This discussion of our financial condition and results of operations should be read together with the financial statements and notes contained elsewhere in this Annual Report on Form 10-K. Certain statements in this section and other sections are forward-looking. While we believe these statements are accurate, our business is dependent on many factors, some of which are discussed in the "Risk Factors" and "Business" sections of this Annual Report on Form 10-K. Many of these factors are beyond our control and any of these and other factors could cause actual clinical and financial results to differ materially from the forward-looking statements made in this Annual Report on Form 10-K. The results of our previous clinical trials are not necessarily indicative of the results of future clinical trials. Please read the "Risk Factors" section in this Annual Report on Form 10-K. We undertake no obligation to release publicly the results of any revisions to the statements contained in this report to reflect events or circumstances that occur subsequent to the date of this Annual Report on Form 10-K.

OVERVIEW

Trimeris is a biopharmaceutical company primarily engaged in the commercialization of a class of antiviral drug treatments called fusion inhibitors. Fusion inhibitors prevent viral fusion, a complex process by which viruses attach to, penetrate and infect host cells. If a virus cannot enter a host cell, the virus cannot replicate. By inhibiting the fusion process of particular types of viruses, like the Human Immunodeficiency Virus ("HIV"), our first commercial product offers a novel mechanism of action to treat and potentially prevent the transmission of HIV.

Trimeris has a worldwide agreement (the "Development and License Agreement") with F. Hoffmann-La Roche Ltd., or "Roche," to develop and market T-20, marketed as FUZEON, whose generic name is enfuvirtide. FUZEON is manufactured and distributed by Roche through Roche's sales and distribution network throughout the world in countries where regulatory approval has been received. The Company shares gross profits equally from the sale of FUZEON in the United States and Canada with Roche, and receives a royalty based on net sales of FUZEON outside the United States and Canada.

Overview of 2008

Despite declining FUZEON sales, the Company maintained positive cash flow from operations. This result was primarily driven by world wide sales of FUZEON and lower operating expenses due to termination of our research and development activities. During the year, several notable events occurred:

Competition-FUZEON sales have been significantly impacted by the recent market introduction of three new oral HIV agents. As these new orally available agents achieved more widespread use, we saw a significant drop in FUZEON sales. Net sales of FUZEON for 2008 were $167.0 million, down 37 percent from $266.8 million in 2007. Net sales of FUZEON in the U.S. and Canada for 2008 were $64.2 million, down 48 percent from $124.3 million in 2007. Net sales of FUZEON outside the U.S. and Canada for 2008 were $102.8 million, down 28 percent from $142.5 million in 2007.

Special Cash Dividends-We declared and paid a total of $55.5 million in special cash dividends during 2008.

Income Taxes-We recognized an income tax benefit in the fourth quarter of 2008 due to the release of a portion of the valuation allowance based on near-term forecasted income exceeding the limitation placed on our net operating losses. The benefit recognized reflects the limitation on utilization of the Company's net operating losses as described below.

At December 31, 2008, the Company has net operating loss carryforwards ("NOLs") for federal tax purposes of approximately $302.4 million, which expire in varying amounts between 2018 and 2025. We determined that an ownership change under Section 382 of the Internal Revenue Code of 1986 ("IRC"), as amended, occurred during 2008. The effect of this ownership change was the imposition of a $457,000 annual limitation on the use of NOL carryforwards attributable to periods before the change. This annual limitation will result in the expiration of NOL carryforwards before they become available for utilization. Based on the $457,000 annual limitation, the Company anticipates that a total of approximately $7.8 million of NOL carryforwards will be available for utilization prior to 2025.

The Company has state net economic losses of approximately $257.6 million, which expire in varying amounts between 2009 and 2020. The Company is currently assessing the impact of the ownership change under Section 382 on the ability to utilize the state net economic losses. Currently the Company believes that the impact is de minimus.

The Company has research and development credits of $9.1 million, which expire in varying amounts between 2013 and 2026. The Company has AMT credit carryforwards of approximately $800,000 which are available to reduce regular Federal income taxes, if any, over an indefinite period. The utilization of the research and development credits and the AMT credit carryforwards are subject to limitation under IRC Sections 382 and 383 such that the Company does not expect to recognize any tax benefit from such credits or carryforwards.

In 2009 and beyond, the amount of income taxes that we pay will increase as our ability to utilize NOL's is limited to $457,000 per year.

Outlook for 2009

2009 will continue to be a year of transition for Trimeris:

• Strategic Alternatives-We will continue to evaluate strategic alternatives to enhance shareholder value.

• Profitability-We will focus our efforts on maintaining profitability based on FUZEON sales.

• Competition-Recently, weekly prescription trends for FUZEON have begun to stabilize. Future FUZEON prescription trends will depend on the further refinement of the optimal regimen for treatment experienced patients and the role of FUZEON in these regimens

• FUZEON Sales and Marketing-We believe that our selling and marketing expense in 2009 will be lower than 2008, as we have exercised again our right under our Development and License Agreement with Roche that prevents Roche from adopting a budget for the marketing of FUZEON above a certain limit without our consent.

• Novartis Litigation-We, along with our partner Roche, are working with outside counsel to come to the most expedient and satisfactory resolution of the patent infringement suit brought by Novartis Vaccines and Diagnostics, Inc.

Overview of Roche Relationship

The Development and License Agreement

In July 1999, the Company entered into the Development and License Agreement with Roche to develop and commercialize T-20, currently marketed as FUZEON, whose generic name is enfuvirtide, and T-1249, or a replacement compound. The Development and License Agreement has been amended several times, most recently in March 2007, when the agreement was amended to only cover the development and commercialization of FUZEON. The Development and License Agreement will effectively terminate in 2021, upon the expiration of the last relevant patent covering FUZEON.

The Development and License Agreement, as amended, grants Roche an exclusive, worldwide license for FUZEON. Under this agreement, a joint management committee consisting of members from Trimeris and Roche oversees the strategy for the collaboration. Roche may terminate its license for a particular country in its sole discretion with advance notice. In addition, the Development and License Agreement gives Roche significant control over important aspects of the commercialization of FUZEON, including, but not limited to, pricing, sales force activities and promotional activities. Under the Development and License Agreement, Roche cannot adopt a budget for the marketing of FUZEON above certain limits without the agreement of the Company.

As mentioned above, in March 2007, the Company entered into an agreement with Roche that amends the terms of both the Development and License Agreement and the Research Agreement (defined below). This amendment states that all intellectual property that was formerly shared between the companies, other than intellectual property related to FUZEON, shall belong now solely to Trimeris. The returned intellectual property covers both research and

development stage molecules, including T-1249. Currently, there are no patients being treated with T-1249. Following the March 2007 amendment, Roche is only responsible for one remaining $5.0 million milestone under the Development and License Agreement payable upon the achievement of a certain cumulative twelve month sales threshold for FUZEON in the United States and Canada.

Collaboration Income and Loss

Currently, our only significant source of revenue is from the sale of FUZEON. Gross profit and royalty revenue from the sale of FUZEON exceeded the selling, marketing and other charges for the years ended December 31, 2008, 2007 and 2006, resulting in positive cash flow from the Development and License Agreement.

Product sales of FUZEON began in the United States on March 27, 2003 and are recorded by Roche. Under the Development and License Agreement, the Company shares gross profits equally from the sale of FUZEON in the United States and Canada with Roche, which is reported as collaboration income in the statements of operations as a component of revenue. Collaboration income is calculated as follows: Total gross sales of FUZEON in the United States and Canada is reduced by any discounts, returns or rebates resulting in total net sales. Net sales are reduced by costs of goods sold resulting in gross profit. Gross profit is reduced by selling, marketing and other expenses related to the sale of FUZEON, resulting in operating income or loss. The Company's share of the operating income is reported as collaboration income as a component of revenue. Revenue is recognized when Roche ships drug and title and risk of loss passes to wholesalers. FUZEON is widely available through retail pharmacies and wholesalers across North America.

We receive royalties on sales of FUZEON in countries outside of the United States and Canada. Roche is responsible for all activities related to FUZEON outside of the United States and Canada, including regulatory, manufacturing, sales and distribution. We receive a quarterly royalty report from Roche that summarizes these sales and the royalty amounts due to Trimeris.

It is important to recognize that Roche is responsible for the manufacture, sales, marketing and distribution of FUZEON. Roche is manufacturing bulk quantities of FUZEON drug substance in its Boulder, Colorado facility and is producing finished drug product from bulk drug substance at other Roche facilities. The finished drug product is then shipped to another Roche facility for distribution. Roche's sales force is responsible for selling FUZEON. Under our Development and License Agreement, we do not have the ability or rights to co-market this drug or field our own FUZEON sales force. All third party contracts for manufacturing, distribution, sale, and reimbursement are between Roche and the third party. We are not a party to any of the material contracts in these areas. Roche provides us with information on manufacturing, sales and distribution of FUZEON. Roche is responsible for estimating reductions to gross sales for expected returns of expired products, government rebate programs, such as Medicaid reimbursements, and customer incentives, such as cash discounts for prompt payment. We review these items for accuracy and reasonableness. We receive 50% of the product gross profits for the United States and Canada.

Accrued Marketing Costs

For the years ended December 31, 2008, 2007 and 2006, Trimeris has recorded its share of selling and marketing expenses in accordance with terms and conditions of agreements we executed with Roche.

The Company and Roche agreed to limit the Company's actual cash contribution to the FUZEON selling and marketing expenses in 2004 to approximately $11.2 million, even though Roche spent significantly more on these expenses. If certain cumulative levels of sales for FUZEON in the United States and Canada are achieved, the Company's share of the additional expenses incurred by Roche during 2004 will be payable to Roche beginning at a future date over several years from that future date. During the fourth quarter of 2008, the Company revised its estimate of the date that payments will begin from 2017 to 2022. During the year ended December 31, 2004, the Company's share of selling and marketing expenses exceeded $11.2 million. During 2004, the Company recorded $15.6 million as part of collaboration loss, which represented the net present value of the Company's estimated share of the expenses that were in excess of approximately $11.2 million. This amount was determined by taking into account the expected timing and terms of payment under the Development and License Agreement, discounted at a risk

free interest rate. The Company is increasing the liability over time to the expected payment amount. The total liability of $18.3 million and $17.9 million at December 31, 2008 and 2007, respectively, is reflected on our balance sheets under the caption "Accrued marketing costs."

The accrued marketing costs apply only to the 2004 FUZEON marketing costs. With respect to both 2008 and 2007, there are no accrued marketing costs.

Manufacturing Amendment

In September 2005, the Company entered into a Letter of Amendment (the "Manufacturing Amendment") with Roche, setting forth certain rights and responsibilities with respect to the manufacture and sale of FUZEON. The Manufacturing Amendment amends and supplements the terms of the Development and License Agreement and addresses several aspects of the parties' collaboration related to the manufacture of FUZEON. According to the terms of the Manufacturing Amendment, Roche will be responsible for all decisions regarding future FUZEON manufacturing volume, including management of the inventory supply chain. Subject to certain exceptions, Roche will therefore be financially responsible for all write-offs of expired Product (as defined in the Development and License Agreement) sold in the U.S. and Canada. In addition, Roche will be responsible for write-offs of all supply chain materials not currently in inventory as of the date of execution of the Manufacturing Amendment and the collaboration's Joint Steering Committee will determine the schedule for converting supply chain materials that are in inventory as of that date into product.

The Manufacturing Amendment also sets forth the terms for which Roche-owned, FUZEON manufacturing equipment and facilities in Boulder may be used for the manufacture of other products. In addition, the Manufacturing Amendment provides for Trimeris' payment of certain pre-launch inventory carrying costs related to the sale of FUZEON and Roche's payment to Trimeris of an outstanding manufacturing milestone payment under the collaboration. The Manufacturing Amendment also outlines certain methodologies for the allocation of standard cost variances between the parties, the sharing of financial data related to FUZEON manufacturing, and the methodology for calculating currency conversions.

Advanced Payment-Roche

Under the Manufacturing Amendment, the Company will pay Roche for the Company's share of the capital invested in Roche's manufacturing facility over a seven-year period. As a result, Roche will no longer include the depreciation related to the manufacturing facility in cost of goods sold.

Under the terms of the Manufacturing Amendment, the Company's contribution to the capital improvements made at Roche's manufacturing facility is to be reviewed on an annual basis. Following such review, the Company's contribution will be adjusted, when necessary, to reflect changes to the relative geographic distribution of FUZEON sales. During the first quarter of 2008, the Company and Roche reviewed certain FUZEON sales data which resulted in a change in the amount of the Company's contribution to the capital investment. Following this review, the Company expected to contribute approximately $12.1 million towards the capital investment as compared to its previous expectation of approximately $12.8 million. At December 31, 2008, we had capitalized costs of $11.5 million, and expect to pay approximately $285,000 per quarter through June 2009. In the event the Development and License Agreement is terminated, the Company would not be obligated for any unpaid amounts for capital investment.

These payments, net of the portion allocated to cost of goods sold, are recorded as an asset presented as "Advanced payment-Roche." This asset is amortized based on the units of FUZEON sold during the collaboration period in order to properly allocate the capital investment to cost of goods sold as the related inventory is sold in future periods. Assuming all payments are made and sales of FUZEON continue, the Company estimates that this asset has a remaining useful life of approximately 13 years. The carrying value of this asset will be evaluated annually for impairment or if an event occurs that triggers impairment.

Under the Manufacturing Amendment, if the Roche-owned facilities in Boulder, Colorado used for the manufacture of FUZEON, are used to produce other products for Roche, a credit to the collaboration will result. Through December 31, 2008, the Company's share of this credit was approximately $2.0 million. These credits have

been recorded on the Company's balance sheets as a reduction to the "Advanced payment-Roche." These credits offset variances that would otherwise have been allocated to FUZEON if the facilities had remained underutilized and will be recognized when the related FUZEON produced during these periods is sold.

Development Expenses

Under the Development and License Agreement, development costs for FUZEON are shared equally. Development typically includes certain clinical and pre-clinical studies performed on a clinical candidate compound, as well as post-marketing commitments related to approved drugs. Currently only Roche incurs development costs for FUZEON. Roche holds the Investigational New Drug ("IND") and the New Drug Application ("NDA") for FUZEON and is responsible for all regulatory issues, maintenance activities and communications with the FDA. Development expenses pertaining to the United States and Canada are included in our statements of operations as operating expenses under Research and Development.

The Research Agreement

Research, or the process of identifying clinical candidates, is generally distinct from the advanced testing of these compounds, a process referred to herein as development (see discussion above "Development Expenses"). In the Company's collaboration with Roche, the identification of compounds that may become clinical candidates had been governed by a separate research agreement and the work by the parties was performed according to an agreed upon research plan. In 2001, the Company entered into a research agreement (the "Research Agreement") with Roche to discover, develop and commercialize next generations of HIV fusion inhibitor peptides ("NGFI"). In addition, the Company has the option to participate in the co-development and commercialization of certain Roche-developed fusion inhibitor peptides. In order to exercise its option, the Company must pay Roche a one-time, lump sum payment of $4.5 million per candidate.

In March 2007, the Company entered into an agreement with Roche that amended the terms of the Research Agreement whereby all rights, joint patents and other intellectual property rights to the NGFI peptides falling under the Research Agreement, which includes the lead drug candidate, TRI-1144, reverted to the Company. As a result of this agreement, the Company accelerated revenue recognition for those milestones being amortized over the length of the research and development period of the NGFI peptides because the period of our joint development has ended. The acceleration of these milestones resulted in $8.7 million of additional milestone revenue during the first quarter of 2007. The Company has maintained the option to participate in the co-development and commercialization of certain Roche-developed fusion inhibitor peptides, as described in the preceding paragraph.

The following table summarizes our research and development expenses since inception (in thousands):

Project                                    2008        2007          2006      1993-2005      Cumulative
Fuzeon                                    $ 1,002    $    515      $  4,177    $  222,991    $    228,685
T-1249                                          -          67           176        30,986          31,229
Next Generation Fusion Inhibitors           1,036       7,546         4,899        16,280          29,761
Early stage research                            -           -         3,011         2,267           5,278
Other (comprised mostly of management
personnel, patent costs and overhead
allocation costs)                           2,715       4,855         4,177        10,802          22,549

All projects                                4,753      12,983        16,440       283,326         317,502
SFAS 123R expense                             365        (100 )       1,893             -           2,158

Total research and development            $ 5,118    $ 12,883      $ 18,333    $  283,326    $    319,660

LIQUIDITY AND CAPITAL RESOURCES

The table below presents our cash flows for the years ended December 31, 2008, 2007 and 2006.

                                                                 Years ended December 31,
                                                           2008            2007            2006
                                                                      (in thousands)
Net cash provided by operating activities                $  17,045       $  21,592       $  12,177
Net cash provided (used) by investing activities            20,110         (19,115 )        (6,152 )
Net cash (used) provided by financing activities           (55,468 )           173             468

Net (decrease) increase in cash and cash equivalents       (18,313 )         2,650           6,493
Cash and cash equivalents, beginning of period              32,702          30,052          23,559

Cash and cash equivalents, end of period                 $  14,389       $  32,702       $  30,052

Operating Activities: Since inception, we have financed our operations primarily through private placements and public offerings of common stock, equipment lease financing and payments received from Roche under our Development and License Agreement with Roche.

In 2008, 2007 and 2006, the cash provided by operating activities primarily resulted from worldwide sales of FUZEON offset, in part, by cash used to fund research and development relating to FUZEON, and other product candidates, primarily TRI-1144, and marketing costs for the commercialization of FUZEON. In 2009, cash used in operating activities will depend on several factors including the sales, cost of sales and marketing expenses related to the sale of FUZEON (profitability of the collaboration with Roche) and the amount of money Roche deploys into post marketing commitments for FUZEON (development expenses).

Investing Activities: In 2008, cash provided by investing activities was primarily due to net maturities of investment securities available-for-sale of $19.7 million and the proceeds from the sale of equipment of $1.0 million offset, in part, by patent costs of $668,000. In 2009, cash provided by investing activities will depend primarily on the net maturities of investments. We expect spending on patent costs in 2009 to approximate the spending in 2008. We do not expect to purchase any property, furniture and equipment in 2009.

In 2007, cash used by investing activities was primarily due to the reclassification of the investment of approximately $16.2 million in Bank of America Corporation's Columbia Strategic Cash Portfolio (the "Fund"). In December 2007, Columbia Management Group, LLC, the Fund's manager, determined that the assets of the Fund had declined in fair value and the Fund would no longer seek to maintain a net asset value ("NAV") of one dollar per share. As a result, the Fund's NAV began to fluctuate based on changes in the market values of the assets owned by the Fund. The Fund ceased accepting orders for new shares and began an orderly liquidation of Fund assets for distribution to its shareholders. The Company, therefore, reclassified this investment to short-term investments from cash equivalents, based on information provided by the Fund manager. At December 31, 2008, the Fund's NAV was $0.8266 per share and the Company's investment was $3.4 million. At December 31, 2007, the Fund's NAV was $0.9874 per share. Cash used by investing activities also resulted from net purchases of investment securities available-for-sale of $2.3 million, purchases of property, furniture and equipment of $264,000 and patent costs of $384,000.

In 2006, cash used by investing activities was primarily due to net purchases of investment securities available-for-sale of $5.3 million, purchases of property, furniture and equipment of $485,000 and patent costs of $421,000.

Financing Activities: In 2008, cash used in financing activities was due to the payment of approximately $55.5 million in special dividends. In 2007 and 2006, the cash provided by financing activities was due to the exercise of employee stock options and purchases of our stock under the employee stock purchase plan.

Total Cash, Cash Equivalents and Investment Securities Available-For-Sale. As of December 31, 2008, we had $31.6 million in cash and cash equivalents and investment securities available-for-sale, compared to $69.6 million as of December 31, 2007. The decrease is primarily a result of the special cash dividends that we paid in 2008, offset in part by cash provided by operating activities during the year ended December 31, 2008.

Future Capital Requirements. We have expended, and expect to continue to expend in the future, substantial funds in the following areas:

• expenditures for marketing activities related to FUZEON; and

• legal costs to defend the patent infringement suit brought by Novartis Vaccines and Diagnostics, Inc.

Based on expected sales levels of FUZEON, expenses related to the sale of FUZEON, the costs involved in preparing, filing, processing, maintaining, protecting and enforcing patent claims and other intellectual property rights, and litigation expenses, we expect that our existing capital resources, together with the interest earned thereon, will be adequate to fund our operating expenses for the foreseeable future.

Contractual Obligations. The following table summarizes our material contractual commitments at December 31, 2008.

Contractual Obligations****            2009      2010      2011      2012      2013      Thereafter     Total
. . .