UNITED STATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

FORM 10-Q

Scios Inc.

PART I.FINANCIAL INFORMATION

Item 1. FinancialStatements

```

                                                        SCIOS INC.

                                               Consolidated Balance Sheets
                                     (In thousands, except share and per share data)

     ASSETS                                                                 September 30,                   December 31,
                                                                                2001                            2000
                                                                          ------------------              -----------------
                                                                          ------------------              -----------------
                                                                             (Unaudited)
Current assets:
     Cash and cash equivalents                                            $                               $
                                                                          69,904                          3,291
     Marketable securities                                                           1,006                          35,356
     Accounts receivable                                                             6,440
                                                                                                               5,217
     Inventory                                                                          428
                                                                                                                 --
     Prepaid expenses and other assets                                                  488
                                                                                                                722
                                                                          ------------------              -----------------
                                                                          ------------------              -----------------
       Total current assets                                                         78,266                          44,586

Marketable securities, non-current                                                  70,666                          32,884
Property and equipment, net                                                          8,642
                                                                                                               8,910
Other assets                                                                         4,063
                                                                                                               2,007
                                                                          ------------------              -----------------
                                                                          ------------------              -----------------

TOTAL ASSETS                                                              $       161,637                 $         88,387
                                                                          ==================              =================

     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                     $           6,879               $
                                                                                                          4,587
     Other accrued liabilities                                                     12,116                           10,749
     Deferred contract revenues                                                        128                          16,193
                                                                          ------------------              -----------------
       Total current liabilities                                                   19,123                           31,529

Long-term debt                                                                     41,350                           39,095
                                                                          ------------------              -----------------
                                                                          ------------------              -----------------
       Total liabilities                                                           60,473                           70,624
                                                                          ------------------              -----------------

Stockholders' equity:
     Preferred stock; $.001 par value; 20,000,000
        shares authorized; 4,991 shares issued and outstanding                           --                             --
     Common stock; $.001 par value; 150,000,000
        shares authorized; 45,397,905 and 39,166,373 shares
        issued and outstanding, respectively
                                                                                 45                              39
     Treasury stock; 30,000 shares
                                                                                (445)                            --
     Additional paid-in capital                                                    545,930                        428,987
     Notes receivable from stockholders
                                                                                (446)                          (634)
     Deferred compensation, net
                                                                                (106)                          (417)
     Accumulated other comprehensive income
                                                                                1,256                          1,195
     Accumulated deficit                                                                                         (411,407)
                                                                              (445,070)
                                                                          ------------------              -----------------
                                                                          ------------------              -----------------
       Total stockholders' equity                                                  101,164                         17,763
                                                                          ------------------              -----------------
                                                                          ------------------              -----------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $        161,637                $         88,387
```

```

                 The accompanying notes are an integral part of these consolidated financial statements.

                                                              SCIOS INC.

                                     Consolidated Statements of Operations and Comprehensive Loss
                                            (In thousands, except share and per share data)

                                                                        Three months ended                       Nine months ended
                                                                          September 30,                            September 30,
                                                                     2001                2000                 2001               2000
                                                                ----------------    ---------------      ---------------    ---------------
                                                                -----------------------------------      ----------------------------------
                                                                           (Unaudited)                              (Unaudited)
Revenues:
       Product sales                                            $                    $                   $                         $     --
                                                                18,330               --                  20,428
       Research and development contracts and royalties
                                                                     1,284               1,192               3,865               4,568
       Gain on sale of marketing rights                                      --                                                          --
                                                                                           --                9,363
       Psychiatric product sales, co-promotion
         commissions, net of expenses
                                                                      --                 1,624               3,142               4,539
                                                                ----------------     ---------------     ---------------    ----------------
                                                                ----------------     ---------------     ---------------    ----------------
                                                                                                                 36,798
                                                                    19,614               2,816                                   9,107
                                                                ----------------     ---------------     ---------------    ----------------
                                                                ----------------     ---------------     ---------------    ----------------

Costs and expenses:
       Cost of sales                                                                                              2,035
                                                                     2,035                 --                                     --
       Research and development                                                                                 34,665
                                                                    12,101               9,645                                  30,223
       Marketing, general and administration                                                                    35,105
                                                                    18,347               3,545                                   9,771
       Restructuring credits                                                 --                  --                  --               (993)
                                                                ----------------     ---------------     ---------------    ----------------
                                                                ----------------     ---------------     ---------------    ----------------
                                                                                                                71,805
                                                                    32,483               13,190                                 39,001
                                                                ----------------     ---------------     ---------------    ----------------
                                                                ----------------     ---------------     ---------------    ----------------

Loss from operations                                                    (12,869)           (10,374)            (35,007)            (29,894)
                                                                -----------------   ----------------     ---------------    ----------------

Other income and expense:
       Interest income
                                                                     1,929               1,221               3,483               3,809
       Interest expense                                                   (653)               (917)             (2,256)             (2,927)
       Realized gains (losses) on securities                                                    (3)                                   (187)
                                                                      205                                     594
       Other income (expense), net                                                            (411)               (477)             (1,113)
                                                                      221
                                                                ----------------     ---------------     ---------------    ----------------
                                                                ----------------     ---------------     ---------------    ----------------
                                                                                              (110)                                   (418)
                                                                     1,702                                   1,344
                                                                ----------------     ---------------     ---------------    ----------------
                                                                ----------------     ---------------     ---------------    ----------------

Net loss                                                                                  (10,484)
                                                                (11,167)                                 (33,663)           (30,312)

Other comprehensive income:
       Change in unrealized gain on securities                                                                                          616
                                                                      700                387                   61
                                                                ----------------    ---------------      ---------------    ----------------
Comprehensive loss:                                             $                      $  (10,097)       $     (33,602)         $ (29,696)
                                                                (10,467)
                                                                ================    ===============      ===============    ===============

       Loss per common share:
            Basic and diluted                                   $                   $                    $                  $
                                                                (0.25)              (0.28)               (0.81)             (0.80)

            Weighted average number of common
              shares outstanding used in the
             calculation of net loss per share:
             Basic and diluted                                       45,383,394         37,881,422           41,563,771         37,813,858
```

```

                                                   SCIOS INC.

                                     Consolidated Statements of Cash Flows
                                                 (In thousands)

                                                                                       Nine months ended
                                                                                         September 30,
                                                                                    2001               2000
                                                                               ---------------     --------------
                                                                                          (Unaudited)
Cash flows from operating activities:
   Net loss                                                                        $ (33,663)         $ (30,312)
   Adjustments to reconcile net loss to net
   cash used in operating activities:
     Depreciation and amortization
                                                                                   2,508               2,775
     Loss on property and equipment retirement
                                                                                    365                 254
     Accrued long-term interest payable
                                                                                   2,255               2,927
     Gain (loss) on sale of securities
                                                                                    594                 187
     Amortization of deferred compensation
                                                                                    311                 232
     Changes in assets and liabilities:
        Accounts receivable                                                                                  108
                                                                                  (1,223)
        Accounts payable
                                                                                   2,292               1,342
        Inventories                                                                     (428)                 --
        Other accrued liabilities                                                                        (1,812)
                                                                                   1,367
        Prepaid expenses and other assets                                             (1,822)
                                                                                                       1,568
        Deferred contract revenue                                                    (16,065)              (936)
        Restructuring (credits) charges                                                    --            (1,052)
                                                                               ---------------     --------------
             Net cash used in operating activities                                   (43,508)           (24,719)
                                                                               ---------------     --------------

Cash flows from investing activities:
   Purchases of property and equipment                                                                     (853)
                                                                                  (2,605)
   Sales/maturities of marketable securities                                         282,340              63,238
   Purchases of marketable securities                                               (286,306)           (43,528)
                                                                               ---------------     --------------
             Net cash provided by (used in) investing activities                      (6,571)
                                                                                                      18,857
                                                                               ---------------     --------------

Cash flows from financing activities:
   Issuance of common stock and collection of notes
      receivable from stockholders, net                                               116,949
                                                                                                       2,123
   Purchase of treasury stock                                                           (445)                 --
   Payment  (issues) of notes receivable                                                                 (4,561)
                                                                                    188
                                                                               ---------------     --------------
             Net cash provided by (used in) financing activities                     116,692             (2,438)
                                                                               ---------------     --------------

Net increase (decrease) in cash and cash equivalents
                                                                                   66,613             (8,300)
Cash and cash equivalents, at beginning of period
                                                                                   3,291              11,582
                                                                               ---------------     --------------
Cash and cash equivalents, at end of period                                    $       69,904            $
                                                                                                       3,282
                                                                               ===============     ==============
```

SCIOS INC.

1. Basis ofPresentation

2. NewAccounting Pronouncements

3. Computationof Loss Per Share

```

                                                          Three months ended               Nine months ended
                                                            September 30,                    September 30,
                                                         20001            2000                2001         2000
                                                   --------------------------------- -------------------------------

         Numerator

         Basic and Diluted
            Net loss                                     $ 11,167           $10,484         $33,663         $30,312

         Denominator

         Basic and Diluted
            Weighted average shares                        45,383          37,881            41,564         37,814

         Basic and diluted loss per share                $ 0.25              $ 0.28       $ 0.81           $ 0.80
```

5. Gain onSale of Marketing Rights

7. EquityFinancing

8. LeaseCommitments

```

                  Future minimum payments under these leases are as follows:

                                                         (in thousands)

                              2002                                $  1,825
                              2003                                $  2,069
                              2004                                 $   917
                              2005                                 $   948
                              2006                                 $   979
                              2007                                $  1,010
                              2008                                 $   868
```

9. StockholderApproval of Stock Plans

10. NewAccounting Policies

11. Innovex,PharmBio, and Scios Amended Agreement

Overview

Results ofOperations

Liquidity andCapital Resources

Risk Factors

Risks Related toNatrecor® (nesiritide)

***If the FDA determinesthat our third-party manufacturing facilities are not adequate, we may lose theability to manufacture and sell Natrecor®.***

***We rely onthird-party manufacturers, and if they experience any difficulties with theirmanufacturing processes, we may not obtain sufficient quantities ofNatrecor*****®*********to assureavailability.***

***The failure ofPharmaBio Development, Inc., an affiliate of Innovex, to fulfill its obligationto partially fund the commercialization ofNatrecor*****®*********may affect ourability to successfully marketNatrecor***®*********.***

***We will require apartner to market and commercialize Natrecor*®***andour other product candidates in international markets.***

***If we fail to obtainadditional marketing approvals from the FDA for the use ofNatrecor*® ***for additional therapeutic indicationsor if after approval such approval is subsequently revoked, our revenues fromNatrecor*®***will suffer.***

Other RisksRelated to Scios

***We have a history oflosses, expect to operate at a loss for the foreseeable future and may never beprofitable.***

        |X|the extent and timing of costs related to our activities to obtain patents onour inventions and to extend, enforce and/or defend our patents and other rightsto our intellectual property. 

***We depend on our keypersonnel and we must continue to attract and retain key employees andconsultants.***

***Other thanNatrecor*****®*********, our productcandidates are at early stages of development, and if we are unable to developand commercialize these product candidates successfully, we will not generaterevenues from these products.***

***Our operations dependon compliance with complex FDA and comparable international regulations. If wefail to obtain approvals on a timely basis or to achieve continued compliance,the commercialization of our products could be delayed*****. 

***Our products usenovel alternative technologies and therapeutic approaches, which have not beenwidely studied.***

***Rapid changes intechnology and industry standards could render our potential productsunmarketable.***

        |X|obtain FDA and other regulatory approvals or reach the market with theirproducts more rapidly than we can, reducing the potential sales of our productcandidates; 

***If we are unable toprotect our intellectual property rights adequately, the value of our potentialproducts could be diminished.***

Risks Relatedto our Industry

***We may be required todefend lawsuits or pay damages in connection with the alleged or actual harmcaused by our product candidates.***

***We use hazardousmaterials in our business, and any claims relating to improper handling storageor disposal of these materials could harm our business.***

***Our stock pricecontinues to experience large fluctuations, and you could lose some or all ofyour investment.***

        |X|fluctuations in stock market price and volume, which are particularly commonamong securities of biopharmaceutical companies. 

        |X|establish advance notice requirements for nominations for election to the boardof directors or for proposing matters than can be acted upon by stockholders atstockholder meetings. 

Item 3.Quantitative and Qualitative Disclosure About Market Risk

PART II. OTHERINFORMATION

Item 6.Exhibits and Reports on Form 8-K