GENERAL OVERVIEW

Harbor BioSciences, Inc. (“Harbor BioSciences” or “the Company”), a clinical-stage pharmaceutical company, is engaged in the discovery and development of products for the treatment of diseases related to aging. Our current development efforts are primarily focused on a series of steroid hormone analogs that are derived from the human adrenal metabolome.

We are a development-stage company with two product candidates which recently completed Phase I/IIa clinical trials: Apoptone ^® (HE3235) in patients with late-stage prostate cancer, and Triolex ^® (HE3286) in obese type 2 diabetes mellitus patients. Apoptone and Triolex represent two of the lead candidates from Harbor BioSciences’ small molecule platform based on metabolites or synthetic analogs of endogenous human steroids.

Drawn from our unique and proprietary platform, our research program has identified additional lead candidates active in preclinical models of cancer, metabolic conditions, autoimmune conditions, lung inflammation, bone degeneration and organ regeneration.

Our principal executive offices are located at 9171 Towne Centre Drive, Suite 180, San Diego, California 92122, and our telephone number is (858) 587-9333. We incorporated in Delaware in 1992.

On March 26, 1997, Hollis-Eden, Inc., a Delaware corporation, was merged with and into us, then known as Initial Acquisition Corp. (IAC), a Delaware corporation. Upon consummation of the merger of Hollis-Eden, Inc. with IAC, Hollis-Eden, Inc. ceased to exist and IAC changed its name to Hollis-Eden Pharmaceuticals, Inc.

Effective February 9, 2010, we changed our name from Hollis-Eden Pharmaceuticals, Inc. to Harbor BioSciences, Inc. The name change was effected pursuant to Section 253 of the General Corporation Law of the State of Delaware by the merger of our wholly owned subsidiary into us. We were the surviving corporation and, in connection with the merger, we amended our Amended and Restated Certificate of Incorporation to change our name to Harbor BioSciences, Inc.

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Effective February 18, 2010, our common stock began trading under a new NASDAQ symbol, “HRBR” and CUSIP number “41150V 103”. The Company’s common stock was then delisted from the NASDAQ Stock Market at the opening of business on September 23, 2010. The Company's shares now trade on the OTC Markets (“OTC”).

In November 2010, we received notice from the U.S. Internal Revenue Service (IRS) that the Company had been awarded approximately $489,000 in grants under the Qualifying Therapeutic Discovery Project Program. This program was created under the Patient Protection and Affordable Care Act of 2010 to provide tax credits or grants representing up to 50 percent of eligible qualified investments in therapeutic discovery projects during tax years 2009 and 2010.

After a determination by U.S. Department of Health and Human Services that Apoptone and Triolex projects met the definition of a “qualifying therapeutic discovery project,” the IRS certified the qualifying investment and approved the award amount of approximately $244,479 per project. The qualified investments represent 2009 research and development expenses; there are no future performance obligations related to these grants.

Harbor BioSciences, Triolex Apoptone, and the Harbor BioSciences stylized logo are trademarks of Harbor BioSciences, Inc. This filing also includes trademarks owned by other parties. All other trademarks mentioned are the property of their respective owners. Use or display by us of other parties’ trademarks or products is not intended to and does not imply a relationship with, or endorsements or sponsorship of, us by the trademark or product owners.

Our periodic and current reports that we file with the Securities and Exchange Commission, or SEC, are available free of charge, on our website, as soon as reasonably practicable after we have electronically filed them with, or furnished them to, the SEC. Our Internet address is www.harborbiosciences.com . The reference to our website does not constitute incorporation by reference of the information contained on our website.

Harbor BioSciences’ Approach

Under conditions of stress, chronic infections or systemic inflammation, changes to adrenal products themselves, their metabolism, and perturbations of signaling pathways in peripheral tissues, may drive the growth of certain tumors and be causative to diseases of advancing age, including metabolic syndrome, autoimmune diseases, immune mediated inflammatory disease and an impaired ability to fight infections. Our development strategy is based on the hypothesis that hormone derived products are critical to the regulation of the body’s complex biological systems. We believe that in young, healthy adults, products such as cortisol, progesterone, dehydroepiandrosterone (DHEA) and its metabolome which include estrogen and testosterone, provide important signals that determine whether biological pathways are engaged to properly regulate the biological processes in our body.

Today, most drug developers are taking a ground up approach, first striving to intellectualize and identify critical components in the intricate functional biochemical cascades, and then attempting to design drugs that can successfully block or stimulate those specific pathways resulting in “validated molecular targets” for specific diseases. While this approach has resulted in a number of successful drugs, frequently their use is limited by serious side effects. In contrast, ours is a top down “forward pharmacology” approach, beginning with the discovery of new members of the human steroid metabolome. Then, by applying traditional pharmaceutical development methodology, our goal is to discover and develop compounds that modify critical endocrine pathways based on the intrinsic activity of native endogenous molecule. The methodology we use is based on an approach to drug discovery and development with a successful history as applied to early discoveries in human hormones. We have now applied this approach to new discoveries being made in the vast unexplored human metabolome and it has the potential to produce new pharmaceutical product candidates to treat a myriad of diseases associated with advancing age, including certain cancers, metabolic and autoimmune diseases as well as immune-mediated inflammatory diseases such as that which results in tissue destruction resulting from chronic

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infections. We believe that by applying these drug development principles we have the potential to produce pharmaceuticals that may address a number of large and important markets, including many with unmet medical needs.

TECHNOLOGY

Platform

Our primary technology development efforts are focused on a series of steroid hormones and their synthetic analogs that promise to be useful in treating a wide variety of medical conditions if successfully developed. Many of these compounds are known to either depleted or elevated during advancing age, a process accelerated by infectious diseases and chronic systemic disorders. In certain indications, high plasma concentrations of these hormones are positively correlated with attenuated disease and the maintenance of youthful blood concentrations is often associated with good health with advancing age.

The chemistry and biochemistry of steroids have been extensively studied and utilized in the development of various drugs, especially for hormonal imbalances, for the treatment of infections and cancer as well as inflammatory conditions. Harbor BioSciences’ inventory of greater than 700 steroid compounds is a targeted synthesized chemical library intended for medicinal chemistry applications. The compound library considers components of the mammalian metabolome as existing drug leads and generates chemical neighbors (analogues) as potential pharmaceutical candidates. Many of the library compounds are previously undiscovered metabolic products as well as novel structural analogues with potentially improved pharmaceutical properties. We believe this library contains the largest sample of compounds associated with the DHEA metabolome and may contain many unique chemical structures with diverse biological properties.

The unifying theme of our focused library is to make drug-like molecules that have unique target recognition characteristics that can be used to explore a structure-activity relationship in order to optimize pharmaceutical properties for a selected target. Design features may include oral bioavailability so that the compound may be given orally, and selected for features of both metabolic and chemical stability with a chemical composition that is novel to gain intellectual property protection for patent purposes. In addition the synthesis of the selected compound is optimally facile and cost-effective in consideration of commercialization.

OUR DRUG CANDIDATES IN DEVELOPMENT

We are currently focused on the development of proprietary synthetic steroid derivatives derived from the human 19-carbon steroid scaffold of the mammalian steroid metabolome. We have conducted clinical trials with our lead drug development candidates: Apoptone ^® (HE3235), for late-stage prostate cancer: Triolex ^® (HE3286), for the treatment of obese type 2 diabetes, metabolic and autoimmune disorders; Neumune (HE2100), for the treatment of sepsis a condition that rises with excess radiation exposure; and HE2000, for the prevention of opportunistic infections in immune suppressed patients. Each of these compounds is described in more detail below. In addition, our research program focused on the identification and characterization of new steroid hormones in the human metabolome and has potentially identified new human hormones that may become future pharmaceutical candidates or nutraceutical products.

Apoptone (HE3235)

Prostate Cancer

Apoptone is a second-generation compound we have selected for clinical development in the area of hormone driven cancers, such as prostate cancer. Apoptone was discovered by screening our proprietary steroid chemical library against a prostate cancer LNCaP cell line. It was selected based on a combination of its potency against cancer and desirable pharmaceutical properties. It has been tested in a number of preclinical cancer models and has shown indications of activity in controlling the incidence, growth and development of new tumors in these models. We believe that Apoptone is a disease-modifying agent that may directly induce apoptosis, or cell death, in tumor cells, a result that differs from traditional hormone blockade therapies that

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interrupt the tumor cell growth signal through direct androgen or estrogen receptor mediated mechanisms. While hormone blockade therapy can effectively control prostate cancer for a period of time, it often fails and the cancer growth resumes spreading to other organs, usually the bone.

In 2008, we initiated a Phase I/IIa clinical trial with Apoptone in late-stage castrate resistant prostate cancer (“CRPC”) patients who have failed hormone therapy and at least one round of chemotherapy. In December 2009, the trial was amended to include a group of CRPC patients with progressive disease that have not been previously treated with chemotherapy. The open-label dose ranging clinical trial is complete and was conducted in various clinical sites including some within the Prostate Cancer Clinical Trial Consortium (“PCCTC”). It evaluated the safety, tolerance, pharmacokinetics and potential activity of Apoptone when administered twice daily in late-stage prostate cancer patients. The potential activity of the compound was measured by the effect on time to disease progression, as determined by prostate-specific antigen (“PSA”) blood tests, computerized tomography (“CT”), magnetic resonance imaging (“MRI”), or bone scintigraphy, and its effect on circulating tumor cells (“CTC”). Activity was found at the lowest dose studied (10 mg) and no frank toxicity was observed at the highest dose tested (700 mg) which is 70 times greater. The dose escalation algorithm was halted due to a drug-drug interaction observation with a patient’s concomitant medication that presented safety concerns with the use of yet higher doses. The compound is staged for Phase IIb clinical trials. Approximately 234,000 patients are diagnosed each year with prostate cancer, and global sales for leading prostate cancer drugs range approximately from $500 million to $1 billion annually.

Breast Cancer

We are also exploring the potential of Apoptone in breast cancer. In pre-clinical models of MNU-induced breast cancer, Apoptone successfully treated established tumors and prevented the formation of new tumors. It appeared to be synergistic when given in combination with concurrent taxane chemotherapy. A report on the pre-clinical activity in breast cancer has recently appeared in the peer-reviewed scientific literature.

Apoptone Development Status

Apoptone is manufactured using several organic synthesis steps from the starting material androsterone. The active pharmaceutical ingredient is formulated to an oral dosage form using commonly used excipients in approved (oral dosage) products. Non-clinical toxicology studies have been done that enable the use of Apoptone in clinical studies in late-stage prostate cancer and breast cancer patients using 28-day cycles of therapy. Encouraging data were first reported from the Phase I/IIa clinical trial for in castration resistant prostate cancer – also referred to as hormone resistant prostate cancer—at the ASCO Genitourinary Cancers Symposium in San Francisco, March 6, 2010. Preliminary results from the study, conducted in part with which included participating member sites of the PCCTC, were first reported on November 16, 2009. The phase I/IIa trial was an open-label study with the primary objectives of assessing safety, tolerability, pharmacokinetics and activity of Apoptone in men with CRPC and an ECOG performance status score of less than or equal to 2 (ambulatory and capable of at least self-care). Patient cohorts are defined by oral daily doses of 10 mg, 20 mg, 30 mg, 50 mg, 100 mg, 200 mg, 350 mg and 700 mg. Subjects were treated until toxicity or disease progression; CT and bone scans were obtained every two cycles to assess progression. Based on encouraging signs of activity, the PCCTC recommended an extension of the current trial into CRPC patients that had not been treated with chemotherapy. Accordingly, the subject eligibility criteria were amended to include earlier-stage, chemotherapy-naïve patients in 100 mg and 350 mg expansion cohorts. The clinical trial is now complete. There were 68 patients enrolled in the trial on an intent-to-treat basis. There were 42 taxane-resistant prostate cancer patients entered into the clinical trial at 7 dose levels. Of these 28 (67%) reached their first reassessment (two 28-day cycles), 15 (58%) of these had stable disease on scans or imaging and have received up to 9 additional treatment cycles before disease progression. The Kaplan-Meier estimate for the median time to progression is 15.9 weeks (range 8-24) for this trial. Due to early signs of activity, the 20 mg dose group was expanded to include 14 taxane resistant patients. Eleven of these were evaluable with an actual median time to progression of 19.7 weeks (range 8-24). The 100 mg and 350 mg dose groups were each expanded to include 11 additional pre-chemotherapy patients in order to gain information on the healthier pre-chemotherapy patients and the tolerability of Apoptone

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at higher dose levels. The Kaplan-Meier estimate for the median time to progression for the 10 patients that completed 2 or more cycles in each cohort was 24 weeks in the 100 mg cohort; (21, > 24) and 24 weeks (16, 35). in the 350 mg cohort. Changes in PSA levels were consistent with the properties of a tumor-differentiating agent. The drug was well tolerated and no overt dose-limiting toxicities were reported. The mechanism of action has been partially elucidated and the biochemical molecular points of interaction have been found in prostate cancer cells. Apoptone is a molecular entity that represents a new therapeutic approach for the treatment of hormone dependent cancers with perhaps a more favorable side effect profile than found with presently approved treatments. Several patents have been obtained for the pharmaceutical formulation of Apoptone and its use for the treatment of prostate cancer, breast cancer and benign prostate hypertrophy.

Competition

Two forms of taxotere chemotherapy are presently approved therapies to treat castrate resistant prostate cancer. Despite current treatments, there is an ongoing need for novel oral agents that can control the growth of prostate cancer that is progressing on conventional therapies or hormone treatments. Accordingly, there are a number of companies with drug candidates in development targeting late-stage castration resistant prostate cancer, including compounds already in Phase III clinical trials. Abiraterone ^® produced by Cougar Biotechnology, Inc. (acquired by Johnson & Johnson) is an agent that impedes the synthesis of androgens by inhibition of an enzyme that transforms precursor molecules into the hormone testosterone. Many forms of prostate cancer are dependent on the presence of androgens in order to grow. MDV-3100, produced by Medivation, Inc., is also an agent that blocks the action of androgens on prostate cancer cells through interference at the androgen receptor and stopping their growth. PROVENGE ^® , produced by Dendreon, Inc., is an autologous immune cell therapy that primes the patient’s cells against prostate cancer and was recently approved. Apoptone is believed to be a disease modification agent with a mechanism of action that distinguishes it from these competitive drug candidates.

Triolex (HE3286)

Inflammatory Processes in Chronic Diseases

One of our primary focus areas is diseases that result from chronic inflammatory processes. Properly regulated, inflammation is a protective, life saving response to invading pathogens. However, chronic and unproductive inflammation can cause devastating tissue damage and loss of organ function. Chronic inflammation can arise from over-stimulation of the immune system, often resulting in the release of destructive products such as reactive oxygen species, destructive proteolytic enzymes as well as additional pro-inflammatory mediators. The over-production of these dangerous biochemical products is often due to the presence of persistent low-grade infections, conditions in which the body’s surveillance system is unable to differentiate between itself and invasion of foreign substances and biochemical dysregulation that occurs with advancing age. Chronic inflammation has been implicated in the pathogenesis of many diseases ranging from autoimmune conditions, such as arthritis and psoriasis, to infectious diseases, including human immunodeficiency virus (HIV), malaria and tuberculosis, lung inflammation such as asthma, cystic fibrosis and chronic obstructive pulmonary disease, neuroinflammatory conditions such as Parkinson’s and Alzheimer’s disease, to metabolic diseases, including diabetes and cardiovascular diseases as well as a number of different cancer types.

Current Treatments for Chronic Inflammation

Some of the most widely used drugs for reducing inflammation belong to the corticosteroid class of compounds, which are also derived from the mammalian steroid metabolome. Market research indicates that U.S. physicians issue tens of millions of new prescriptions for corticosteroids each year for a wide range of conditions. While these drugs are highly effective, chronic use leads to immune suppression, bone loss, tissue necrosis and other serious side effects including mental depression.

Over the last decade, a number of new drugs have been introduced that are focused on inhibiting specific components of the pro-inflammatory cascade, including agents that bind and neutralize specific inflammatory

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cytokines, such as TNF-alpha and IL-1 beta, as well as drugs that inhibit specific enzymes, such as COX-2, that produce pro-inflammatory mediators. While these drugs have demonstrated significant activity in a number of clinical trials involving chronic inflammatory diseases, such as arthritis, inflammatory bowel disease and psoriasis, most have also demonstrated significant untoward limitations. Many cause dangerous immune suppression and other serious side effects that limit their utility. Most focus on a specific inflammatory mediator, which means they may not remain perpetually effective due to redundancies and compensatory effects in biological pathways. Our goal has been to develop compounds that mediate homeostasis to regain control of the inflammatory process and restore homeostasis.

Obesity, Chronic Inflammation, Insulin Resistance and Diabetes

Diabetes is a disease of insulin signaling that is comprised of a constellation of syndromes. Insulin is a hormone needed to transport glucose from the blood into cells, where it can either be stored or converted to the energy needed by the cell to perform its biochemical processes. When insulin is insufficient or when insulin signaling functions improperly, the result is high blood glucose levels, which over time can lead to a host of severe medical conditions including nerve disease, blindness, limb amputation, heart attack, stroke and death. There are two forms of diabetes: type 1, a chronic condition in which little or no insulin is produced, and type 2, a condition in which the body becomes resistant to the effects of insulin or the body produces some, but not enough, insulin to maintain a normal blood sugar level.

Epidemiological studies have clearly defined risk factors for the development or progression of type 2 diabetes, including genetics, and prenatal and postnatal environmental factors, including low birth weight, obesity, nutrient excess, inactivity, gestational diabetes, metabolic dysregulation with advancing age and obesity. Obesity in some individuals, through recently elucidated mechanisms, can lead to insulin resistance, hyper-glycemia, beta-cell dysfunction and ultimately overt diabetes. In turn, diabetes-related hyperglycemia and associated metabolic abnormalities can further alter signal transduction and gene-expression thus contributing to a forward feeding cycle that results in disease progression.

The need for new classes of agents to treat type 2 diabetes is significant. There are over 25 million Americans with type 2 diabetes, 92 million in China and 220 million worldwide. Obese diabetes is a syndrome that is increasing rapidly as a result of advancing age and the rising incidence of obesity. Clinical data indicates only 36% of type 2 diabetics are currently able to maintain the American Diabetes Association maximum recommended HbA1c, (a form of hemoglobin that is primarily used to identify the average plasma glucose concentration over a prolonged period of time), glucose level of less than 7.0 %. Large clinical studies have shown that failure to achieve these glucose targets, especially in obese patients, can progressively lead to severe health consequences including neuropathy, blindness, amputation, heart attack, stroke and death. Patients in large clinical trials consistently have a median BMI of 32 indicating that over half the population of T2DM is obese.

Academic researchers have increasingly linked obesity-induced chronic inflammation with type 2 diabetes and elucidated its potential role in potentiating insulin resistance. In the setting of type 2 diabetes, evidence suggests that the pathology may arise through perturbations in NF k B signaling, particularly via the TLR4 and TNF a receptors. TLR4 is a receptor expressed on the surface of macrophages and other cells and is stimulated by dietary fatty acids as well as certain pathogens such as bacteria from the gut flora. Stimulation of the TLR4 receptor induces a cascade of pro-inflammatory signals including the production of TNF a , which in turn results in activation events that stimulates a complex network of signaling pathways that culminates in the activation of NF k B and the expression of a number of genes under its control involved in inflammation and the cellular stress response. Persistent stimulation can lead to the chronic inflammatory state and produce the associated pathologies that typifies the “metabolic syndrome” condition.

The development of widely effective agents to treat obese-type 2 diabetes has elusive and safety concerns have arisen from the chronic administration of many of the currently available medications. Advances in genomic, proteomic and metabolomic sciences over the last decade, however, have led to the development of “targeted” diagnostics and therapeutics. These leverage knowledge of the basis for an individual’s pathology to create a more personalized approach to healthcare. Diagnostic testing is envisioned to enable identification of an

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individual’s susceptibility to disease, predict how a given patient will respond to a particular drug, and match patients to the right medication. These new sciences of personalized medicine has the potential to improve the design of clinical trials, eliminate unnecessary treatments, reduce the incidence of adverse reactions to drugs, increase the efficacy of treatments and through identifying the right drug for the right patient, ultimately improve health outcomes.

Current Treatments for Type 2 Diabetes

There are several pharmaceutical approaches to treating type obese-2 diabetes. These include drugs designed to increase insulin production by the pancreas, reduce glucose production by the liver, and drugs, referred to as insulin sensitizers, designed to increase the body’s sensitivity to insulin, thereby improving glucose disposal from the bloodstream. Metformin is usually the first intervention prescribed by physicians when an individual is diagnosed with type 2 diabetes. Frequently clinicians will combine drugs that assert different metabolic actions to control the disease in an effort to achieve target levels of glucose control.

Triolex to Treat Chronic Inflammation in Type 2 Diabetes

Triolex is a next-generation compound that we are developing for the treatment of individuals diagnosed with certain chronic inflammatory processes.

In the setting of obese-type 2 diabetes, evidence suggests that the mechanism of action for Triolex may be through regulation of the MAPK and NF k B pathways, particularly when it’s stimulated through the TLR4 and TNF a receptors. Triolex may be the first in a new class of insulin sensitizers to target obesity-mediated dysregulated metabolism. This is a major component of the type 2 diabetes syndrome that is characterized by the presence of a chronic inflammatory state. Through regulation of the MAPK and NF k B pathways, our scientists believe potential mechanisms of action for Triolex involve control of genes whose products are involved in the inflammatory signaling pathway that includes TNF a and IL-6. These cytokines are also thought to be critically involved in the pathogenesis of certain autoimmune diseases such as ulcerative colitis and rheumatoid arthritis, and are also implicated in the pathogenesis of metabolic diseases such as non-alcoholic steatohepatitis, cardiovascular disorders, neuroinflammatory disease, cancer and in general, diseases associated with advancing age.

Based on biochemical experiments, Triolex has been shown to act on the NF k B pathway and is independent from the PPAR g pathway that is targeted by other insulin sensitizers. Instead, the action of Triolex is associated with down-regulation of the pro-inflammatory JNK, IKK and p38 kinase pathways that cross-over into the NF k B pathway. Chronic activation of these kinase pathways lead to impairment of the insulin receptor substrate-1 protein (IRS-1) function, an important cellular mediator of insulin signaling and glucose transport.

A single-dose Phase I clinical trial conducted during 2007 demonstrated that Triolex is orally bioavailable in humans, with significant drug concentrations detected in the blood at the lowest dose tested. The findings also showed that all doses of Triolex tested appear to be safe and well tolerated in healthy volunteers with no reported drug related serious adverse side effects to date.

A Phase I/II double-blind, placebo-controlled, multi-dose ranging clinical trial with Triolex in obese insulin-resistant subjects was initiated in 2007 and evaluated the safety, tolerance and pharmacokinetics of Triolex when administered for 28 days to obese adult subjects. The potential activity of Triolex to decrease insulin resistance was assessed. In addition, an open-label cohort of six patients with type 2 diabetes mellitus was studied.

Triolex was found to be safe and increased insulin sensitivity in insulin resistant subjects. There was no trend in adverse events to differentiate between placebo- and treated-subjects, nor was there an increase in adverse events with dose escalation. Baseline and day 29 hyperinsulinemic-euglycemic clamp studies were performed on 36 subjects dosed twice daily. To test the hypothesis that HE3286 would improve insulin sensitivity in insulin-resistant subjects, these subjects were stratified by the median baseline value of 5; 21 subjects had M values < 5 (operationally defined as insulin-resistant), and 13 had M values of > 5 (operationally

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defined as insulin-sensitive). Pretreatment, insulin resistant subjects had significantly higher fasting insulin, HOMA2 %B, HOMA2 IR, and LPS-stimulated PBMC MCP-1, TNF a , and IL-6, and a trend for increased IL-1 b confirming greater insulin resistance, inflammatory responses and beta cell function than insulin sensitive subjects.

After 29 days of treatment, there were significant differences in changes from baseline for M values between all Triolex-treated and placebo subjects, and for C-reactive protein. In order to test the hypothesis that Triolex would benefit insulin resistant, but not insulin sensitive subjects, the day 29 changes in M-values were compared in Triolex-treated subjects. M values increased in insulin resistant, and decreased in insulin sensitive subjects, and this difference was highly significant. When compared to placebo, insulin resistant Triolex treated subjects also showed significant improvement in M and a trend for decreased C-reactive protein, whereas insulin sensitive subjects did not. When an additional subset of 6 insulin resistant subjects with baseline insulin >10 µU/mL were tested for serum cytokine changes using a 20 mg Triolex dose, significant decreases in serum TNF a and increases in adiponectin at day 29.

During 2008, a Phase IIa clinical trial was initiated with Triolex seeking early signs of activity in type 2 diabetes patients. The clinical trial proceeded in two stages. Stage 1 was a double-blinded placebo controlled 12-week dosing trial that was exploratory in nature and enrolled 96 patients who were on a stable dose of metformin with hemoglobin A1c (HbA1c) level in excess of 7.5 percent. The primary objectives of the study were to evaluate the change in HbA1c from baseline to week 12 and to evaluate the safety and tolerance of Triolex given 10 mg per day (5 mg BID) as compared to placebo. A final analysis for activity (HbA1c) in the clinical study of unaudited data was performed on all subjects that completed day 84 of the study (72 patients). There was no statistical difference between treatment and placebo for HbA1c in the overall patient population. However, a retrospective analysis of unaudited data was performed on the subpopulation of patients that represented the inflamed, obese, insulin-resistant, diabetic subgroup according to FDA guidance. This group is reflective of the impaired glucose tolerance subjects that responded to treatment in the company’s Phase I study. The analysis included patients divided into two strata with baseline values either less than or greater than (or equal to) the following criteria: BMI at least 27.3; fasting plasma insulin levels at least 3 µU/mL; and serum monocyte chemotactic protein-1 (MCP-1) levels at least 400 pg/mL. This phenotype represented 42% of all subjects (90 patients) with values for these parameters at baseline. Twenty-seven individuals in the high BMI strata completed 84 days of dosing. Those patients treated with Triolex (13) were showed improvements in their clinical parameters compared to the corresponding placebo patients (14). These included significantly decreased HbA1c (-0.53 %, p = 0.01), fasting plasma glucose (-26.80 mg/dL, p < 0.02), body weight (-2.0 kg, p = 0.0005) and significantly increased anhydroglucitol (+0.7 µg/mL, p = 0.03), which signifies decreased post prandial glucose excursions . More HE3286 subjects decreased weight (12/13 vs. 8/14, Fisher’s Exact Test p < 0.08) and increased 1,5 anhydroglucitol (8/9 vs. 4/10, Fisher’s Exact Test p < 0.04). The low BMI strata had a significant increase in HBA1c (+0.7%, p < 0.005) but with no detectable changes in any other parameter. There were significant differences between the high BMI and low BMI patients in their response to Triolex. The strata differed significantly in HbA1c (1.15 %, p < 0.002), glucose (26.8 mg/dL, p < 0.02), body weight (2.2 kg, p < 0.0001) and cholesterol (23.5 mg/dL, p < 0.006) and significant trends were detected for differences in LDL cholesterol (14.8 mg/dL, p = 0.08), triglycerides (21.8 mg/dL, p < 0.09) and HOMA2 %B (25 %, p < 0.06).

Stage 2 of the Phase IIa clinical trial was in treatment naïve patients (no metformin) with inclusion criteria that restricted the lower limit of BMI to 28, insulin ³ 4 µU/mL, C-peptide ³ 2 ng/mL and MCP-1 ³ 400 pg/mL. There was no significant overall treatment effect on day 84 HbA1c in Cohort 2 treatment-naïve subjects, despite restrictive inclusion criteria. Subjects were again stratified by BMI. Higher BMI subjects were defined as BMI ³ 31.3 kg/m ² . At baseline, higher BMI subjects (32 of 69 subjects, 46%) had significantly higher resistin and statistical trends for higher CRP, C-peptide, HOMA2 %B, leptin, and lower fructosamine when compared to the low BMI subjects. HB HE3286-treated subjects showed a statistically significant decrease in HbA1c at day 112 when compared to the corresponding placebo group (-1.1 %, p < 0.05). In this group there was a higher proportion of subjects with decreased HbA1c (8/9 vs. 6/13, Fisher’s Exact Test p < 0.08), and a higher portion with > 1% decrease (5/9 vs. 2/13, Fisher’s Exact Test p < 0.08). The HE3286 treated subjects had a significantly greater frequency in decreased CRP (8/9 vs. 5/14; Fisher’s Exact Test p < 0.03), and a statistical trend for a day

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84 decrease (-1.1 mg/L, p = 0.08). Post prandial glucose excursions were decreased as evidenced by the greater frequency of subjects with increased day 84 1,5-anhydroglucitol (median, + 1.4 µg/mL; 7/8 vs. 6/14 placebos, Fisher’s Exact Test p < 0.03). In contrast, low BMI patients (28 kg/m ² – 31.3 kg/m ² ) treated with HE3286 had significantly higher day 84 HbA1c change ( p < 0.005) from baseline (+0.18 %) when compared to the placebo group (-0.93 % ) due to a large placebo effect in these patients. There was also a statistical trend for decreased day 84 fructosamine (-11.75 µmol, p < 0.08) in the placebo but with an absence of a significant difference in day 84 fasting plasma glucose.

Overall Triolex has demonstrated a good safety profile with no consistent pattern of adverse events associated with its use. The side effects associated with the use of currently approved thiazolidenedione insulin sensitizers, have not been observed with Triolex.

Competition in Diabetes

Given the large market opportunities for products that treat the indications for which we are currently developing our compounds, most major pharmaceutical companies and many biotechnology companies have programs directed toward finding drugs to treat the indications that we are exploring and the competition in these markets is intense. In metabolism and type 2 diabetes, there are a number of drugs, such as Actos ^® from Takeda Pharmaceuticals and Avandia ^® from GlaxoSmithKline (already approved for improving insulin sensitivity), glucagon-like peptide-1 (such as Victoza by Novo Nordisk), dipeptidyl peptidase-4 inhibitors (such as Januvia ^® by Merck & Cp., Inc. and Onglyza ^® by Bristol Myers Squibb) and numerous other drugs in various stages of development. While Actos ^® and Avandia ^® currently account for a significant share of the market for insulin sensitizers to treat type 2 diabetes, they are known to cause the unwanted side effects of weight gain and edema and were recently either restricted (Avandia) or given black box warning (Actos) by the FDA because of increased treatment-related heart failure risk with the use of the medication.

Autoimmune Disease and Chronic Inflammation

Current Treatments for Autoimmune Diseases

Immune modulators that correct immune dysregulation and chronic inflammatory conditions by inhibition or enhancement of single cytokine targets such as TNF a and IL-1ß or their receptors have been developed by a number of companies. For example, Amgen’s Enbrel ^® targets TNF a as does Johnson & Johnson’s Remicade ^® . Other immune-modulating drugs such as Celebrex ^® from Pfizer target COX-2. While these targeted approaches have shown clinical benefit and have generated significant sales volumes, redundancy in the immune system can limit their effectiveness. In addition, side effects, health care costs and reimbursement issues are limiting their long-term global utility. We have shown our compounds affect cytokine cascades through direct interactions in the endocrine system. This may make them more attractive drug candidates than those currently available as they directly interact through the endocrine system. This pharmaceutical candidate may represent the first in a new class of agent to treat these diseases assuming they are successfully developed and commercialized.

Rheumatoid Arthritis

Rheumatoid arthritis is a type of chronic arthritis that occurs in joints on the extremities of the body (such as hands, wrists or knees). In rheumatoid arthritis, the immune system attacks the joints and sometimes other organs. According to the Centers for Disease Control and Prevention, or (CDCP), an estimated 50 million people were treated for some form of arthritis and other rheumatic conditions in 2009, 22% of the US adult population.

Based upon the published studies in rodent models of collagen-induced and collagen antibody-induced arthritis, where Triolex demonstrated activity, a Phase I clinical trial was initiated in rheumatoid arthritis patients in 2008. A 28-day oral dose ranging study assessed the safety, pharmacokinetics and potential for drug-drug interactions in stable rheumatoid arthritis patients also receiving methotrexate. Triolex was found to be safe and well tolerated. No drug-drug interaction was found. Triolex is now positioned to enter clinical studies in patients with active rheumatoid arthritis.

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Ulcerative Colitis

Inflammatory bowel disease is comprised of ulcerative colitis, a chronic inflammation of the large intestine, or colon, and Crohns disease, a condition of inflammation of the small intestines. Ulcerative colitis and Crohns disease together affect approximately 500,000 to 2 million people in the United States.

Based upon published observations with Triolex in preclinical models widely used by both the pharmaceutical industry and academia to test agents as potential treatments for ulcerative colitis, we commenced a Phase I/II clinical trial in ulcerative colitis patients in 2008. This Phase I/II dose ranging study evaluated the safety, tolerance, pharmacokinetics and activity of Triolex when administered orally for 28 days to patients with active, mild-to-moderate ulcerative colitis. Triolex at the doses studied was found to be safe and well tolerated but offered no indication of a treatment advantage in this acute inflammatory setting when compared to placebo. Triolex is staged for long-term clinical trials directed towards the control of the chronic inflammatory processes associated with this disease, a clinical setting believed to be consistent with the pharmacological properties of the compound.

Neuroinflammation

The Company is investigating the use of Triolex ^® as a treatment for Parkinson’s disease (PD) with funding from The Michael J. Fox Foundation. The terms of the collaboration call for MJFF to fund up to approximately $150,000 toward pre-clinical development of Triolex in rodents. If these studies are successful, additional funding may be awarded by MJFF to continue the clinical development of Triolex for the treatment of PD.

Pulmonary Diseases and other Autoimmune Diseases

The Company is also interested in exploring the potential for Triolex and other new compounds from our technology platform in a variety of pulmonary diseases including, cystic fibrosis, chronic pulmonary disease and asthma. In addition Triolex has shown utility in pre-clinical models of multiple sclerosis and lupus erythematosus.

Triolex Development Status

Triolex is manufactured economically using a multi-step organic synthesis from the widely abundant and inexpensive starting material, DHEA. It is formulated for oral administration with commonly used excipients in approved (oral dosage) products. Diseases associated with chronic inflammation are thought to require drug exposures of extended duration to observe definitive treatment effects. Long term toxicology studies have been completed that qualify Triolex for use in clinical studies of 6 months duration or longer. There were no untoward side effects detected. Patent claims have been allowed for the composition, pharmaceutical formulations and methods of use to treat a variety of inflammatory diseases including type 2 diabetes and autoimmune conditions such as rheumatoid arthritis and ulcerative colitis in the United States, Europe and elsewhere. Applications with pending claims are filed to extend patent coverage in regions of economic interest including China, Japan and Korea.

NEUMUNE (HE2100)

Neumune as treatment for acute radiation exposure; an ER ß selective agonist.

In December 2010, The Company reported on the safety, tolerability and signs of hematologic activity in four double-blinded, randomized, placebo-controlled studies of NEUMUNE in healthy human subjects, published in The Journal of Radiological Protection. Those studies demonstrated that Neumune has the potential to directly enhance innate immunity in humans and defined the compound as a highly selective ERß ligand. ERß ligand treatment has been suggested as a potentially safe anti-inflammatory and neuroprotective strategy in multiple sclerosis and other neurodegenerative diseases. In May of 2010, the Company reported that Neumune could ameliorate neuroinflammation in mice and has the potential to limit relapses in patients with multiple sclerosis. The Company is actively soliciting partnerships to develop an orally bioavailable, metabolically.

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HE2000

HE2000 in Infectious Disease

The Company conducted clinical trials in HIV, AIDS and malaria from the late 1990’s and early 2002. While the primary market opportunities for pharmaceuticals have traditionally been in the U.S., Europe and Japan, our adrenal steroid hormones have a number of attributes that make them potentially useful globally. Included are the potential broad-spectrum activity in multiple infectious diseases, the attractive safety profile to date, the low likelihood of resistance and the relative ease of manufacture. Increasing focus on the infectious disease crises around the world such as those represented by HIV, malaria and tuberculosis has led to a number of recent third party initiatives designed to provide funding for effective approaches to these diseases.

HE2000 has been tested in a series of Phase I/II and Phase II clinical trials in HIV/AIDS patients in the U.S. and South Africa. In all of these studies, HE2000 treatment appeared to be generally well tolerated with mild to moderate pain at the injection site as the most common adverse event. In addition to assessing the safety profile of HE2000 in clinical trials, we have also assessed the effect of HE2000 on a wide variety of immune and inflammatory markers that are associated with HIV disease progression.

Results from a study employing intermittent subcutaneous dosing of HE2000 in South African HIV patients that received no other therapy demonstrated long-lasting, statistically significant declines in a number of key inflammatory mediators, including TNF a , IL-1 and IL-6 when compared to placebo-treated patients. In this study, we also observed significant durable increases in a wide variety of immune cell subsets associated with innate and cell-mediated immunity following treatment with HE2000. In addition, patients that received HE2000 in this trial experienced a decline in virus levels in the blood over the course of the study, which correlated with an increase in HIV specific T cell mediated immunity. HE2000 was then tested as a monotherapy in late-stage AIDS patients. During this study, patients experienced a statistically significant reduction in the number of opportunistic infections compared to those treated with placebo and the life-threatening tuberculosis infections were completely quelled after 4-months of treatment.

The ability of HE2000 to reduce pro-inflammatory mediators while stimulating innate and cell-mediated immunity has potential implications for the treatment of a number of other infectious diseases, including parasitic infections such as malaria. Based on multiple pre-clinical studies performed by collaborators at the Walter Reid Naval Hospital and the University of Vermont, we performed two Phase II clinical studies in malaria patients at Mahidol University in Bangkok, Thailand. Results indicated that HE2000 was effective in reducing parasite count and cleared malarial parasites in most patients within seven days.

In a series of animal model studies, we have also shown of tuberculosis that HE2000 is effective when given as a monotherapy in either the acute or chronic phase of this bacterial infection and it HE2000 appears to have a synergistic effect when combined with the current three-drug regimen considered the standard of care for antibiotic treatment of the TB infection.

Government Regulation

General

The manufacturing and marketing of our proposed drug candidates and our research and development activities are, and will continue to be, subject to regulation by federal, state and local governmental authorities in the U.S. and other countries. In the U.S., pharmaceuticals are subject to rigorous regulation by the Food and Drug Administration, (‘FDA”), which reviews and approves the marketing of drugs. The Federal Food, Drug and Cosmetic Act, the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacturing, labeling, storage, record keeping, advertising and promotion of our potential products.

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Approval Process

The process of obtaining FDA approval for a new drug may take many years and generally involves the expenditure of substantial resources. The steps required before a new drug can be produced and marketed for human use include clinical trials and the approval of a New Drug Application.

Preclinical Testing.     In the preclinical phase of development, the promising compound is subjected to extensive laboratory and animal testing to determine if the compound is biologically active and safe.

Investigational New Drug, or IND.     Before human tests can start, the drug sponsor must file an IND application with the FDA, showing how the drug is made and the results of animal testing. An IND becomes effective 30 days following receipt by the FDA.

Human Clinical Testing.     The human clinical testing program usually involves three phases which generally are conducted sequentially, but which, particularly in the case of anti-cancer and other life-saving drugs, may overlap or be combined. Clinical trials are conducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA as part of the IND filing. Each clinical study is conducted under the auspices of an independent Institutional Review Board, or IRB, for each institution at which the study will be conducted. The IRB will consider, among other things, the design of the clinical trial, ethical factors, the risk to human subjects and the potential benefits of therapy relative to the risk.

In Phase I clinical trials, studies usually are conducted on healthy volunteers or, in the case of certain terminal illnesses such as AIDS or cancer patients with disease that have failed to respond to other treatment, to determine the maximum tolerated dose, side effects and pharmacokinetics of a product. Phase II studies are conducted on a small number of patients having a specific disease to determine initial efficacy in humans for that specific disease, the most effective doses and schedules of administration, and possible adverse effects and safety risks. Phase II/III differs from Phase II in that the trials involved may include more patients and, at the sole discretion of the FDA, be considered the “pivotal” trials, or trials that will form the basis for FDA approval. Phase III normally involves the pivotal drug trials consisting of broad scope of studies on diseased patients, in order to evaluate the overall benefits and risks of the drug for the treated disease compared with other available therapies. The FDA continually reviews the clinical trial plans and results and may suggest design changes or may discontinue the trials at any time if significant safety or other issues arise.

New Drug Application, or NDA.     Upon successful completion of Phase III clinical trials, the drug sponsor files an NDA with the FDA for approval containing details of the chemistry, manufacture and quality control information that has been developed, nonclinical data, results of human tests, and proposed labeling.

The testing and approval process is likely to require substantial time, from several months to years, and there can be no assurance that any FDA approval will be granted on a timely basis, if at all. The approval process is affected by a number of factors, primarily the side effects of the drug (safety) and its therapeutic benefits (efficacy). Additional preclinical or clinical trials may be required during the FDA review period and may delay marketing approval. The FDA may also deny an NDA if applicable regulatory criteria are not met.

Outside the U.S., we will be subject to foreign regulatory requirements governing human clinical trials and marketing approval for our products. The “requirements” governing human clinical trials ex-US usually follow International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”) Good Clinical Practices (“GCP”) or country-specific GCPs which are based on the ICH GCPs. Regulatory approval outside the U.S. typically includes the risks and costs associated with obtaining FDA approval but may also include additional risks and costs.

Post Approval.     If the FDA approves an NDA, the drug sponsor is required to submit reports periodically to the FDA containing adverse reactions, production, quality control and distribution records. The FDA may also require post-marketing testing to support the conclusion of efficacy and safety of the product, which can involve significant expense. After FDA approval is obtained for initial indications, further clinical trials may be necessary to gain approval for the use of the product for additional indications.

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Manufacturing

We do not have, and do not intend to establish, manufacturing facilities to produce our drug candidates or any future products. We plan to control our capital expenditures by using contract manufacturers to make our products. We believe that there are a sufficient number of high-quality FDA-approved contract manufacturers available, and we have had discussions, and in some cases established relationships, to fulfill our near-term production needs for both clinical and commercial applications.

The manufacture of our drug candidates or any future products, whether done by outside contractors as planned or internally, will be subject to rigorous regulations, including the need to comply with the FDA’s current Good Manufacturing Practice regulations. As part of obtaining FDA approval for each product, each of the manufacturing facilities must be inspected, approved by and registered with the FDA. In addition to obtaining FDA approval of the prospective manufacturer’s manufacturing and quality control procedures, domestic and foreign manufacturing facilities are subject to periodic inspection by the FDA and/or foreign regulatory authorities.

Patents

We currently own or have obtained licenses to a number of U.S. and foreign patents and patent applications. We consider the protection of our technology, whether owned or licensed, to the exclusion of use by others, to be vital to our business. While we intend to focus primarily on patented or patentable technology, we may also rely on trade secrets, unpatented property, know-how, regulatory exclusivity, patent extensions and continuing technological innovation to develop our competitive position. In the U.S. and certain foreign countries, the exclusivity period provided by patents covering pharmaceutical products may be extended by a portion of the time required to obtain regulatory approval for a product.

In certain countries, some pharmaceutical-related technology such as disease treatment methods are not patentable or only recently have become patentable, and enforcement of intellectual property rights in many countries has been limited or non-existent. Future enforcement of patents and proprietary rights in many countries can be expected to be problematic or unpredictable. We cannot guarantee that any patents issued or licensed to us will provide us with competitive advantages or will not be challenged by others. Furthermore, we cannot be certain that others will not independently develop similar products or will not design around patents issued or licensed to us.

In most cases, patent applications in the U.S. are maintained in secrecy until 18 months after the earliest filing or priority date. Publication of discoveries in the scientific or patent literature, if made, tends to lag behind actual discoveries by at least several months. U.S. patent applicants can elect to prevent publication until the application issues by agreeing not to file the application outside the U.S. This option is rarely used for pharmaceutical patent applications. Consequently, we cannot be certain that a patent owner or licensor of its intellectual property was the first to invent the technology or compounds covered by pending patent applications or issued patents or that it was the first to file patent applications for such inventions. In addition, the patent positions of biotechnology and pharmaceutical companies, including our own, are generally uncertain, partly because they involve complex legal and factual questions.

In addition to the considerations discussed above, companies that obtain patents claiming products, uses or processes that are necessary for, or useful to, the development of our drug candidates or future products could bring legal actions against us claiming infringement. Patent litigation is typically costly and time consuming, and if such an action were brought against us, it could result in significant cost and diversion of our attention. We may be required to obtain licenses to other patents or proprietary rights, and we cannot guarantee that licenses would be made available on terms acceptable to us. If we do not obtain such licenses, we could encounter delays in product market introductions while we attempt to develop or license technology designed around such patents, or we could find that the development, manufacture or sale of products requiring such licenses is foreclosed.

Further, we cannot guarantee that patents that are issued will not be challenged, invalidated or infringed upon or designed around by others, or that the claims contained in such patents will not interfere with the patent

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claims of others, or provide us with significant protection against competitive products, or otherwise be commercially valuable. To the extent that we are unable to obtain patent protection for our products or technology, our business may be materially adversely affected by competitors who develop substantially equivalent technology.

For a discussion of the risks associated with patent and proprietary rights, see below under Item 1A “Risk Factors”.

Technology Agreements

PHARMADIGM

In August 2002, we entered into a Sublicense Agreement with Pharmadigm, Inc. (currently known as Inflabloc Pharmaceuticals, Inc.). Under the agreement, we obtained exclusive worldwide rights to certain intellectual property of Pharmadigm and the University of Utah and we agreed to make aggregate payments of $0.9 million in cash or in shares of our common stock, at our option, over the following year. We elected to make such payments in equity and have issued a total of 168,921 shares of our common stock in complete satisfaction of this requirement. We will also make additional milestone and royalty payments to Pharmadigm if we meet specified development and commercialization milestones for products covered by its patents. No such milestones have been met to date. The principal patents licensed under the agreement, originally licensed to Pharmadigm from the University of Utah, relate to inventions by Dr. Raymond Daynes and Dr. Barbara A. Areneo. Dr. Daynes served as a scientific consultant for the Company from 1999 to mid-2003.

AESON THERAPEUTICS

In October 2000, we acquired a 21% equity stake in Aeson Therapeutics Inc. (“Aeson”) and an exclusive worldwide sublicense to three issued patents in the area of adrenal steroids in exchange for $2.0 million in cash and 208,672 shares of our common stock valued at $2 million. As part of the transaction, Aeson and its stockholders granted us an exclusive option to acquire the remainder of Aeson at a predetermined price. In March 2002, we amended certain aspects of our agreements with Aeson. Under the amendments, we paid Aeson $1.2 million, which extended the initial date by which we could exercise our option to acquire the remainder of Aeson to September 30, 2002. We also received additional equity securities of Aeson as a result of this payment. We elected not to exercise the option to acquire the remainder of Aeson by September 30, 2002. On June 7, 2006, we acquired substantially all of the assets of Aeson. As consideration for Aeson’s assets, we agreed (i) to issue a total of 35,000 shares of our common stock to Aeson at the closing of the acquisition and (ii) to issue to Aeson’s stockholders up to a total of 165,000 additional shares of our common stock if certain development milestones are achieved. We have not achieved any of the development milestones to date.

CHINA

In January of 2011, the Company announced that it had licensed the research and development and commercialization rights for three of its products, exclusively in the People’s Republic of China and Hong Kong, to China State Institute of Pharmaceutical Industry (“CIPI”), a subsidiary of China National Pharmaceutical Group Corporation. Harbor BioSciences retains the rights to these products in the U.S. and the rest of the world, and CIPI will make available to the Company all pre-clinical and clinical data it generates. Under the terms of the agreement, CIPI will advance HE2000, Apoptone and Triolex forward through development simultaneously without any financial support from Harbor BioSciences. The agreements provide the opportunity for Harbor BioSciences to capture value for our research and development efforts completed to date, while retaining U.S. and other world-markets rights.

China National Pharmaceutical Group Corporation

China National Pharmaceutical Group Corporation (“Sinopharm Group”) is the largest pharmaceutical and healthcare group under State-Owned Assets Supervision and Administration Commission of the State Council (“SASAC”) in China. The group has 22 wholly-owned subsidiaries and holding companies, one H-share

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company trading on the Hong Kong stock exchange, Sinopharm Group Co., Ltd., and three A-share companies trading on the Shainghai stock exchange, Beijing Tiantan Biological Products Corporation Limited, China National Medicines Co., Ltd. and Shenzhen Accord Pharmaceutical Co., Ltd.

Sinopharm Group researches and develops, manufactures, distributes, and markets medicine and other healthcare products. Sinopharm Group manages factories, research laboratories, traditional Chinese medicine plantations, and marketing and distribution networks that extend throughout the country. Sinopharm Group also runs about a dozen retail pharmacy chains. Sinopharm Group has operations in Africa, France, Germany, Hong Kong, the US, and Vietnam.

In 2009, the group’s sale revenue had reached 65 billion Yuan (approximately $10 billion). Among the 129 enterprises under SASAC, Sinopharm Group is ranked 50th and 38th in terms of sales revenue and total profit respectively. In 2010, Sinopharm Group’s revenue is estimated to be 80 billion Yuan (approximately $12.3 billion). During the period form 2003 to 2009, it is reported that their sales revenue, gross profit and total assets grew at an annual average rate of 30%, 51% and 33% respectively.

The Sinopharm Group has agreed to supply the licensed products to Harbor BioSciences for use in clinical studies and sales outside of China and Hong Kong. Harbor BioSciences can also elect to distribute these compounds in countries that accept the State Food and Drug Administration’s (“SFDA”) drug approval process. Therefore, we believe that CIPI is uniquely positioned to advance these compounds, placing Harbor Biosciences on the forefront of the increasingly globalized pharmaceutical industry.

The International Conference on Harmonization

The International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”). Since its inception in 1990, ICH has evolved, through its ICH Global Cooperation Group, to respond to the increasingly global face of drug development, so that the benefits of international harmonization for better global health can be realized. Harmonization ensures that safe, effective, and high quality medicines are developed and registered in the most resource-efficient manner worldwide. Specifically, China has been steadily improving its regulatory regime governing food and pharmaceutical industries in recent years, aligning the country with international standards of practice. Regional Harmonization Initiatives (“RHI”) include Asia-Pacific Economic Cooperation (“APEC”), Association of Southeast Asian Nations (“ASEAN”), Gulf Cooperation Council (“GCC”), Pan American Network on Drug Regulatory Harmonization (“PANDRH”) and the Southern African Development Community (“SADC”). Development in each of these regions may or may not require bridge studies, depending on the genetic diversity within each population, but in any event, costs for such studies would be borne by each regional partner.

Business Strategy

We believe that our agreement with CIPI places Harbor Biosciences on the forefront of a rapidly evolving global pharmaceutical industry. China offers relatively rapid product development, especially in the context of Phase II and III studies, diluted risk (defrayed costs), low cost supply and validation of technology, as well as huge, expanding and increasingly affluent markets for our specific indications. As the R&D arm of the Sinopharm Group, CIPI is uniquely qualified and positioned to develop our small molecules. By the terms of our agreement, CIPI will bear all development costs for each candidate compound and Harbor BioSciences will retain the rights to all its products in the U.S. and the rest of the world. This will afford us several exciting opportunities to capitalize on regional licensing and partnership agreements as well as agreements with Health Ministries of individual governments, including socialized medicine countries. Our partnership with CIPI includes a low cost supply agreement by which China will supply API or finished products into the rest of the world, in accordance with specific agreements and regulatory requirements. Such agreements may include payments of up front fees to Harbor Biosciences with additional payments for milestones achieved in China. Concurrently, Harbor Biosciences is actively attempting to develop partnerships and/or licensing agreements in order to monetize its other assets, including Neumune and several novel, naturally occurring steroid hormones that may be suitable for either pharmaceutical or nutraceutical development. All together, Harbor Biosciences

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seeks to capitalize on at least six compounds in various stages of development, including Apoptone, Triolex, HE2000, Neumune, HE3413 and HE3177. In addition, our pipeline contains potential pre-clinical candidates with improved pharmaceutical properties aimed at pharmaceutically accepted targets including ERß. It is the Company’s intention to reduce its burn rate to match revenue recognition from milestones achieved in China and the execution of potential licenses and partnerships with the rest of the world.

Employees

As of March 25, 2011, we had 14 full-time equivalent, non-union employees. We believe that our relations with our employees are good.

James M. Frincke, Ph.D. joined Harbor BioSciences as Vice President, Research and Development in November 1997, was promoted to Executive Vice President in March 1999, to Chief Scientific Officer in December 2001, to Chief Operating Officer in February 2008 and to Chief Executive Officer in 2009. Dr. Frincke joined Harbor BioSciences, Inc. from Prolinx, Inc., where he served as Vice President, Therapeutics Research and Development from 1995 to 1997. During his 30 years in the biotechnology industry, Dr. Frincke has managed major development programs including drugs, biologicals, and cellular and gene therapy products aimed at the treatment of cancer, infectious diseases, organ transplantation, autoimmune disease and type 2 diabetes. Since joining the biotechnology industry, Dr. Frincke has held vice president, research and development positions in top tier biotechnology companies including Hybritech/Eli Lilly and SyStemix Inc. (acquired by Novartis). In various capacities, he has been responsible for all aspects of pharmaceutical development including early stage research programs, product evaluation, pharmacology, manufacturing, and the management of regulatory and clinical matters for lead product opportunities. Dr. Frincke has authored or co-authored more than 100 scientific articles, abstracts and regulatory filings. Dr. Frincke received his B.S. in Chemistry and his Ph.D. in Chemistry from the University of California, Davis. Dr. Frincke performed his postdoctoral work at the University of California, San Diego.

Christopher L. Reading, Ph.D. joined Harbor BioSciences as Vice President of Scientific Development in January 1999, was promoted to Executive Vice President, Scientific Development in March 2002 and to Chief Scientific Officer in February 2008. Before Harbor BioSciences, Inc., Dr. Reading was Vice President of Product and Process Development at Novartis Inc.-owned SyStemix Inc. During this time, he successfully filed three investigational new drug applications (INDs) in the areas of stem cell therapy technology and stem cell gene therapy for HIV/AIDS. Prior to joining SyStemix, Dr. Reading served on the faculty of the M.D. Anderson Cancer Center in Houston for nearly 13 years. His positions there included Associate and Assistant Professor of Medicine in the Departments of Hematology and Tumor Biology. During his career, Dr. Reading has given more than 25 national and international scientific presentations, published more than 100 peer-reviewed journal articles and 15 invited journal articles as well as written nearly 20 book chapters, and received numerous grants and contracts which supported his research activities. Dr. Reading has served on the National Science Foundation Advisory Committee for Small Business Innovative Research Grants (SBIR) as well as on the editorial boards of Journal of Biological Response Modifiers and Molecular Biotherapy . He holds a number of patents for his work with monoclonal antibodies and devices. Dr. Reading received his Ph.D. in Biochemistry at the University of California at Berkeley and completed postdoctoral study in tumor biology at The University of California at Irvine. He earned his B.A. in cell biology at the University of California at San Diego.

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Dwight R. Stickney, M.D. joined Harbor BioSciences as Medical Director, Oncology in May 2000, was appointed Vice President, Medical Affairs in March 2003 and was promoted to Chief Medical Officer in February 2008. Dr. Stickney joined Harbor BioSciences, Inc. from the Radiation Oncology Division of Radiological Associates of Sacramento Medical Group, Inc., in Sacramento, California, where he served as a Radiation Oncologist since 1993. While at Radiological Associates, he served as Chairman of the Radiation Oncology Division from 1997 to 1999 and was a member of the Radiation Study section of the National Institute of Health’s Division of Research Grants from 1993 to 1997. He also served as the Director of Radiation Research for Scripps Clinic and Research Foundation in La Jolla, California. Dr. Stickney has taught in medical academia as Associate Professor of Radiation Medicine at Loma Linda University School of Medicine and has served as Director of the International Order of Forresters Cancer Research Laboratory and on the Board of Directors of the California Division of the American Cancer Society. Earlier in his career, Dr. Stickney held positions with Burroughs Wellcome and the Centers for Disease Control, and academic teaching appointments at The University of California at Los Angeles and The University of California at Riverside. He has also served as a consultant for a number of biotechnology companies on the design and conduct of clinical trials. Dr. Stickney has authored or co-authored over 80 scientific articles, abstracts and book chapters. He is named inventor on numerous issued patents and patent applications. Dr. Stickney holds a Bachelor of Science in Microbiology, a Masters of Science in Immunology, and a M.D. from Ohio State University. In addition, he is certified as a Diplomat of the American Board of Internal Medicine and Hematology and a Diplomat of the American Board of Radiology, Therapeutic Radiology.

Robert W. Weber joined Harbor BioSciences in March 1996 and currently serves as the Chief Financial Officer and Secretary. Mr. Weber has over thirty years of experience in financial management. He has been employed at executive levels by multiple start-up companies and contributed to the success of several turnaround situations. He previously served as Vice President of Finance at Prometheus Products, a subsidiary of Sierra Semiconductor (now PMC Sierra), from 1994 to 1996, and Chief Financial Officer for Amercom, a personal computer telecommunications software publishing company, from 1993 to 1994. From February 1988 to August 1993, Mr. Weber served as Chief Financial Officer of Instromedix, a company that develops and markets medical devices and software. Mr. Weber brings a broad and expert knowledge of many aspects of financial management. In various capacities, he has been responsible for all aspects of finance and accounting including cost accounting, cash management, SEC filings, treasury, investor relations, private and venture financing, corporate legal matters, acquisitions/divestitures as well as information technology, human resources and facilities. Mr. Weber received a B.S. from GMI Institute of Technology (now Kettering University) and a MBA from the Stanford Graduate School of Business.