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Hollis-Eden Announces Financial Results for Fourth Quarter and Year-End 2003

SAN DIEGO--(BUSINESS WIRE)--March 15, 2004--Hollis-Eden Pharmaceuticals, Inc. (NASDAQ: HEPH) today announced financial results for the fourth quarter and year ended December 31, 2003 and updated the status of its development programs.

For the fourth quarter, the Company reported a net loss of $5.4 million (or $0.28 per share), compared to a net loss of $3.2 million (or $0.24 per share) in the fourth quarter of 2002. For the full year, the Company reported a net loss of $25.7 million (or $1.67 per share), including non-cash charges of $10.0 million, compared to a net loss of $17.5 million (or $1.35 per share) for full year 2002. Of the $10.0 million of non-cash charges in 2003, $7.6 million relates to the amortization of the deemed discount and deferred issuance costs on convertible debentures issued by the Company in February 2003 and converted by the Company into common stock in August 2003.

Research and development expenses for the fourth quarter of 2003 totaled $3.8 million, compared to $2.1 million in the fourth quarter of 2002. Fourth quarter 2003 general and administrative expenses were $1.8 million compared to $1.1 million in the fourth quarter of 2002. For full year 2003, research and development expenses were $10.8 million compared to $13.1 million in 2002, and full year 2003 general and administrative expenses were $7.3 million compared to $4.8 million in 2002.

Changes in research and development from 2002 to 2003 reflect a streamlining of research and development programs in late 2002 that carried through the first three quarters of 2003. The decrease in research and development that was seen through the first three quarters of 2003 relative to 2002 was partially offset by an increase in research and development expense in the fourth quarter of 2003, primarily as a result of more extensive testing of the Company's radioprotection drug development candidate, NEUMUNE (HE2100). General and administrative expenses increased in 2003 versus 2002 primarily as a result of $2.2 million in non-cash charges related to the issuance of warrants and options during 2003. Research and development and general and administrative expenses are expected to increase in 2004 as a result of activities relating to advancing the Company's compounds into later-stage development.

Cash used in operations for the full year 2003 totaled $14.0 million versus $17.4 million for full year 2002. Year-end 2003 cash and equivalents totaled $84.9 million, compared to $13.1 million at December 31, 2002. Anticipated cash usage for operations for full year 2004 is expected to be in the range of $23 million to $27 million.

Operations Review

During 2003, Hollis-Eden made substantial progress both in terms of advancing its lead drug development programs as well as in identifying mechanisms by which its immune regulating hormone (IRH) technology is able to regulate immune function. In addition, the Company's scientists have significantly expanded their understanding of the metabolism, pharmacokinetics and structure-activity relationships for this class of compounds across several different species. This knowledge is allowing the Company to develop even more potent and specific second-generation compounds from its IRH technology.

In its lead program, bone marrow protection, Hollis-Eden has made significant progress in the development of NEUMUNE for protection from radiation injury and has also identified a number of second generation compounds that have demonstrated improved activity in protecting the bone marrow in preclinical models of chemotherapy-induced bone marrow suppression. NEUMUNE is being developed in conjunction with the U.S. military for use in protecting soldiers and civilians from the acute effects of radiation injury. The compound is being developed pursuant to a new rule enacted by the U.S. Food and Drug Administration (FDA) for medical countermeasures to weapons of mass destruction under which approval may be granted on the basis of efficacy in animals and safety in humans.

During the year, Hollis-Eden demonstrated in the first two pilot non-human primate studies that NEUMUNE could provide significant protection for neutrophils and platelets when the compound was given hours after radiation exposure. Depletion of neutrophils (white blood cells that protect the body from opportunistic infections) and platelets (key clotting factors in the blood) are a primary cause of death in the first several weeks following exposure to high levels of radiation. The Company is conducting additional non-human primate studies to optimize the best formulation and dosing schedule prior to entering into the anticipated pivotal efficacy study in non-human primates and Phase I safety studies in humans that would be required for a New Drug Application (NDA) for marketing approval.

Hollis-Eden also announced positive results in 2003 from preclinical studies with its IRHs in chemotherapy-induced immune suppression. As in radiation injury, chemotherapy can cause significant bone marrow toxicity and depletion of neutrophils and platelets that can be life threatening. In the preclinical chemotherapy studies, IRHs, including a potentially substantially more potent second-generation compound, were shown to protect the bone marrow and increase neutrophils and platelets. Hollis-Eden is preparing to select one or more of its IRHs for testing in Phase I/II clinical trials in this indication.

Recent studies conducted by Hollis-Eden's collaborators in radiation and chemotherapy protection have advanced the Company's understanding of the potential cell proliferation role of its IRHs in hematopoiesis, or the process by which the body produces a number of key cell types in the blood. Not only do IRHs increase neutrophils and platelets following radiation injury or chemotherapy, those cells that are produced following treatment with IRHs appear to be more effective at killing pathogens than untreated cells. IRHs appear both to increase the proliferative potential of residual bone marrow cells after injury and accelerate the rate at which new cells are generated. In addition, the ability of IRHs to regulate reactive oxygen species may also contribute to preventing death of remaining bone marrow cells. As a result, IRHs have the potential to be useful in treating a variety of conditions in which the bone marrow is damaged. The Company is utilizing these discoveries, along with its increased understanding of the structure-activity relationship of IRHs, to develop further compounds in this area, several of which are now being tested in animal models of bone marrow suppression.

Hollis-Eden expanded its product opportunities in radiation protection in early 2004 through the acquisition of Congressional Pharmaceutical Corporation (CPC), a company that was formed to commercialize a series of compounds that have the potential to protect against DNA mutations that can occur as a result of radiation injury or chemotherapy. These genetic mutations are believed to be an underlying cause of the increased incidence of cancer that has been demonstrated as a late effect of radiation injury and is also associated with secondary cancers following chemotherapy. CPC's lead compound being developed for radiation protection, Phosphonol, like NEUMUNE, may be eligible for approval under the FDA's new animal efficacy rule in this indication.

The Company has also just completed a preliminary analysis of a pilot study with its HE2200 compound in the elderly to determine whether the compound could improve immune responses in this patient population. The study included 37 elderly volunteers who each received six subcutaneous injections of HE2200 or placebo over a 30-day period in conjunction with a hepatitis B vaccine and who were then monitored for changes in a number of immune system parameters. The primary endpoint of the study was safety, and HE2200 was generally well tolerated in this study with mild to moderate injection site irritation being the most common drug related adverse event. While those receiving HE2200 did not show an improvement relative to placebo in increasing the response rate to the vaccine, those receiving HE2200 did show a statistically significant increase in several other secondary endpoints of innate immune function, including increased production of leukocytes and neutrophils. This data further supports the potential role of IRHs in stimulating bone marrow. The Company believes HE2200's ability to stimulate neutrophil production in humans in this study bodes well for IRHs in protecting against radiation and chemotherapy induced bone marrow suppression because, while HE2200 has previously shown activity in protecting neutrophils in non-human primate preclinical models of chemotherapy-induced neutropenia, the compound was substantially less potent than other IRHs such as NEUMUNE in these preclinical studies.

In the Company's global infectious disease program, Hollis-Eden presented data in 2003 from a Phase II clinical trial conducted with IMMUNITIN (HE2000) in South Africa, demonstrating a statistically significant reduction in opportunistic infections in late stage-AIDS patients treated with HE2000 as a monotherapy. The Company believes this may be the first time an immune modulator has shown significant benefit against a hard clinical endpoint such as opportunistic infections in late-stage AIDS patients. These results were foreshadowed by previous work in earlier-stage HIV patients treated with IMMUNITIN, where the compound was shown to reduce viral load as well as regulate a wide variety of inflammatory mediators and markers of innate and adaptive immune function toward homeostasis. Recently, the Company also presented data on the molecular mechanisms by which IMMUNITIN may be producing these beneficial effects, including the ability of the compound to regulate a number of important genes involved in controlling the inflammatory response and immune function. In addition, during 2003, Hollis-Eden presented data from a series of preclinical studies in tuberculosis (TB) that demonstrated the ability of IMMUNITIN to provide significant benefit in either acute or chronic TB when used as a monotherapy, and also showed an additive effect in this model system when combined with standard triple antibiotic therapy. The Company is continuing active discussions with a number of governmental and international healthcare organizations about collaborating in a public-private partnership to develop and potentially commercialize IMMUNITIN for a number of global infectious diseases.

Due in part to the broad-spectrum activity demonstrated to date by IMMUNITIN, in 2003 a number of government agencies also agreed to test IMMUNITIN and other IRHs for their ability to stimulate innate immunity against a variety of bioterrorism agents, and the Cystic Fibrosis Foundation initiated a collaboration with Hollis-Eden for the development of IMMUNITIN in cystic fibrosis.

Hollis-Eden added considerably to the value of its intellectual property position in 2003 and now has access to more than 100 issued patents and well over 100 pending applications. Furthermore, the Company believes its progress in understanding the mechanism of action for these compounds as well as their structure-activity relationships and pharmacokinetic profile will allow it to maintain a leadership position in this technology.

"Our top priority in 2003 was to advance our near-term opportunity to develop NEUMUNE as a medical countermeasure against nuclear or radiological terrorism," stated Richard B. Hollis, Chairman and CEO of Hollis-Eden. "Toward that end, we focused both on moving the compound through the drug development process and on securing an order for inclusion in the U.S. national drug stockpile. We believe we have made substantial progress on both of these fronts. At the same time, we have made progress in moving our broader pipeline forward, especially in the area of chemotherapy protection, and in advancing our knowledge and understanding of the molecular level mechanism and activity of our proprietary series of compounds. Despite a difficult financial market environment, we were able to raise significant capital during the year that will enable us to expand our development activities and accelerate our efforts to enter second generation IRHs into clinical development that offer greater specificity and potency than previous IRH candidates. We believe our IRH technology, having demonstrated immune-stimulating, anti-inflammatory and cell proliferative properties, positions us well to address many of the major threats, diseases and disorders facing 21st century medicine."

More detailed information is available in the Company's Form 10-K, which is also scheduled to be filed today with the Securities and Exchange Commission (www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000899394).

Conference Call: Hollis-Eden will conduct a conference call and live webcast on Monday, March 15, 2004 at 2:00 p.m. Eastern (11:00 a.m. Pacific) to discuss year-end 2003 financial results. The conference call can be accessed by dialing 800-299-7635 (domestic) or 617-786-2901 (international) and requesting the Hollis-Eden conference call. A live webcast of the conference call will be available under "Event Calendar" on the Investors section of Hollis-Eden's website at www.holliseden.com. The webcast will be archived at the Company's website for 30 days, and a replay of the call will be available by phone for 24 hours beginning approximately one hour after the call is completed, and can be accessed at 888-286-8010 (domestic) or 617-801-6888 (international), passcode 11081694.

Hollis-Eden Pharmaceuticals, Inc. is a development-stage pharmaceutical company based in San Diego, California, working to become the world leader in the development of a new class of investigational drugs known as Immune Regulating Hormones (IRHs). The goal of IRH therapy is to direct, through controlling gene expression, the production of key cytokines and enzymes that re-regulate immune and metabolic functions toward homeostasis, a profile that could be useful in a wide variety of diseases. The Company has a number of investigational IRHs under development, including HE2100, which the Company is co-developing with the U.S. military for use in protection from radiation injury, and HE2000, which is currently being studied in a number of infectious diseases. Hollis-Eden is also developing IRHs for protection from chemotherapy and other conditions of immune dysregulation. For more information on Hollis-Eden, contact the Company's website at www.holliseden.com.

This press release contains forward-looking statements concerning the potential and prospects of the Company's drug discovery program and its drug candidates. Any statement describing a goal, expectation, intention or belief of the Company is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, including the failure to successfully complete clinical trials, the Company's future capital needs, the Company's ability to obtain additional funding and required regulatory approvals, the ability of the Company to protect its intellectual property rights and to not infringe the intellectual property rights of others, the development of competitive products by other companies and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. The actual results may differ materially from those contained in this press release.

CONTACT: Hollis-Eden Pharmaceuticals, Inc.
Dan Burgess or Scott Rieger, 858-587-9333

SOURCE: Hollis-Eden Pharmaceuticals, Inc.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Hollis-Eden Pharmaceuticals's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.