Inflazyme Pharmaceuticals Ltd. Letter to Shareholders for Quarter and Financial Year Ended March 31, 2003.

Business Editors/Health/Medical Writers

RICHMOND, British Columbia--(BUSINESS WIRE)--May 7, 2003

Inflazyme Pharmaceuticals Ltd. (TSX:IZP)

Dear Shareholder:

March 31, 2003, marks both the end of our fourth quarter and the end of our 2003 financial year. I would like to take this opportunity to update you on the Company's progress over the last quarter. The quarter was highlighted by the opening of our IND for IPL512,602, a potential new oral treatment for respiratory diseases, and the optioning of one of our phosphodiesterase 4 (PDE4) inhibitors, IPL455,903, by Helicon Therapeutics Inc. Subsequent to the end of the quarter, on April 9, 2003, we announced that we had entered into a definitive agreement to acquire GlycoDesign, a Toronto based biopharmaceutical company, which we believe expands our franchise in inflammation and strengthens our product pipeline.

During the quarter we saw our loss decline to $2.2 million compared to $3.0 million for the third quarter and $4.8 million for each of the first two quarters. This decreasing trend over the last half of the year was primarily due to lower clinical development expenses related to IPL512,602 in the last half of the financial year. In the fourth quarter, a successful food-effect study with IPL512,602 was completed, but the expenses were incurred by Aventis as part of our expanded collaboration announced in November 2002.

Our cash balance at March 31, 2003 was $19.3 million and we believe we have sufficient cash to operate the Company beyond fiscal 2005. If a US$10 million milestone payment is received from Aventis at the end of the planned Phase IIa asthma study with IPL512,602 (the results of which are expected in the first half of 2004), these monies would further extend our cash balance.

Helicon Collaboration

The quarter began with the announcement that Helicon had paid US$250,000 to license one of our PDE4 inhibitors (IPL455,903) for cognitive disorders related to learning and memory. We have established a joint research steering committee with Helicon, to together plan and oversee the development of the compound, however, Helicon is responsible for all costs incurred in the future development of IPL455,903 through to at least the end of Phase IIa. Up to completion of Phase IIa we have the option to enter into joint development and commercialization of IPL455,903 by taking on one-half of the clinical costs incurred by Helicon to date and to share equally, on a go-forward basis, all costs and profits, beyond Phase IIa.

IPL512,602 Clinical Development

Importantly in January we also announced the opening of an IND for IPL512,602. IPL512,602 is a second generation LSAID(TM) (Leukocyte Selective Anti-Inflammatory Drug) being developed as a potential new oral therapy for asthma in collaboration with Aventis. Aventis will supply and fund the clinical resources required to develop this compound. We are on target to commence the Phase IIa asthma study shortly.

GlycoDesign Agreement

Subsequent to the end of the Quarter, on April 9, 2003, we announced that we had entered into a definitive agreement to acquire GlycoDesign, a Toronto based biopharmaceutical company, which will expand our franchise in inflammation and strengthen our product pipeline. This acquisition will provide us with an opportunity to expand our position as a leader in the development of new LSAIDs by the addition of GlycoDesign's novel CORE 2 inhibitor program. Importantly it will also expand our clinical stage pipeline with the addition of GlycoDesign's GH9001, a novel anti-thrombotic (anti-blood clotting) therapy, being developed in collaboration with LEO Pharma of Denmark, and currently in Phase I clinical trials. Further, the number of partnering opportunities may also be increased through a combination of both companies' technologies. This acquisition will also strengthen our financial position giving us flexibility to extend our cash through to the end of calendar 2005. The acquisition is subject to approval by GlycoDesign's shareholders and the regulatory authorities.

Financial results for the Quarter and Year ended March 31st, 2003

For the financial year ended March 31, 2003, we incurred a loss of $14.7 million ($0.26 per share) compared to a loss of $17.7 million ($0.32 per share) for the prior year, a decrease of $3.0 million. The decrease in the loss was primarily due to lower research and development expenses. Research and development expenses for the year ended March 31, 2003 were $11.2 million compared to $14.8 million in the prior year, a decrease of $3.6 million. The decrease was primarily due to lower contract clinical development expenses. In the prior year the Company incurred costs for a Phase II asthma study, whereas no such expenses were incurred in the current year. The decrease in research and development expenses was partially offset by lower interest income due to lower cash balances and yields during the year compared to the prior year.

For the quarter ended March 31, 2003 our loss was $2.2 million ($0.04 per share) compared to $5.4 million ($0.10 per share) for the corresponding quarter of the prior year, a decrease of $3.2 million. The decrease was primarily due to lower contract clinical development expenses. General and administration expenses were also lower for the quarter as a result of capitalizing professional fees associated with the proposed acquisition of GlycoDesign.

Your continued support and interest in our Company is much appreciated and I look forward to communicating with you on further progress in the next shareholders letter.

Yours sincerely,

Ian McBeath, President & CEO

Inflazyme is a Richmond, B.C., Canada based biopharmaceutical company dedicated to the discovery and development of new drug therapies for the treatment of inflammatory disease. For more information, please visit http://www.inflazyme.com.

Conference Call

Inflazyme will host a conference call to discuss this announcement on Monday, May 12th, 2003 at 1:30 p.m. Pacific time. Audio replay of the conference call will be available two hours following the completion of the call by dialing 416-252-1143 or toll free 1-866-518-1010 until June 12th, 2003.

Statements in this news release other than historical information are forward-looking statements subject to risks and uncertainties. Actual results could differ materially depending on factors such as the availability of resources, the timing and effects of regulatory actions, the strength of competition, the outcome of litigation and the effectiveness of patent protection. Additional information regarding risks and uncertainties is set forth in the current Annual Information Form for Inflazyme on file with the Canadian Securities Commissions.

Inflazyme Pharmaceuticals Ltd.
Consolidated Balance Sheets
(Unaudited)

                                                  March 31
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                                            2003               2002
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Assets

Current assets
Cash and cash equivalents           $ 14,321,664       $  4,926,266
Short-term investments                 5,000,000         30,436,750
Interest receivable                      141,380            517,948
Other receivables                         47,267             66,887
Prepaid expenses                         179,150            214,838
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                                      19,689,461         36,162,689

Deferred acquisition costs               578,977                  -
Property and equipment                 2,556,839          3,381,003
Other assets                           1,510,736            965,781
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                                    $ 24,336,013       $ 40,509,473
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Liabilities

Current liabilities
Accounts payable and accrued
 liabilities                        $  1,477,492       $  3,040,580
Current portion of long-term debt        322,055            281,094
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                                       1,799,547          3,321,674

Long-term debt                           168,342            490,397
Deferred licensing revenue               383,250                  -
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                                       2,351,139          3,812,071
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Shareholders' equity

Capital stock
Issued
 Series 1, Class A preference
  shares                              21,957,676         21,957,676
 Common shares                        68,848,664         68,842,624
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                                      90,806,340         90,800,300

Deficit                              (68,821,466)       (54,102,898)
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                                      21,984,874         36,697,402

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                                    $ 24,336,013       $ 40,509,473
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On behalf of the board

   Ian McBeath (signed)
   President & CEO

   Graham Wilson (signed)
   Director


Inflazyme Pharmaceuticals Ltd.
Consolidated Statements of Operations and Deficit
(Unaudited)

                    For the Three Months             For the Year
                       Ended March 31               Ended March 31
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                     2003          2002           2003         2002
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Revenue
Interest     $    133,463  $    271,051   $    749,424 $  1,573,621
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                  133,463       271,051        749,424    1,573,621
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Expenses
Research
 and
 development     1,641,097     4,445,481    11,161,585   14,793,303
General and
 administration    452,460       930,160     3,305,408    3,504,236
 Amortization      254,334       250,211     1,000,999      928,557
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                 2,347,891     5,625,852    15,467,992   19,226,096
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Loss for
 the period     (2,214,428)   (5,354,801)  (14,718,568) (17,652,475)

Deficit,
 beginning
 of period     (66,607,038)  (48,748,097)  (54,102,898) (36,450,423)
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Deficit,
 end of
 period       $(68,821,466) $(54,102,898) $(68,821,466)$(54,102,898)
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Basic and
 diluted
 loss per
 common
 share        $      (0.04) $      (0.10)  $     (0.26)$      (0.32)
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Weighted-average
 number of
 common
 shares
 outstanding    57,550,080    57,547,901    57,550,080   55,774,120
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Inflazyme Pharmaceuticals Ltd.
Consolidated Statements of Cash Flows
(Unaudited)

                    For the Three Months             For the Year
                       Ended March 31               Ended March 31
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                     2003          2002           2003         2002
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Cash flows
 from
 operating
 activities
Loss for
 the period  $ (2,214,428) $ (5,354,801)  $(14,718,568)$(17,652,475)
Items not
 involving
 cash:
 -amortization    254,334       250,211      1,000,999      928,557
- non-employee,
  stock-based
  compensation          -             -          6,040            -
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               (1,960,094)   (5,104,590)   (13,711,529) (16,723,918)

Changes in
 non-cash
 working
 capital         (119,029)    1,024,986     (1,131,212)   1,976,760
Deferred
 licensing
 revenue          383,250             -        383,250            -
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               (1,695,873)   (4,079,604)   (14,459,491) (14,747,158)
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Cash flows
 from
 financing
 activities
Repayment
 of
 long-term
 debt             (73,715)      (71,341)      (281,094)    (229,821)
Common
 shares
 issued for
 cash (net
 of issue
 costs)                 -         2,405              -   11,182,289
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                  (73,715)      (68,936)      (281,094)  10,952,468
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Cash flows
 from
 investing
 activities
Short-term
 investments    6,000,000        63,250     25,436,750   (7,106,288)
Deferred
 acquisition
 costs           (578,977)            -       (578,977)           -
Other
 assets          (287,268)      (11,644)      (621,386)    (246,570)
Purchase of
 property
 and
 equipment         (8,008)     (176,020)      (100,404)  (1,011,994)
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                5,125,747      (124,414)    24,135,983   (8,364,852)

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Increase
 (decrease)
 in cash and
 cash
 equivalents    3,356,159    (4,272,954)     9,395,398  (12,159,542)

Cash and
 cash
 equivalents,
 beginning
 of period     10,965,505     9,199,220      4,926,266   17,085,808
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Cash and
 cash
 equivalents,
 end of
 period      $ 14,321,664  $  4,926,266   $ 14,321,664 $  4,926,266
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Supplemental
 disclosure
 of cash
 flow
 information
Interest
 paid              17,688        28,088         84,503      120,479

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this information.