Metabasis Therapeutics, Inc. had raised approximately $10 million through the successful completion of a warrant exchange and concurrent private placement. Metabasis said it intends to use the proceeds from the transaction for general corporate purposes, including the further clinical development of MB07803 and MB07811 for the treatment of diabetes and hyperlipidemia, respectively.

The participants in the transaction were certain current investors who held existing warrants for the purchase of common stock issued previously by the company in its October 2001 and October 2005 private placements. Pursuant to the transaction, Metabasis reduced the exercise prices of the existing warrants held by the participants in exchange for the immediate exercise of the warrants. Metabasis also sold additional shares of common stock and warrants for the purchase of common stock in a concurrent private placement. Collins Stewart LLC acted as exclusive financial advisor to Metabasis in connection with this transaction.

The reduced exercise price of the existing warrants and the purchase price of the common stock sold in the concurrent private placement were both $2.34 per share, the consolidated closing bid price of the company's common stock immediately preceding the entering into the binding agreement for the transaction (the Closing Bid Price). In addition, each participant who exercised a warrant from the October 2005 private placement received a new warrant to purchase 20 per cent of the number of shares of common stock acquired upon such exercise, and each participant who purchased shares of common stock in the concurrent private placement received a new warrant to purchase 30 per cent of the number of shares of common stock the participant acquired in the private placement. The new warrants have a five year term and an exercise price equal to 115 per cent of the Closing Bid Price.

"The structure of this transaction allowed us to accomplish a number of objectives," said John W. Beck, senior vice president, finance and chief financial officer. "First, we were able to raise a meaningful amount of operating capital; second, we were able to provide the participants in the transaction the opportunity to enhance their existing positions in the Company at our current price; and third, we were able to reduce the dilutive effect of potential future warrant exercises by reducing the number of outstanding warrants. This transaction is entirely in keeping with our revised strategic plan which is focused on enhancing shareholder value by advancing our product candidates further into clinical trials while minimizing dilution to our existing stockholders."

Under the transaction, warrants for the purchase of 127,557 shares of common stock with an exercise price of $8.70 per share and warrants for the purchase of 1,558,279 shares of common stock with an exercise price of $6.74 per share were exercised at the Closing Bid Price. In addition, Metabasis sold 2,485,103 shares of common stock at $2.34 per share and warrants for the purchase of 1,057,196 shares of common stock with an exercise price of $2.69 per share. At the closing, investors in the transaction paid an additional purchase price for the new warrants equal to $0.125 per whole share issuable upon exercise of the warrants.

As a result of the transaction, a total of 4,170,939 shares of common stock were issued and the total number of shares issuable upon the exercise of all outstanding warrants was reduced from 3,461,978 to 2,833,338 shares. Following the transaction, Metabasis had 34,930,843 shares of common stock outstanding. The existing warrants that were not exercised remain outstanding and retain the terms that existed prior to the transaction.

The shares of common stock and warrants issued in the transaction have not been registered under the Securities Act of 1933, as amended, or state securities laws and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission or an applicable exemption from the registration requirements. The company has agreed to file a registration statement with the Securities and Exchange Commission within 30 days covering the resale of the shares of common stock issued in the transaction and the shares of common stock issuable upon exercise of the warrants issued in the transaction. This press release is not an offer to sell or the solicitation of an offer to buy the shares of common stock or warrants issued in the transaction or any other securities of the company.