indicated
that our cystic fibrosis product candidate met safety and tolerability targets.
In addition, final data from the Phase II trial indicated a statistically
significant improvement in lung function at day 30 and a decrease in levels of
an inflammatory cytokine at day 14. In July&nbsp;2003, we initiated a larger
confirmatory Phase II clinical trial for this cystic fibrosis product
candidate. We designed this trial to enroll up to 100 patients and are
conducting it in collaboration with the Cystic Fibrosis Foundation, or CF
Foundation. We expect to complete patient accrual and dosing by the end of
2004. We have recently dosed the 50th patient in this study. After collecting
30-day data points from the first 50 patients, an independent data safety monitoring committee, or DSMC,
will conduct an interim analysis to determine whether the study will
continue or be terminated. If
it is apparent, statistically, that significant differences between
placebo and treated groups upon full patient enrollment cannot be
reached then the study will be terminated. The data remains blinded as long as
the study continues and we will continue to accrue patients during
the interim analysis period.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are developing an AAV-based vaccine product candidate for high-risk
populations in developing nations to protect against the progression of Human
Immunodeficiency Virus, or HIV, infection to Acquired Immune Deficiency
Syndrome, or AIDS, in partnership with the International AIDS Vaccine
Initiative, or IAVI, a non-profit organization, and The Columbus Children&#146;s

Research Institute, or CCRI, at Children&#146;s Hospital in Columbus, Ohio. In
December&nbsp;2003, we initiated a Phase I initial dose


<P align="center" style="font-size: 10pt">8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">escalation safety study in humans for our AIDS vaccine product candidate
in Europe. This dose-escalation safety trial is designed to enroll up to 50
volunteers who are uninfected with HIV and in good health. Each participant in
this trial will receive a single injection of the vaccine candidate and will be
monitored for safety and immune response. We expect to complete the
dose-escalation phase of this trial by the end of 2004.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also developing an AAV-based product candidate for the treatment of
rheumatoid arthritis. In March&nbsp;2004, we initiated a Phase I clinical trial for
this product candidate for treating rheumatoid arthritis. This dose-escalation
safety trial is designed to enroll up to 32 patients with rheumatoid arthritis
and will be conducted in multiple sites in the United States and Canada.
Patients will be monitored for safety and secondarily for improvements in
arthritis signs and symptoms. We expect to complete patient accrual and dosing
in this trial by the first quarter of 2005. We also have additional product
candidates focused on treating cancer and hemophilia; however, we have
suspended further development of these programs until we can find other sources
of funding for the programs.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that our successes in assembling a broad platform of
proprietary intellectual property for developing and manufacturing potential
products support our potential to develop and manufacture gene therapy product
candidates to treat a range of diseases. We have developed processes to
manufacture our potential products using methods and at a scale amenable to
clinical development and expandable to large-scale production for advancing our
potential products to clinical evaluation and commercialization. These methods
are similar to the methods used to manufacture other biologics. As a result, we
evaluated and continue to evaluate opportunities to utilize excess capacity to
manufacture biologics for other companies. In March&nbsp;2003, we entered into a
manufacturing services agreement with GenVec, Inc., or GenVec, to conduct
initial feasibility studies to evaluate our ability to manufacture clinical
supply of GenVec&#146;s cancer product candidate, TNFerade&#153;, an adeno-viral-based
gene therapy product. In October&nbsp;2003, we successfully completed this
feasibility study and began manufacturing TNFerade&#153; for clinical use. In
January&nbsp;2004, we completed our manufacturing work for GenVec.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that a wide range of diseases may potentially be treated, or
prevented, with gene-based products, including cancer, genetic diseases and
infectious diseases. We believe that there is also a significant opportunity to
treat diseases currently treated using recombinant DNA proteins and monoclonal
antibodies or small molecules that may be more effectively treated by
gene-based therapies due to their ability to provide a long-term or a localized
method of treatment. Our business strategy is to develop multiple gene delivery
systems, which we believe will maximize our product opportunities. Using these
gene delivery systems, we are developing product candidates across multiple
diseases with the belief that gene-based therapies may provide a means to treat
diseases not fully treatable with current biologic and pharmaceutical drugs. We
believe that, if successful, we can establish significant market potential for
our product candidates. There are no commercially available gene therapy
products in the United States. We intend to pursue product development programs
to enable us to demonstrate proof of concept and eventually commercialize
gene-based therapeutics to address currently unmet medical needs in treating
disease.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The development of pharmaceutical products involves extensive preclinical
development followed by human clinical trials that take several years or more
to complete. The length of time required to completely develop any product
candidate varies substantially according to the type, complexity and novelty of
the product candidate, the degree of involvement by a development partner, and
the intended use of the product candidate. Our commencement and rate of
completion of clinical trials may vary or be delayed for many reasons,
including those discussed in the section entitled &#147;Factors Affecting Our
Operating Results, Our Business and Our Stock Price&#148; in Part&nbsp;II, Item&nbsp;2 of this
quarterly report.


<P align="left" style="font-size: 10pt"><B>Results of Operations</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;<B><I>Revenue</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Revenue</I>. Revenue decreased to $1.3&nbsp;million for the three months ended
March&nbsp;31, 2004 from $5.6&nbsp;million for the same period in 2003. Revenue in 2004
consists primarily of revenue earned under our AIDS vaccine collaboration with
IAVI. Revenue for the three months ended March&nbsp;31, 2003 includes $3.9&nbsp;million
of revenue related to the termination of our collaboration with Wyeth
Pharmaceuticals and $841,000 of previously deferred payments received from
Biogen, Inc. under a collaboration that ended in September&nbsp;2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect that our revenue for the remainder of 2004 will consist of
research and development revenue from our collaboration with IAVI, which we
expect to increase through the remainder of 2004 as planned program activities
increase, and revenue from completing our contract manufacturing agreement with
GenVec. As a result of the conclusion of our former collaborations with Biogen
and Wyeth in 2003, we expect total revenue in 2004 to be less than 2003.
Our revenue for the next several years will depend on the continuation of the
current collaboration with IAVI and our success with entering into and
performing any new collaborations.


<P align="center" style="font-size: 10pt">9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;<B><I>Operating Expenses</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and Development Expenses</I>. Research and development expense
decreased to $4.2&nbsp;million for the three months ended March&nbsp;31, 2004 from $4.5
million for the same period of 2003. This decrease reflects lower costs in our
research and preclinical development programs as our AIDS vaccine and
rheumatoid arthritis programs moved out of preclinical development and into
clinical testing in late 2003 and early 2004. As a result, the costs
associated with these programs are included in the costs of programs in
clinical development, which increased in 2004 compared to 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is an allocation of our total research and development costs
between our programs in clinical development and those that are in research or
preclinical stages of development:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="68%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Three months ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>March 31,</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Programs in clinical development:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cystic fibrosis</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">136,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">119,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">AIDS vaccine</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">529,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Rheumatoid arthritis (initiated Phase I trial in
March&nbsp;2004)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Indirect costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">884,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total clinical development program expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,630,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">249,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Research and preclinical development program
expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,607,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,293,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total research and development expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,237,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,542,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development costs attributable to programs in clinical
development include the applicable costs of salaries, benefits, clinical trial
sites, outside services, materials and supplies incurred to support the
programs, and any preclinical activities conducted in support of the clinical
program. Indirect costs allocated to clinical programs include facility and
occupancy costs, research and development administrative costs, and license and
royalty payments. Our development partners separately fund the clinical trial
costs of our cystic fibrosis and AIDS vaccine programs. As a result, we do not
include those costs in our research and development expenses.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Costs attributed to research and preclinical programs represent our
earlier stage development activities, including costs incurred on programs
prior to their transition into clinical trials, as well as costs that are not
allocable to a clinical development program, such as unallocated manufacturing
infrastructure costs. Because we conduct multiple research projects and
utilize resources across several programs, our research and preclinical
development costs are not directly assigned to individual programs.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of reimbursement from our collaboration partners, we capture
the level of effort expended on a program through our project management
system, which is based primarily on human resource time allocated to each
program, supplemented by an allocation of indirect costs and other specifically
identifiable costs, if any. As a result, the costs allocated to a program do
not necessarily reflect the actual costs of the program.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We initiated clinical testing of our AIDS vaccine product candidate in
December&nbsp;2003 and our rheumatoid arthritis product candidate in March&nbsp;2004. As
a result, all related development activities associated with our cystic
fibrosis, rheumatoid arthritis and AIDS vaccine programs are reflected as costs
associated with programs in clinical development as of the date of initiation
of clinical testing. Therefore, during 2004, we expect our research and
development expenses associated with programs under clinical development to
increase reflecting the transition of these programs into clinical testing.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General and Administrative Expenses</I>. General and administrative
expenses increased to $1.8&nbsp;million for the three months ended March&nbsp;31, 2004,
from $1.3&nbsp;million for the same period in 2003. This increase primarily
reflects increased personnel and professional service costs.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restructure Charges. </I>Restructure charges decreased to $195,000 for the
three months ended March&nbsp;31, 2004, from $281,000 for the same period in 2003.
The charge for the three months ended March&nbsp;31, 2004 represents accretion
expense due to the passage of time and results from the difference between the
fair value of payments in the estimate of the accrued restructure liability
compared to the actual rent payments made during the quarter. The charge for
the three months ended March&nbsp;31, 2003, primarily represents the initial accrual
related to lease commitment costs of the Sharon Hill, Pennsylvania facility.


<P align="center" style="font-size: 10pt">10
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">&nbsp;&nbsp;<B><I>Other Income and Expense</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Investment Income</I>. Investment income increased to $124,000 for the
three months ended March&nbsp;31, 2004 from $52,000 for the same period in 2003.
This increase resulted from higher investment income earned on higher average
cash balances in 2004 as a result of our financing completed in February&nbsp;2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest Expense</I>. Interest expense relates to interest on outstanding
loans from our collaborative partners, notes and obligations under equipment
financing arrangements and installment loans we use to finance purchases of
laboratory and computer equipment, furniture and leasehold improvements.
Interest expense decreased to $120,000 for the three months ended March&nbsp;31,
2004 from $362,000 for the same period of 2003. This decrease reflects lower
average principal balances as the result of our conversion of approximately
$9.4&nbsp;million of debt owed to Elan into shares of our common stock in September
2003.


<P align="left" style="font-size: 10pt"><B>Liquidity and Capital Resources</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our combined cash and cash equivalents increased to $41.1&nbsp;million at March
31, 2004, compared to $21.1&nbsp;million at December&nbsp;31, 2003. For the three months
ended March&nbsp;31, 2004, the principal sources of cash were $23.8&nbsp;million in net
proceeds from the issuance of approximately 10.9&nbsp;million shares of our common
stock in February&nbsp;2004 and collaborative funding received from partners. Our
principal use of cash was $3.4&nbsp;million for operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our shareholders&#146; equity increased to $53.2&nbsp;million at March&nbsp;31, 2004,
compared to $33.5&nbsp;million at December&nbsp;31, 2003. This increase includes net
proceeds of $23.8&nbsp;million from sale of our common stock and the acquisition of
the minority interest in CellExSys of $750,000, reduced by the net loss during
the period of $4.9&nbsp;million.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have financed our product development activities and general corporate
functions primarily through proceeds from public and private sales of our
equity securities, through cash payments received from our collaborative
partners and proceeds from the issuance of debt. To a lesser degree, we have
also financed our operations through interest earned on cash and short-term
investments, loan funding under equipment leasing agreements and research
grants. These financing sources have historically allowed us to maintain
adequate levels of cash and investments.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our cystic fibrosis product candidate is in a confirmatory Phase II
clinical trial, our AIDS vaccine candidate is in a Phase I clinical trial and
we initiated a Phase I clinical trial for our rheumatoid arthritis product
candidate in March&nbsp;2004. We expect to continue incurring significant expense in
advancing our product candidates toward commercialization. As a result, we do
not expect to generate sustained positive cash flow from our operations for at
least the next several years and only then if we can successfully develop and
commercialize our product candidates. We will require substantial additional
financial resources to fund the development and commercialization of our
product candidates and expand research and development of our product
candidates for treating additional diseases.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect to maintain our focus on our key development programs in cystic
fibrosis, AIDS and rheumatoid arthritis in 2004. We believe that our cash
needs will increase by approximately 20% during 2004 compared to 2003 to
support the advancement of these clinical development programs. We expect to
continue to receive financial support for specific programs to offset some of
the costs of development.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have an ongoing collaboration with IAVI and CCRI to develop an AIDS
vaccine. The term of this collaboration has been extended through December
2006. Assuming that we complete all of the planned development activities, we
expect to receive up to $10.7&nbsp;million in funding from IAVI to cover the costs
of this program in 2004. We also have a collaboration with the CF Foundation
related to our current Phase II clinical trial for our product candidate for
treating cystic fibrosis. Under this collaboration, the CF Foundation is
providing funding to the sites conducting this trial to cover their direct
costs of the trial.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect that our cash and cash equivalents at March&nbsp;31, 2004, plus the
funding we expected from IAVI to fund 2004 work activities under our AIDS
vaccine collaboration, will be sufficient to fund our operations until at least
the beginning of 2006. We believe that this will be sufficient time to complete
each of our current clinical trials, evaluate the results, and assuming
satisfactory results, initiate further clinical testing. In 2006, our $10
million note payable to Biogen becomes due, which will require that we raise
additional capital to repay the note or seek an alternative arrangement to
repay the note. Although our development collaboration with IAVI has been
extended through the end of 2006, the development plan and budget under the
collaboration is established on an annual basis. While we expect this program
to continue through at least the duration of the collaboration term, we have
not established the work plan and budget for 2005 and 2006 with IAVI and have
therefore not yet made an assumption as to the level of funding that we may
receive from IAVI in 2005 and 2006.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expect the level of our future operating expenses to be driven by the
needs of our product development programs offset by the availability of funds
through partner funded collaborations, equity offerings or other financing
activities. The size, scope and


<P align="center" style="font-size: 10pt">11
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">pace of our development activities depend on the availability of these
resources. Our future cash requirements will depend on many factors, including:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the rate and extent of scientific progress in our research and
development programs;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the timing, costs and scope of, and our success in, clinical trials,
obtaining regulatory approvals and filing, prosecuting and enforcing
patents;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competing technological and market developments;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the timing and costs of, and our success in, any product
commercialization activities and facility expansions, if and as required;
and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the expense and outcome of any litigation or administrative proceedings
involving our intellectual property, or access to third-party
intellectual property through licensing agreements.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IAVI has the right to terminate our collaboration and its obligation to
provide research funding at any time for any reason with 90&nbsp;days&#146; notice. If we
were to lose the collaborative funding expected from IAVI and were unable to
obtain alternative sources of funding for the AIDS vaccine product candidate,
we may be unable to continue our research and development program for that
product candidate. The CF Foundation has the right to terminate our funding
agreement at any time for any reason.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are seeking partners for our hemophilia and cancer programs and
evaluating other opportunities to obtain additional capital to fund our future
operations. Additional sources of financing could involve one or more of the
following:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>entering into additional product development and funding collaborations
or other strategic transactions, or extending or expanding our current
collaborations;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>selling or licensing our technology or product candidates;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>borrowing under loan or equipment leasing arrangements;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>issuing equity in the public or private markets; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>issuing debt.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional funding may not be available to us on reasonable terms, if at
all. Depending on our ability to successfully access additional funding, we may
be forced to implement significant cost reduction measures. These adjustments
may include scaling back, delaying or terminating one or more research and
development programs, curtailing capital expenditures or reducing other
operating activities. We may also be required to relinquish some rights to our
technology or product candidates or grant licenses on unfavorable terms, either
of which would reduce the ultimate value to us of the technology or product
candidates.


<P align="center" style="font-size: 10pt">12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Factors Affecting Our Operating Results, Our Business and Our Stock Price</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the other information contained in this quarterly report,
you should carefully read and consider the following risk factors. If any of
these risks actually occur, our business, operating results or financial
condition could be harmed. This could cause the trading price of our stock to
decline, and you could lose all or part of your investment.


<P align="center" style="font-size: 10pt"><B>Risks Related to Our Business</B>


<P align="left" style="font-size: 10pt"><B><I>We expect to continue to operate at a loss and may never become profitable,
which could result in a decline in the value of our common stock and a loss of
your investment.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Substantially all of our revenue has been derived under collaborative
research and development agreements relating to the development of our
potential product candidates. We have incurred, and will continue to incur for
the foreseeable future, significant expense to develop our research and
development programs, conduct preclinical studies and clinical trials, seek
regulatory approval for our product candidates and provide general and
administrative support for these activities. As a result, we have incurred
significant net losses since inception, and we expect to continue to incur
substantial additional losses in the future. As of March&nbsp;31, 2004, we had an
accumulated deficit of approximately $221&nbsp;million. We may never generate
profits and, if we do become profitable, we may be unable to sustain or
increase profitability.

<P align="left" style="font-size: 10pt"><B><I>All of our product candidates are in early-stage clinical trials or preclinical
development, and if we are unable to successfully develop and commercialize our
product candidates we will be unable to generate sufficient capital to maintain
our business.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2003, we initiated a confirmatory Phase II clinical trial for our
cystic fibrosis product candidate. In December&nbsp;2003, we initiated a Phase I
trial for our AIDS vaccine product candidate in Europe. In March&nbsp;2004, we
initiated a Phase I trial for our rheumatoid arthritis product candidate. Our
product candidates for cancer have been evaluated in Phase I and Phase II
clinical trials. In connection with the operational changes that we implemented
in 2002 and the termination of our collaboration with Wyeth in February&nbsp;2003,
we suspended further development of our cancer and hemophilia product
development programs. We will not generate any product revenue for at least
several years and then only if we can successfully develop and commercialize
our product candidates. Commercializing our potential products depends on
successful completion of additional research and development and testing, in
both preclinical development and clinical trials. Clinical trials may take
several years or more to complete. The commencement, cost and rate of
completion of our clinical trials may vary or be delayed for many reasons,
including the risks discussed elsewhere in this section. If we are unable to
successfully complete preclinical and clinical development of some or all of
our product candidates in a timely manner, we may be unable to generate
sufficient product revenue to maintain our business.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Even if our potential products succeed in clinical trials and are approved
for marketing, these products may never achieve market acceptance. If we are
unsuccessful in commercializing our product candidates for any reason,
including greater effectiveness or economic feasibility of competing products
or treatments, the failure of the medical community or the public to accept or
use any products based on gene delivery, inadequate marketing and distribution
capabilities or other reasons discussed elsewhere in this section, we will be
unable to generate sufficient product revenue to maintain our business.

<P align="left" style="font-size: 10pt"><B><I>The regulatory approval process for our product candidates is costly,
time-consuming and subject to unpredictable changes and delays, and our product
candidates may never receive regulatory approval.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To our knowledge, no gene therapy products have received regulatory
approval for marketing from the U.S. Food and Drug Administration, or FDA.
Because our product candidates involve new and unproven technologies, we
believe that the regulatory approval process may proceed more slowly compared
to clinical trials involving traditional drugs. The FDA and applicable state
and foreign regulators must conclude at each stage of clinical testing that our
clinical data suggest acceptable levels of safety in order for us to proceed to
the next stage of clinical trials. In addition, gene therapy clinical trials
conducted at institutions that receive funding for recombinant DNA research
from the National Institutes of Health, or NIH, are subject to review by the
NIH&#146;s Office of Biotechnology Activities Recombinant DNA Advisory Committee, or
RAC. Although NIH guidelines do not have regulatory status, the RAC review
process can impede the initiation of the trial, even if the FDA has reviewed
the trial and approved its initiation. Moreover, before a clinical trial can
begin at an NIH-funded institution, that institution&#146;s Institutional Biosafety
Committee must review the proposed clinical trial to assess the safety of the
trial.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The regulatory process for our product candidates is costly,
time-consuming and subject to unpredictable delays. The clinical trial
requirements of the FDA, NIH and other agencies and the criteria these
regulators use to determine the safety and efficacy of a product candidate vary
substantially according to the type, complexity, novelty and intended use of
the potential products. In addition, regulatory requirements governing gene and
cell therapy products have changed frequently and may change in the future.
Accordingly, we cannot predict how long it will take or how much it will cost
to obtain regulatory approvals for clinical


<P align="center" style="font-size: 10pt">13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">trials or for manufacturing or marketing our potential products. Some or
all of our product candidates may never receive regulatory approval. A product
candidate that appears promising at an early stage of research or development
may not result in a commercially successful product. Our clinical trials may
fail to demonstrate the safety and efficacy of a product candidate or a product
candidate may generate unacceptable side effects or other problems during or
after clinical trials. Should this occur, we may have to delay or discontinue
development of the product candidate, and the corporate partner that supports
development of that product candidate may terminate its support. Delay or
failure to obtain, or unexpected costs in obtaining, the regulatory approval
necessary to bring a potential product to market could decrease our ability to
generate sufficient product revenue to maintain our business.


<P align="left" style="font-size: 10pt"><B><I>If we are unable to raise additional capital when needed, we will be unable to
conduct our operations and develop our potential products.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because internally generated cash flow will not fund development and
commercialization of our product candidates, we will require substantial
additional financial resources. Our future capital requirements will depend on
many factors, including:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the rate and extent of scientific progress in our research and
development programs;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the timing, costs and scope of, and our success in, conducting clinical
trials, obtaining regulatory approvals and pursuing patent prosecutions;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>competing technological and market developments;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the timing and costs of, and our success in, any commercialization
activities and facility expansions, if and as required; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the existence and/or outcome of any litigation or administrative
proceedings involving our intellectual property.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2004, we had approximately $41.1&nbsp;million in cash and cash
equivalents. We expect that our cash resources at March&nbsp;31, 2004 and the
funding expected from IAVI to fund 2004 work activities under our AIDS vaccine
collaboration will be sufficient to fund our operations until at least the
beginning of 2006. We are evaluating opportunities to obtain additional capital
to fund our operations beyond that time. Additional sources of financing could
involve one or more of the following:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>extending or expanding our current collaborations;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>entering into additional product development collaborations;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>selling or licensing our technology or product candidates;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>borrowing under loan or equipment leasing arrangements;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>issuing equity in the public or private markets; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>issuing debt.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional funding may not be available to us on reasonable terms, if at
all.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The funding that we expect to receive from IAVI depends on continued
scientific progress under the collaboration and IAVI&#146;s ability and willingness
to continue or extend the collaboration. If we are unable to successfully
access additional capital, we may need to scale back, delay or terminate one or
more of our key development programs, curtail capital expenditures or reduce
other operating activities. We may also be required to relinquish some rights
to our technology or product candidates or grant or take licenses on
unfavorable terms, either of which would reduce the ultimate value to us of our
technology or product candidates.

<P align="left" style="font-size: 10pt"><B><I>If we are unable to obtain or maintain licenses for necessary third-party
technology on acceptable terms or to develop alternative technology, we may be
unable to develop and commercialize our product candidates.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into exclusive and nonexclusive license agreements that
give us and our partners rights to use technologies owned or licensed by
commercial and academic organizations in the research, development and
commercialization of our potential products. For example, we have a gene
transfer technology license agreement with Amgen Inc., or Amgen, as the
successor to Immunex Corporation, or Immunex, under which we have license
rights to certain Immunex proprietary technology specifically applicable to
gene therapy applications. In a February&nbsp;2004 letter, Amgen has taken the
position that we are not licensed, either exclusively or non-exclusively, to
use Immunex intellectual property covering TNFR:Fc or therapeutic uses for



<P align="center" style="font-size: 10pt">14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">TNFR:Fc. We have responded with a letter confirming our confidence that
the gene transfer technology license agreement provides us with an exclusive
worldwide license to use the gene construct coding for TNFR:Fc for gene therapy
applications. We have had and expect to have further communications with Amgen
regarding our differences. Notwithstanding our confidence, it is possible that
a resolution of those differences, through litigation or otherwise, could cause
delay or discontinuation of our development of tgAAC94 or our inability to
commercialize any resulting product.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we will need to obtain additional licenses to use patents
and unpatented technology owned or licensed by others for compositions,
methods, processes to manufacture compositions, processes to manufacture and
purify gene delivery product candidates and other technologies and processes
for our present and potential product candidates. If we are unable to maintain
our current licenses for third-party technology or obtain additional licenses
on acceptable terms, we may be required to expend significant time and
resources to develop or license replacement technology. If we are unable to do
so, we may be unable to develop or commercialize the affected product
candidates. In addition, the license agreements for technology for which we
hold exclusive licenses typically contain provisions that require us to meet
minimum development milestones in order to maintain the license on an exclusive
basis for some or all fields of the license. We also have license agreements
for some of our technologies, which may require us to sublicense certain of our
rights. If we do not meet these requirements, our licensor may convert all or a
portion of the license to a nonexclusive license, or in some cases, terminate
the license.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In many cases, patent prosecution of our licensed technology is controlled
solely by the licensor. If our licensors fail to obtain and maintain patent or
other protection for the proprietary intellectual property we license from
them, we could lose our rights to the intellectual property or our exclusivity
with respect to those rights, and our competitors could market competing
products using the intellectual property. Licensing of intellectual property is
of critical importance to our business and involves complex legal, business and
scientific issues and is complicated by the rapid pace of scientific discovery
in our industry. Disputes may arise regarding intellectual property subject to
a licensing agreement, including:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the scope of rights granted under the license agreement and other
interpretation-related issues;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the extent to which our technology and processes infringe on
intellectual property of the licensor that is not subject to the
licensing agreement;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sublicensing of patent and other rights under our collaborative
development relationships;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the ownership of inventions and know-how resulting from the joint
creation or use of intellectual property by our licensors and us and our
partners; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the priority of invention of patented technology.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If disputes over intellectual property that we have licensed prevent or
impair our ability to maintain our current licensing arrangements on acceptable
terms, we may be unable to successfully develop and commercialize the affected
product candidates.

<P align="left" style="font-size: 10pt"><B><I>Litigation involving intellectual property, product liability or other claims
and product recalls could strain our resources, subject us to significant
liability, damage our reputation or result in the invalidation of our
proprietary rights.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As our product development efforts progress, especially in potentially
significant markets such as AIDS or rheumatoid arthritis therapies, the risk
increases that others may claim that our processes and potential products
infringe on their intellectual property rights. In addition, administrative
proceedings, litigation or both may be necessary to enforce our intellectual
property rights or determine the rights of others. Defending or pursuing these
claims, regardless of their merit, would be costly and would likely divert
management&#146;s attention and resources away from our operations. If there were to
be an adverse outcome in litigation or an interference proceeding, we could
face potential liability for significant damages or be required to obtain a
license to the patented process or technology at issue, or both. If we are
unable to obtain a license on acceptable terms, or to develop or obtain
alternative technology or processes, we may be unable to manufacture or market
any product or potential product that uses the affected process or technology.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Clinical trials and the marketing of any potential products may expose us
to liability claims resulting from the testing or use of our products. Gene
therapy treatments are new and unproven, and potential known and unknown side
effects of gene therapy may be serious and potentially life-threatening.
Product liability claims may be made by clinical trial participants, consumers,
healthcare providers or other sellers or users of our products. Although we
currently maintain liability insurance, the costs of product liability and
other claims against us may exceed our insurance coverage. In addition, we may
require increased liability coverage as additional product candidates are used
in clinical trials and commercialized. Liability insurance is expensive and may
not continue to be available on acceptable terms. A product liability or other
claim or product recall not covered by or exceeding our insurance coverage
could significantly harm our financial condition. In addition, adverse
publicity resulting from a product


<P align="center" style="font-size: 10pt">15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">recall or a liability claim against us, one of our partners or another
gene therapy company could significantly harm our reputation and make it more
difficult to obtain the funding and collaborative partnerships necessary to
maintain our business.


<P align="left" style="font-size: 10pt"><B><I>If we lose IAVI as a funding partner, we may be unable to develop our AIDS
vaccine product candidate.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of our operating and clinical trial expenses are
funded through our collaborative agreements with IAVI. We have a collaborative
development agreement with IAVI, which expires in December&nbsp;2006, that we expect
to provide us with funding to reimburse research and development and
manufacturing expenses we incur in connection with the collaboration. In
addition, our collaboration with IAVI provides funding for our Phase I clinical
trial for our AIDS vaccine product candidate.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we were to lose the collaborative funding relationship with IAVI and
were unable to obtain alternative sources of funding for the AIDS vaccine
product candidate covered by the IAVI collaboration, we may be unable to
continue our research and development or clinical program for this product
candidate. In addition, the loss of significant amounts of collaborative or
clinical trial funding could cause the delay, reduction or termination of the
related research and development programs, and a reduction in capital
expenditures and other operating activities necessary to support general
operations. Such a reduction could further impede our ability to develop our
product candidates. IAVI has the right to terminate the collaboration or its
obligation to provide funding at any time for any reason with 90&nbsp;days&#146; notice,
which would significantly affect our operating activities.

<P align="left" style="font-size: 10pt"><B><I>If our partners or scientific consultants terminate, reduce or delay our
relationships with them, we may be unable to develop our potential products.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our partners provide funding, manage regulatory filings, aid and augment
our internal research and development efforts and provide access to important
intellectual property and know-how. Their activities include, for example,
support in processing the regulatory filings of our product candidates and
funding clinical trials. Our outside scientific consultants and contractors
perform research, develop technology and processes to advance and augment our
internal efforts and provide access to important intellectual property and
know-how. Their activities include, for example, clinical evaluation of our
product candidates, product development activities performed under our research
collaborations, research under sponsored research agreements and contract
manufacturing services. Collaborations with established pharmaceutical and
biotechnology companies and academic, research and public health organizations
often provide a measure of validation of our product development efforts in the
eyes of securities analysts, investors and the medical community. The
development of certain of our potential products, and therefore the success of
our business, depends on the performance of our partners, consultants and
contractors. If they do not dedicate sufficient time, regulatory or other
technical resources to the research and development programs for our product
candidates or if they do not perform their obligations as expected, we may
experience delays in, and may be unable to continue, the preclinical or
clinical development of those product candidates. Each of our collaborations
and scientific consulting relationships concludes at the end of the term
specified in the applicable agreement unless we and our partners agree to
extend the relationship. Any of our partners may decline to extend the
collaboration, or may be willing to extend the collaboration only with a
significantly reduced scope, for a number of scientific or business reasons.
Competition for scientific consultants and partners in gene therapy is intense.
We may be unable to successfully maintain our existing relationships or
establish additional relationships necessary for the development of our product
candidates on acceptable terms, if at all. If we are unable to do so, our
research and development programs may be delayed or we may lose access to
important intellectual property or know-how.

<P align="left" style="font-size: 10pt"><B><I>If we do not attract and retain qualified personnel, we may be unable to
develop and commercialize some of our potential products.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future success depends in large part on our ability to attract and
retain key technical and management personnel. All of our employees, including
our executive officers, can terminate their employment with us at any time. We
have programs in place designed to retain personnel, including competitive
compensation packages and programs to create a positive work environment. Other
companies, research and academic institutions and other organizations in our
field compete intensely for employees, however, and we may be unable to retain
our existing personnel or attract additional qualified employees and
consultants. If we experience significant turnover or difficulty in recruiting
new personnel, our research and development of product candidates could be
delayed and we could experience difficulty in generating sufficient revenue to
maintain our business.

<P align="left" style="font-size: 10pt"><B><I>The success of our clinical trials and preclinical studies may not be
indicative of results in a large number of patients of either safety or
efficacy.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The successful results of our technology in preclinical studies using
animal models may not be predictive of the results that we will see in our
clinical trials. In addition, results in early-stage clinical trials are based
on limited numbers of patients and generally test for drug safety rather than
efficacy. Our reported progress and results from our early phases of clinical
testing of our product candidates may not be indicative of progress or results
that will be achieved from larger populations, which could be less favorable.
Moreover, we do not know if the favorable results we have achieved in clinical
trials will have a lasting effect. If a


<P align="center" style="font-size: 10pt">16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">larger group of patients does not experience positive results, or if any
favorable results do not demonstrate a beneficial effect, our product candidate
for cystic fibrosis, or any other potential products that we advance to
clinical trials, may not receive approval from the FDA for further clinical
trials or commercialization.


<P align="left" style="font-size: 10pt"><B><I>Failure to recruit patients could delay or prevent clinical trials of our
potential products, which could delay or prevent the development of potential
products.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Identifying and qualifying patients to participate in clinical trials of
our potential products is critically important to our success. The timing of
our clinical trials depends on the speed at which we can recruit patients to
participate in testing our product candidates. We have experienced delays in
some of our clinical trials, and we may experience similar delays in the
future. If patients are unwilling to participate in our gene therapy trials
because of negative publicity from adverse events in the biotechnology or gene
therapy industries or for other reasons, including competitive clinical trials
for similar patient populations, the timeline for recruiting patients,
conducting trials and obtaining regulatory approval of potential products will
be delayed. These delays could result in increased costs, delays in advancing
our product development, delays in testing the effectiveness of our technology
or termination of the clinical trials altogether.

<P align="left" style="font-size: 10pt"><B><I>We may be unable to adequately protect our proprietary rights domestically or
overseas, which may limit our ability to successfully market any product
candidates.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success depends substantially on our ability to protect our
proprietary rights and operate without infringing on the proprietary rights of
others. We own or license patents and patent applications, and will need to
license additional patents, for genes, processes, practices and techniques
critical to our present and potential product candidates. If we fail to obtain
and maintain patent or other intellectual property protection for this
technology, our competitors could market competing products using those genes,
processes, practices and techniques. The patent process takes several years and
involves considerable expense. In addition, patent applications and patent
positions in the field of biotechnology are highly uncertain and involve
complex legal, scientific and factual questions. Our patent applications may
not result in issued patents and the scope of any patent may be reduced both
before and after the patent is issued. Even if we secure a patent, the patent
may not provide significant protection and may be circumvented or invalidated.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also rely on unpatented proprietary technology and technology that we
have licensed on a nonexclusive basis. While we take precautions to protect our
proprietary unpatented technology, we may be unable to meaningfully protect
this technology from unauthorized use or misappropriation by a third party. Our
competitors could also obtain rights to our nonexclusively licensed proprietary
technology. In any event, other companies may independently develop equivalent
proprietary information and techniques. If our competitors develop and market
competing products using our unpatented or nonexclusively licensed proprietary
technology or substantially similar technology, our products, if successfully
developed, could suffer a reduction in sales or be forced out of the market.

<P align="left" style="font-size: 10pt"><B><I>If we do not develop adequate manufacturing, sales, marketing and distribution
capabilities, either alone or with our business partners, we will be unable to
generate sufficient product revenue to maintain our business.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently do not have the physical capacity to manufacture large-scale
quantities of our potential products. This could limit our ability to conduct
large clinical trials of a product candidate and to commercially launch a
successful product candidate. In order to manufacture product at such scale, we
will need to expand or improve our current facilities and staff or supplement
them through the use of contract providers. If we are unable to obtain and
maintain the necessary manufacturing capabilities, either alone or through
third parties, we will be unable to manufacture our potential products in
quantities sufficient to sustain our business. Moreover, we are unlikely to
become profitable if we, or our contract providers, are unable to manufacture
our potential products in a cost-effective manner.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we have no experience in sales, marketing and distribution.
To successfully commercialize any products that may result from our development
programs, we will need to develop these capabilities, either on our own or with
others. We intend to enter into collaborations with other entities to utilize
their mature marketing and distribution capabilities, but we may be unable to
enter into marketing and distribution agreements on favorable terms, if at all.
If our current or future collaborative partners do not commit sufficient
resources to timely marketing and distributing our future products, if any, and
we are unable to develop the necessary marketing and distribution capabilities
on our own, we will be unable to generate sufficient product revenue to sustain
our business.


<P align="center" style="font-size: 10pt">17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt"><B><I>Post-approval manufacturing or product problems or failure to satisfy
applicable regulatory requirements could prevent or limit our ability to market
our products.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commercialization of any products will require continued compliance with
FDA and other federal, state and local regulations. For example, our current
manufacturing facility, which is designed for manufacturing our AAV vectors for
clinical and development purposes, is subject to the Good Manufacturing
Practices requirements and other regulations of the FDA, as well as to other
federal, state and local regulations such as the Occupational Health and Safety
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and the Environmental Protection Act. Any future manufacturing facilities
that we may construct for large-scale commercial production will also be
subject to regulation. We may be unable to obtain regulatory approval for or
maintain in operation this or any other manufacturing facility. In addition, we
may be unable to attain or maintain compliance with current or future
regulations relating to manufacture, safety, handling, storage, record keeping
or marketing of potential products. If we fail to comply with applicable
regulatory requirements or discover previously unknown manufacturing,
contamination, product side effects or other problems after we receive
regulatory approval for a potential product, we may suffer restrictions on our
ability to market the product or be required to withdraw the product from the
market.


<P align="center" style="font-size: 10pt"><B>Risks Related to Our Industry</B>


<P align="left" style="font-size: 10pt"><B><I>Adverse events in the field of gene therapy could damage public perception of
our potential products and negatively affect governmental approval and
regulation.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Public perception of our product candidates could be harmed by negative
events in the field of gene therapy. For example, in late 2002, two patients in
a French academic clinical trial being treated for x-linked severe combined
immunodeficiency in a gene therapy trial using a retroviral vector developed
leukemia. Patient deaths, related and unrelated to gene therapy, have occurred
in other clinical trials. These adverse events and the resulting publicity, as
well as any other adverse events in the field of gene therapy that may occur in
the future, could result in a decrease in demand for any products that we may
develop. The commercial success of our product candidates will depend in part
on public acceptance of the use of gene therapy for preventing or treating
human diseases. If public perception is influenced by claims that gene therapy
is unsafe, our product candidates may not be accepted by the general public or
the medical community. The public and the medical community may conclude that
our technology is unsafe.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future adverse events in gene therapy or the biotechnology industry could
also result in greater governmental regulation, unfavorable public perception,
stricter labeling requirements and potential regulatory delays in the testing
or approval of our potential products. Any increased scrutiny could delay or
increase the costs of our product development efforts or clinical trials.

<P align="left" style="font-size: 10pt"><B><I>Our use of hazardous materials exposes us to liability risks and regulatory
limitations on their use, either of which could reduce our ability to generate
product revenue.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development activities involve the controlled use of
hazardous materials, including chemicals, biological materials and radioactive
compounds. Our safety procedures for handling, storing and disposing of these
materials must comply with federal, state and local laws and regulations,
including, among others, those relating to solid and hazardous waste
management, biohazard material handling, radiation and air pollution control.
We may be required to incur significant costs in the future to comply with
environmental or other applicable laws and regulations. In addition, we cannot
eliminate the risk of accidental contamination or injury from hazardous
materials. If a hazardous material accident were to occur, we could be held
liable for any resulting damages, and this liability could exceed our financial
resources. Accidents unrelated to our operations could cause federal, state or
local regulatory agencies to restrict our access to hazardous materials needed
in our research and development efforts, which could result in delays in our
research and development programs. Paying damages or experiencing delays caused
by restricted access could reduce our ability to generate revenue and make it
more difficult to fund our operations.

<P align="left" style="font-size: 10pt"><B><I>The intense competition and rapid technological change in our market may result
in pricing pressures and failure of our potential products to achieve market
acceptance.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We face increasingly intense competition from a number of commercial
entities and institutions that are developing gene therapy and cell therapy
technologies. Our competitors include early-stage and more established gene
delivery companies, other biotechnology companies, pharmaceutical companies,
universities, research institutions and government agencies developing gene
therapy products or other biotechnology-based therapies designed to treat the
diseases on which we focus. We also face competition from companies using more
traditional approaches to treating human diseases, such as surgery, medical
devices and pharmaceutical products. As our product candidates become
commercial gene therapy products that may affect commercial markets of the
analogous protein or traditional pharmaceutical therapy, disputes including
lawsuits, demands, threats or patent challenges may arise in an effort to slow
our development. In addition, we compete with other companies to acquire
products or technology from research institutions or universities. Many of our
competitors have substantially more financial and


<P align="center" style="font-size: 10pt">18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">infrastructure resources and larger research and development staffs than
we do. Many of our competitors also have greater experience and capabilities
than we do in:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>research and development;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>clinical trials;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>obtaining FDA and other regulatory approvals;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>manufacturing; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>marketing and distribution.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the competitive positions of other companies, institutions
and organizations, including smaller competitors, may be strengthened through
collaborative relationships. Consequently, our competitors may be able to
develop, obtain patent protection for, obtain regulatory approval for, or
commercialize new products more rapidly than we do, or manufacture and market
competitive products more successfully than we do. This could limit the prices
we could charge for the products that we are able to market or result in our
products failing to achieve market acceptance.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gene therapy is a rapidly evolving field and is expected to continue to
undergo significant and rapid technological change and competition. Rapid
technological development by our competitors, including development of
technologies, products or processes that are more effective or more
economically feasible than those we have developed, could result in our actual
and proposed technologies, products or processes losing market share or
becoming obsolete.

<P align="left" style="font-size: 10pt"><B><I>Healthcare reform measures and the unwillingness of third-party payors to
provide adequate reimbursement for the cost of our products could impair our
ability to successfully commercialize our potential products and become
profitable.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales of medical products and treatments depends substantially, both
domestically and abroad, on the availability of reimbursement to the consumer
from third-party payors. Our potential products may not be considered
cost-effective by third-party payors, who may not provide coverage at the price
set for our products, if at all. If purchasers or users of our products are
unable to obtain adequate reimbursement, they may forego or reduce their use of
our products. Even if coverage is provided, the approved reimbursement amount
may not be high enough to allow us to establish or maintain pricing sufficient
to realize a sufficient return on our investment.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increasing efforts by governmental and third-party payors, such as
Medicare, private insurance plans and managed care organizations, to cap or
reduce healthcare costs will affect our ability to commercialize our product
candidates and become profitable. We believe that third-party payors will
attempt to reduce healthcare costs by limiting both coverage and level of
reimbursement for new products approved by the FDA. There have been and will
continue to be a number of federal and state proposals to implement government
controls on pricing, the adoption of which could affect our ability to
successfully commercialize our product candidates. Even if the government does
not adopt any such proposals or reforms, their announcement could impair our
ability to raise capital.


<P align="center" style="font-size: 10pt"><B>Risks Related to Our Common Stock</B>


<P align="left" style="font-size: 10pt"><B><I>Concentration of ownership of our common stock may give certain shareholders
significant influence over our business.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A small number of investors own a significant number of shares of our
common stock. As of March&nbsp;31, 2004, Biogen and Elan and its affiliates each
held approximately 12.1&nbsp;million shares of our common stock, or 14.9% of our
current common shares outstanding. This concentration of stock ownership may
allow these shareholders to exercise significant control over our strategic
decisions and block, delay or substantially influence all matters requiring
shareholder approval, such as:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>election of directors;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>amendment of our charter documents; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>approval of significant corporate transactions, such as a change of control of Targeted Genetics.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The interests of these shareholders may conflict with the interests of
other holders of our common stock with regard to such matters. Furthermore,
this concentration of ownership of our common stock could allow these
shareholders to delay, deter or prevent a third party from acquiring control of
Targeted Genetics at a premium over the then-current market price of our common
stock, which could result in a decrease in our stock price.

<P align="left" style="font-size: 10pt"><B><I>Market fluctuations or volatility could cause the market price of our common
stock to decline and limit our ability to raise capital.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The stock market in general and the market for biotechnology-related
companies in particular have experienced extreme price and volume fluctuations,
often unrelated to the operating performance of the affected companies. The
market price of the securities of biotechnology companies, particularly
companies such as ours without earnings and product revenue, has been highly
volatile and is likely to remain so in the future. Any report of clinical trial
results that are below the expectations of financial analysts or investors
could result in a decline in our stock price. We believe that in the past,
similar levels of volatility have contributed to the decline in the market
price of our common stock, and may do so again in the future. Trading volumes
of our common stock can increase dramatically, resulting in a volatile market
price for our common stock. In addition, the trading price of our common stock
could decline significantly as a result of sales of a substantial number of
shares of our common stock, or the perception that significant sales could
occur.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For example, on March&nbsp;31, 2004, we and Elan entered into a termination
agreement that permits Elan to sell shares of our common stock, subject to
certain exceptions, under the trading volume limitations of Rule&nbsp;144(e)(1)
promulgated under the Securities Act of 1933, as amended. The trading volume
limitations on Elan are reduced over time subject to the terms of the
termination agreement. In addition, Elan has registration rights with respect
to its holdings pursuant to a registration rights agreement dated July&nbsp;21,
1999. Both the termination agreement and the registration rights agreement
permit Elan to sell quantities of stock, which could adversely impact the price
of our common stock.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the past, securities class action litigation has been brought against
companies that experience volatility in the market price of their securities.
Market fluctuations in the price of our common stock could also adversely
affect our collaborative opportunities and our future ability to sell equity
securities at a price we deem appropriate. As a result, you could lose all or
part of your investment.

<P align="left" style="font-size: 10pt"><B><I>Our future capital-raising activities could involve the issuance of equity
securities, which would dilute your investment and could result in a decline in
the trading price of our common stock.</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To meet all or a portion of our long-term funding requirements, we may
sell securities in the public or private equity markets if and when conditions
are favorable, even if we do not have an immediate need for additional capital
at that time. Raising funds through the issuance of equity securities will
dilute the ownership of our existing shareholders. Furthermore, we may enter
into financing transactions at prices that represent a substantial discount to
market price. A negative reaction by investors and securities analysts to any
discounted sale of our equity securities could result in a decline in the
trading price of our common stock.


<P align="center" style="font-size: 10pt">20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="108"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;3. Quantitative and Qualitative Disclosures About Market Risk</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cash and cash equivalents: </I>Because of the short-term nature of our
investments, we believe that our exposure to market rate fluctuations on those
investments is minimal. Currently, we do not use any derivative or other
financial instruments or derivative commodity instruments to hedge any market
risks and do not plan to employ these instruments in the future. At March&nbsp;31,
2004, we held $41.1&nbsp;million in cash and cash equivalents, which are primarily
invested in a money market fund that invests in securities that, on the
average, mature in less than 60&nbsp;days and a short-term bond fund that invests in
securities that, on the average, mature in less than 12&nbsp;months. An analysis of
the impact on these securities of a hypothetical 10% change in short-term
interest rates from those in effect at March&nbsp;31, 2004, indicates that such a
change in interest rates would not have a significant impact on our financial
position or on our expected results of operations in 2004.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Notes payable: </I>Our results of operations are affected by changes in
short-term interest rates as a result of a loan from Biogen that contains a
variable interest rate. Interest payments on this loan are determined by the
LIBOR plus a margin of 1%. The carrying amounts of the notes payable and
equipment financing arrangements approximate fair value because the interest
rates on these instruments change with, or approximate, market rates. The
following table provides information as of March&nbsp;31, 2004, about our
obligations that are sensitive to changes in interest rate fluctuations:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="42%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>Expected Maturity Date</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2006</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2007</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Maturities of long-term obligations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Variable rate note</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">126,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,126,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fixed rate notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">599,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">599,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Fixed rate equipment financing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">605,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">485,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,243,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">347,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">347,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,078,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,084,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,315,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left">
<A name="109"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;4. Controls and Procedures</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Evaluation of disclosure controls and procedures. </I>H. Stewart Parker, our
Chief Executive Officer, and Todd E. Simpson, our Chief Financial Officer,
after evaluating the effectiveness of our &#147;disclosure controls and procedures&#148;
(as defined in Rules&nbsp;13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended) as of the end of the period covered by this quarterly
report, have concluded that, as of that date, our disclosure controls and
procedures were effective in ensuring that information required to be disclosed
by us in this quarterly report is accumulated and communicated by our
management, to allow timely decisions regarding required disclosure.


<P align="center" style="font-size: 10pt">21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="110"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>PART II&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;OTHER INFORMATION</B>


<DIV align="left">
<A name="111"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;1. </B><B><I>Legal Proceedings</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.

<DIV align="left">
<A name="112"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;2. </B><B><I>Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;31, 2004, we issued 4,330,000 shares of our common stock to Elan
upon the conversion of our Series&nbsp;B preferred stock held by Elan, pursuant to a
termination agreement with Elan, relating to the winding down of Emerald. We
did not receive any additional consideration in connection with this conversion
of the Series&nbsp;B preferred stock to common stock. This transaction was exempt
from registration under Section&nbsp;3(a)(9) of the Securities Act on the basis that
the common stock issued to Elan was exchanged in the conversion for outstanding
equity securities of Targeted Genetics and that no other remuneration was paid
or given directly or indirectly for soliciting this conversion.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of our loan agreements contain financial covenants establishing
limits on our ability to declare or pay cash dividends.

<DIV align="left">
<A name="113"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;3. </B><B><I>Defaults Upon Senior Securities</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.

<DIV align="left">
<A name="114"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;4. </B><B><I>Submission of Matters to a Vote of Security Holders</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.

<DIV align="left">
<A name="115"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;5. </B><B><I>Other Information</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None.

<DIV align="left">
<A name="116"></A>
</DIV>

<P align="left" style="font-size: 10pt"><B>Item&nbsp;6. </B><B><I>Exhibits and Reports on Form&nbsp;8-K</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;See the Index to Exhibits included in this quarterly report.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;Reports on Form 8-K.


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;13, 2004, we filed a Current Report on Form 8-K announcing
the signing of three agreements: (1)&nbsp;Sixth Amendment to Lease
Agreement, dated as of November&nbsp;1, 2003, by and between Targeted
Genetics and Ironwood Apartments, Inc.; (2)&nbsp;Amendment No.&nbsp;3 to the
Industrial Collaboration Agreement, dated as of December&nbsp;24, 2003, by
and among Targeted Genetics, International AIDS Vaccine Initiative,
Inc. and Children&#146;s Research Institute; and (3)&nbsp;Fifth Lease Amendment,
dated as of January&nbsp;2, 2004, by and between Targeted Genetics and
Benaroya Capital Company, LLC</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;22, 2004, we filed a Current Report on Form 8-K announcing
that we were granted regulatory approval to begin a rheumatoid
arthritis Phase I clinical trial by the U.S. Food &#038; Drug Administration
and Health Canada.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;27, 2004, we filed a Current Report on Form 8-K announcing
an additional restructure charge to be recorded in the fourth quarter
of 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On February&nbsp;4, 2004, we filed a Current Report on Form 8-K announcing a
public offering of 10,854,247 shares of our common stock to
institutional investors.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;1, 2004, we filed a Current Report on Form 8-K announcing our
financial results for the fourth quarter and year ended December&nbsp;31,
2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;18, 2004, we filed a Current Report on Form 8-K announcing the
initiation of our Phase I clinical trial of our product candidate,
tgAAC94, in patients with rheumatoid arthritis.</TD>
</TR>


</TABLE>

<P align="center" style="font-size: 10pt">22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>

<DIV align="left">
<A name="117"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>SIGNATURES</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements 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.

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="48%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">TARGETED GENETICS CORPORATION</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: April&nbsp;28, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">/s/ H. STEWART PARKER</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>H. Stewart Parker,</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>President, Chief Executive Officer and Director</B></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>(Principal Executive Officer)</B></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: April&nbsp;28, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">/s/ TODD E. SIMPSON</TD>
</TR>

<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><HR size="1" noshade>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Todd E. Simpson, Vice President,</B></TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Finance and Administration,</B></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Chief Financial Officer,</B></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>Secretary and Treasurer</B></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top"><B>(Principal Financial and Accounting Officer)</B></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>TARGETED GENETICS CORPORATION</B>


<DIV align="left">
<A name="118"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>INDEX TO EXHIBITS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="79%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit No.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Note</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Articles of Incorporation (Exhibit&nbsp;3.1)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(A)</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Bylaws (Exhibit&nbsp;3.2)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(B)</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rights Agreement, dated as of October&nbsp;17, 1996,
between Targeted Genetics and ChaseMellon
Shareholder Services, L.L.C. (Exhibit&nbsp;2.1)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(C)</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to Rights Agreement, dated July&nbsp;21,
1999, between Targeted Genetics and ChaseMellon
Shareholder Services, L.L.C. (Exhibit&nbsp;1.9)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(D)</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second Amendment to Rights Agreement, dated
September&nbsp;25, 2002, between Targeted Genetics and
Mellon Investor Services L.L.C. (Exhibit&nbsp;10.1)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(E)</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Third Amendment to Rights Agreement, dated January
23, 2003, between Targeted Genetics and Mellon
Investor Services L.L.C. (Exhibit&nbsp;4.4)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(F)</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fourth Amendment to Rights Agreement, dated
September&nbsp;2, 2003, between Targeted Genetics and
Mellon Investor Services L.L.C. (Exhibit&nbsp;4.1)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(G)</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Termination Agreement, dated March&nbsp;31, 2004, among
Targeted Genetics, Elan Corporation PLC, Elan Pharma International Limited, Elan International Services,
Ltd. and Emerald Gene Systems, Ltd.* (Exhibit 10.03)
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(H)</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to
Rules&nbsp;13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">31.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to
Rules&nbsp;13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Executive Officer pursuant to
18 U.S.C. Section&nbsp;1350, as adopted pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">32.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certification of Chief Financial Officer pursuant to
18 U.S.C. Section&nbsp;1350, as adopted pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Portions of this exhibit have been omitted based on an application
for confidential treatment filed with the SEC. The omitted portions of the
exhibit have been filed separately with the SEC.</TD>
</TR>

</TABLE>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(A)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incorporated by reference to the designated exhibit included with
Targeted Genetics&#146; Quarterly Report on Form&nbsp;10-Q (No.&nbsp;0-23930) for the
period ended June&nbsp;30, 2002.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(B)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incorporated by reference to the designated exhibit included with
Targeted Genetics&#146; Annual Report on Form&nbsp;10-K (No.&nbsp;0-23930) for the year
ended December&nbsp;31, 1996.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(C)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incorporated by reference to the designated exhibit included with
Targeted Genetics&#146; Registration Statement on Form&nbsp;8-A (No.&nbsp;0-23930) filed
on October&nbsp;22, 1996.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(D)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incorporated by reference to the designated exhibit included with
Targeted Genetics&#146; Current Report on Form&nbsp;8-K (No.&nbsp;0-23930) filed on
August&nbsp;4, 1999.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(E)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incorporated by reference to the designated exhibit included with
Targeted Genetics&#146; Current Report on Form&nbsp;8-K (No.&nbsp;0-23930) filed on
October&nbsp;11, 2002.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(F)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incorporated by reference to the designated exhibit included with
Targeted Genetics&#146; Annual Report on Form&nbsp;10-K (No.&nbsp;0-23930) for the year
ended December&nbsp;31, 2002.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(G)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incorporated by reference to the designated exhibit included with
Targeted Genetics&#146; Current Report on Form&nbsp;8-K (No.&nbsp;0-23930) filed on
October&nbsp;1, 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(H)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Incorporated by reference to the designated exhibit included with
Targeted Genetics&#146; Current Report on Form&nbsp;8-K (No.&nbsp;0-23930) filed on April
3, 2004.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt">25
</DIV>


</BODY>
</HTML>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>2
<FILENAME>v98506exv31w1.txt
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<PAGE>

                                                                    EXHIBIT 31.1

                                 CERTIFICATION

I, H. Stewart Parker, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Targeted Genetics
         Corporation;

2.       Based on my knowledge, this quarterly 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 report;

3.       Based on my knowledge, the condensed consolidated financial statements,
         and other financial information included in this quarterly 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 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-15(e) and 15d-15(e)) for the
         registrant and we have:

         a)       Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, 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 report is being prepared;

         b)       Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

         c)       Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter that has
                  materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

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 the registrant's board of directors (or persons
         performing the equivalent function):

         a)       all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

April 28, 2004                              /s/ H. Stewart Parker
- --------------                             -----------------------
Date                                       H. Stewart Parker
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>3
<FILENAME>v98506exv31w2.txt
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<PAGE>

                                                                    EXHIBIT 31.2

                                 CERTIFICATION

I, Todd E. Simpson, certify that:

1.       I have reviewed this quarterly report on Form 10-Q of Targeted Genetics
         Corporation;

2.       Based on my knowledge, this quarterly 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 report;

3.       Based on my knowledge, the condensed consolidated financial statements,
         and other financial information included in this quarterly 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 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-15(e) and 15d-15(e)) for the
         registrant and we have:

a)       Designed such disclosure controls and procedures, or caused such
         disclosure controls and procedures to be designed under our
         supervision, 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 report is being prepared;

         b)       Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report our
                  conclusions about the effectiveness of the disclosure controls
                  and procedures, as of the end of the period covered by this
                  report based on such evaluation; and

         c)       Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter that has
                  materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting; and

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 the registrant's board of directors (or persons
         performing the equivalent function):

         a)       all significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

April 28, 2004                  /s/ Todd E. Simpson
- --------------                  --------------------------------------------
Date                            Todd E. Simpson
                                Vice President, Finance and Administration,
                                Chief Financial Officer, Secretary and Treasurer
                                (Principal Financial and Accounting Officer)


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>4
<FILENAME>v98506exv32w1.txt
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
<PAGE>

                                                                    EXHIBIT 32.1

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the accompanying Quarterly Report of Targeted
Genetics Corporation (the "Company") on Form 10-Q for the period ending March
31, 2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, H. Stewart Parker, President and Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

         (1) The Report fully complies with the requirements of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934, as amended; and

         (2) The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Company.

April 28, 2004                                            /s/ H. Stewart Parker
- -----------------------                                  ----------------------
Date                                                     H. Stewart Parker
                                                         President and
                                                         Chief Executive Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>5
<FILENAME>v98506exv32w2.txt
<DESCRIPTION>EXHIBIT 32.2
<TEXT>
<PAGE>

                                                                    EXHIBIT 32.2

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the accompanying Quarterly Report of Targeted
Genetics Corporation (the "Company") on Form 10-Q for the period ending March
31, 2004 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Todd E. Simpson, Vice President, Finance and Administration,
Chief Financial Officer, Secretary and Treasurer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

         (1) The Report fully complies with the requirements of Section 13(a) or
         15(d) of the Securities Exchange Act of 1934, as amended; and

         (2) The information contained in the Report fairly presents, in all
         material respects, the financial condition and results of operations of
         the Company.

April 28, 2004                       /s/ Todd E. Simpson
- --------------                      -------------------------------------------
Date                                Todd E. Simpson
                                    Vice President, Finance and Administration,
                                    Chief Financial Officer, Secretary and
                                    Treasurer

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
