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New York, NY, April 6, 1999 - SmallCaps Online LLC announced today that it has initiated coverage of Megabios Corp. (Valentis, Inc.) (Nasdaq: MBIO) with a BUY recommendation. The full text of this report can be accessed at SmallCaps' web site, at www.SmallCapsOnline.com.

Excerpts from the report follow:

Following the approval of the shareholders of both Megabios and GeneMedicine on March 18, we are initiating coverage of the merged company with a BUY recommendation. The new company intends to operate under the new name of Valentis, Inc., in the near future. We believe this merger was synergistic from a number of perspectives, and the resulting company is the clear leader in plasmid-based gene therapy using lipids as the means of gene delivery. Valentis has seven potential products in Phase I/II clinical trials, and 24 therapeutic genes in research or pre-clinical development, significant collaborative partnerships with Glaxo Wellcome, Eli Lilly, Roche and DSM Biologics, a combined intellectual property portfolio that should strengthen the new company's ability to compete in the gene therapy field, and a stronger balance sheet. Together, we feel Valentis has all the key technological components–gene delivery, gene expression and gene medicine production–to successfully develop and commercialize gene therapy and other products. We believe the company is significantly undervalued relative to comparable companies participating in the gene therapy field and are recommending purchase of the stock for those investors tolerant of the risks associated with small-cap, developmental-stage companies.

• Cancer Gene Medicines: Valentis has clinical trials ongoing with Interleukin-2 (IL-2), IL-2 in combination with superantigen B, and Interferon-alpha (IFN-a ) for treatment of head, neck and lung cancers. Preclinical trials are also in progress on the tumor-suppressing BRCA1 gene to treat breast and ovarian cancer and an IL-12 gene medicine.
• Pulmonary Gene Medicines: Valentis has two clinical trials underway currently–one to treat cystic fibrosis (CF) and one that uses the alpha-1 antitrypsin (AAT) gene that is being developed to treat AAT deficiency, a significant contributor to the development of emphysema.
• Cardiovascular: Two clinical trials are ongoing in Finland using Valentis technology to develop vascular endothelium growth factor (VEGF) gene medicines. VEGF has been shown to induce angiogenesis, and is being evaluated for use in the prevention of reclosure of vessels in patients undergoing angioplasty.

• Valentis has multiple, strong corporate partnerships to help defray the high costs of drug development and spread the risk over multiple programs in various therapeutic areas. Partners include Glaxo Wellcome, Eli Lilly, Roche and DSM Biologics, a leader in the manufacture and supply of biologics.
• We are impressed with management's vision to leverage its expertise in gene delivery and create a company with a more general focus on biologics delivery. This should serve to broaden the Company's technology base and product pipeline, diversify risk, and possibly shorten the timetable to product revenues (should products be acquired or licensed further along in the clinical process).

• As of the date of the merger, the combined company had cash and cash equivalents of $50 million; management has expressed its goal to reduce its burn rate to under $15 million per year during 1999 as a result of the integration of the two companies.
• With several years of cash available, we believe Valentis to be in a position of great financial strength, a unique characteristic of a development-stage biotechnology company. In addition, versus its peer group, we believe Valentis to be significantly undervalued based on the breadth and depth of its product and technology portfolios.

SmallCaps Online LLC is a registered investment advisor focused on identifying emerging growth companies in the healthcare and information technology sectors that offer compelling investment opportunities over the long term. By providing comprehensive financial services, including corporate finance, M&A advisory, strategic partnering and communications consulting, the company positions itself to provide a fully integrated package of value-added services to emerging growth companies.

The information in this press release has been obtained from sources that SmallCaps Online LLC believes to be reliable, but the Company does not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by SmallCaps Online LLC for the purchase or sale of any securities. SmallCaps Online LLC has performed investment banking, consulting or other services for MBIO and may solicit investment banking, consulting or other business from, any company mentioned in this release. SmallCaps Online LLC or persons associated with SmallCaps Online LLC may at anytime be long or short any of the securities referred to herein and may make purchases or sales thereof while the Company's reports are in circulation or posted on the SmallCaps Online LLC web site at www.SmallCapsOnline.com. This material, or any portion thereof, may not be reproduced without prior permission from SmallCaps Online LLC. SmallCaps Online LLC is not responsible for the contents of this document that is intended for electronic transmission and could be thus subjected to tampering or alteration. Copyright © 1999 by SmallCaps Online LLC. All rights reserved.