<PAGE>
                                                                      EXHIBIT 13

                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A LIMITED PARTNERSHIP)
                FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
                              FOR THE YEARS ENDED
                           DECEMBER 31, 1997 AND 1996
                                      WITH
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

                                       13
<PAGE>
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Partners
ALZA TTS Research Partners, Ltd.
(A limited partnership)

    We have audited the accompanying statements of assets, liabilities and
partners' capital (deficit) of ALZA TTS Research Partners, Ltd. as of December
31, 1997 and 1996, and the related statements of revenue collected and expenses,
partners' capital (deficit) and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

    As described in Note 1, these financial statements have been prepared on a
modified basis of cash receipts and disbursements, which is a comprehensive
basis of accounting other than generally accepted accounting principles.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and partners' capital
(deficit) of ALZA TTS Research Partners Ltd., at December 31, 1997 and 1996, and
its revenue collected and expenses and cash flows for each of the three years in
the period ended December 31, 1997, on the basis of accounting described in Note
1.

    Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying additional information
is prepared on a federal income tax basis and is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such additional information has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.

                                                  /s/ ERNST & YOUNG LLP

                                          --------------------------------------
                                                    Ernst & Young LLP

Palo Alto, California
February 13, 1998

                                       14
<PAGE>
                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A LIMITED PARTNERSHIP)

       STATEMENTS OF ASSETS, LIABILITIES, AND PARTNERS' CAPITAL (DEFICIT)

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,  DECEMBER 31,
                                                                                           1997          1996
                                                                                       ------------  ------------
<S>                                                                                    <C>           <C>
                                                     ASSETS
Current assets:
  Cash...............................................................................   $  109,262    $   77,586
                                                                                       ------------  ------------
                                                                                       ------------  ------------

                                   LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Current liabilities:
  Payable to ALZA Corporation........................................................   $   17,635    $  146,381

Partners' capital (deficit):
  Class A Limited Partners, 3,200 units outstanding..................................       81,863       (69,904)
  Class B Limited Partner............................................................        8,864         1,805
  General Partner....................................................................          900          (696)
                                                                                       ------------  ------------
    Total partners' capital (deficit)................................................       91,627       (68,795)
                                                                                       ------------  ------------
                                                                                        $  109,262    $   77,586
                                                                                       ------------  ------------
                                                                                       ------------  ------------
</TABLE>

                            See accompanying notes.

                                       15
<PAGE>
                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A LIMITED PARTNERSHIP)

                  STATEMENTS OF REVENUE COLLECTED AND EXPENSES

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                              1997          1996          1995
                                                                          ------------  ------------  ------------
<S>                                                                       <C>           <C>           <C>
REVENUE:
  Royalty income........................................................  $  8,776,814  $  6,265,401  $  4,441,708
  License fee...........................................................       250,000       --            --
  Interest income.......................................................        31,687        28,995        20,192
                                                                          ------------  ------------  ------------
    Total revenue.......................................................     9,058,501     6,294,396     4,461,900

EXPENSES:
  General and administrative............................................       105,512        86,548       100,253
                                                                          ------------  ------------  ------------

NET INCOME..............................................................  $  8,952,989  $  6,207,848  $  4,361,647
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------

ALLOCATION OF NET INCOME:
  General Partner.......................................................  $     89,530  $     62,079  $     43,616
  Class A Limited Partners..............................................     8,469,527     6,035,020     4,318,031
  Class B Limited Partner...............................................       393,932       110,749       --
                                                                          ------------  ------------  ------------
                                                                          $  8,952,989  $  6,207,848  $  4,361,647
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------
</TABLE>

                            See accompanying notes.

                                       16
<PAGE>
                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A LIMITED PARTNERSHIP)

                   STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                                                         TOTAL
                                                                CLASS A       CLASS B                  PARTNERS'
                                                                LIMITED       LIMITED     GENERAL       CAPITAL
                                                               PARTNERS       PARTNER     PARTNER      (DEFICIT)
                                                             -------------  -----------  ----------  -------------
<S>                                                          <C>            <C>          <C>         <C>
BALANCE DECEMBER 31, 1994..................................  $    (580,907) $   348,824  $   (2,364) $    (234,447)
Net income.................................................      4,318,031      --           43,616      4,361,647
Payments to Partners.......................................     (4,073,856)    (189,481)    (43,064)    (4,306,401)
                                                             -------------  -----------  ----------  -------------
BALANCE DECEMBER 31, 1995..................................       (336,732)     159,343      (1,812)      (179,201)
Net income.................................................      6,035,020      110,749      62,079      6,207,848
Payments to Partners.......................................     (5,768,192)    (268,287)    (60,963)    (6,097,442)
                                                             -------------  -----------  ----------  -------------
BALANCE DECEMBER 31, 1996..................................        (69,904)       1,805        (696)       (68,795)
Net income.................................................      8,469,527      393,932      89,530      8,952,989
Payment to Partners........................................     (8,317,760)    (386,873)    (87,934)    (8,792,567)
                                                             -------------  -----------  ----------  -------------
BALANCE DECEMBER 31, 1997..................................  $      81,863  $     8,864  $      900  $      91,627
                                                             -------------  -----------  ----------  -------------
                                                             -------------  -----------  ----------  -------------
</TABLE>

                            See accompanying notes.

                                       17
<PAGE>
                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

                          INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
                                                                           1997           1996           1995
                                                                       -------------  -------------  -------------
<S>                                                                    <C>            <C>            <C>
Cash flows from operating activities:
  Net income.........................................................  $   8,952,989  $   6,207,848  $   4,361,647
  Adjustments to reconcile net income to net cash used in operating
    activities:
      Decrease in liabilities:
        Payable to ALZA Corporation..................................       (128,746)       (81,065)       (35,156)
  Payments to partners...............................................     (8,792,567)    (6,097,442)    (4,306,401)
                                                                       -------------  -------------  -------------
Net increase in cash.................................................         31,676         29,341         20,090
Cash at beginning of year............................................         77,586         48,245         28,155
                                                                       -------------  -------------  -------------
Cash at end of year..................................................  $     109,262  $      77,586  $      48,245
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
</TABLE>

                            See accompanying notes.

                                       18
<PAGE>
                        ALZA TTS RESEARCH PARNTERS, LTD.
                            (A LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS

                               DECEMBER 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

    ALZA TTS Research Partners, Ltd. (the "Partnership") was formed on December
30, 1982 to conduct research and development of products combining ALZA
Corporation's ("ALZA") proprietary transdermal ("D-TRANS-TM-") therapeutic
systems technology with certain generic compounds. On April 22, 1983 the closing
of the sale to the public of Class A Limited Partnership interests took place.
At December 31, 1997 and 1996, the capital consisted of 3,200 Class A Limited
Partnership units which had been sold for $5,000 each, an original investment by
the Class B Limited Partner of $750,000 (paid: $250,000 in 1983, $250,000 in
1984 and $250,000 in 1985) and an original investment by the General Partner
(ALZA Development Corporation, a wholly-owned subsidiary of ALZA) of $169,192.
Under the terms of the Agreement of Limited Partnership (the "Partnership
Agreement"), net losses were allocated as follows: first, 1% to the General
Partner and 99% to the Class A Limited Partners and then, after the capital
account of the Class A Limited Partners was reduced to zero, 1% to the General
Partner and 99% to the Class B Limited Partner. After the capital accounts of
the Class A and Class B Limited Partners were reduced to zero, losses were
allocated 100% to the General Partner.

    Under the terms of the Partnership Agreement, net income is allocated in the
inverse order of the losses previously allocated. To the extent losses were
allocated 100% to the General Partner, net income was allocated 100% to the
General Partner in an amount equal to such losses prior to any allocation of net
income to the Class A and Class B Limited Partners. Then, to the extent losses
were allocated 99% to the Class B Limited Partner, any net income was allocated
99% to the Class B Limited Partner (and 1% to the General Partner) in an amount
equal to such losses prior to any net income being allocated to the Class A
Limited Partners. Then, to the extent losses were allocated 99% to the Class A
Limited Partners, net income was allocated 99% to the Class A Limited Partners
(and 1% to the General Partner.) As provided in the Partnership Agreement, once
the amount of net income allocated to the Class A Limited Partners and the
General Partner equaled previously allocated losses (which occurred in the third
quarter of 1996), subsequent net income began to be allocated 99% to the Class A
and Class B Limited Partners, PRO RATA, and 1% to the General Partner.

    The General Partner is required by the Partnership Agreement to distribute,
on a quarterly basis, all of the Partnership's Excess Cash (which consists of
all cash received by the Partnership less all amounts expended in the conduct of
the Partnership's business, including administrative expenses, and working
capital) in proportion to the Partners' respective capital contribution
percentages. Therefore, the amount available for distribution to the limited
partners is net of ongoing administrative costs (primarily accounting and legal
expenses, quarterly reports, tax returns and auditor's reports).

    All available Partnership development funds were utilized before 1988. In
1987, ALZA exercised its continuation option, an option granted to it by the
Partnership, to continue the development of all Partnership products without
Partnership funding. A D-TRANS-TM- fentanyl product (marketed under the trade
name Duragesic-Registered Trademark- in the United States and
Durogesic-Registered Trademark- outside the United States) and a D-TRANS-TM-
testosterone product (marketed under the trade name
Testoderm-Registered Trademark-) were completed by ALZA under the continuation
option. Duragesic-Registered Trademark- has been cleared for marketing in the
United States and in more than 35 additional countries, including several in
each of Europe, South America and Asia (excluding Japan).
Testoderm-Registered Trademark- has been cleared for marketing in the United
States, China, Singapore and in more than ten European countries. In 1996, ALZA,
through its sales and marketing division, ALZA Pharmaceuticals, introduced
Testoderm-Registered Trademark- with Adhesive as an addition to the
Testoderm-Registered Trademark- line. This product was developed

                                       19
<PAGE>
                        ALZA TTS RESEARCH PARNTERS, LTD.
                            (A LIMITED PARTNERSHIP)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
without Partnership funds. However, regulatory clearance of the product was
obtained through a supplemental New Drug Application to the
Testoderm-Registered Trademark- New Drug Application ("NDA"), and ALZA makes the
same payments to the Partnership with respect to Testoderm-Registered Trademark-
with Adhesive as it does with respect to the original
Testoderm-Registered Trademark- product. For products at earlier stages of
development, no arrangements have been made with development partners, and
further activities are not contemplated at this time.

    ALZA has an option, exercisable for limited periods, to acquire worldwide
licenses to manufacture and market, or sublicense to others, any or all products
developed by the Partnership. ALZA has exercised its option to acquire worldwide
licenses (with the right to sublicense) for the Duragesic-Registered Trademark-
and Testoderm-Registered Trademark- products. The licenses for each product are
exclusive until thirteen years after the actual reduction to practice of such
product and become nonexclusive thereafter. For Testoderm-Registered Trademark-,
the period of ALZA's exclusivity ends on July 26, 1998. For
Duragesic-Registered Trademark-, the period of ALZA's exclusivity ends on
December 4, 1998.

    If ALZA's license for a product becomes nonexclusive, the General Partner
will need to determine whether to appoint others to market and sell the product.
Under ALZA's agreement with Janssen Pharmaceutica, Inc (together with its
affiliates, "Janssen"), a subsidiary of Johnson and Johnson, covering the
Duragesic-Registered Trademark- product, if the product were to be introduced by
a third party after ALZA's loss of exclusivity from the Partnership, ALZA's
royalty rate due from Janssen with respect to Duragesic-Registered Trademark-
would drop significantly. The Partnership's right to receive 4% of net sales
from ALZA would not change. It is likely that ALZA Development Corporation would
have a conflict of interest in connection with any Partnership decision as to
whether Testoderm-Registered Trademark- and Duragesic-Registered Trademark-
should be licensed to a third party in addition to ALZA. In such an event, ALZA
Development Corporation would likely resign as the General Partner and a new
general partner would have to be appointed.

    The General Partner has an option (the "Purchase Option"), exercisable at
any time, to purchase all (but not less than all) of the Limited Partners'
interests in the Partnership. The exercise price is $120 million, less Excess
Cash distributed to the Limited Partners. The exercise price would be paid by
check to the Limited Partners. As of December 31, 1997, the purchase price would
be $27,992 per $5,000 unit. The General Partner is under no obligation to
exercise the Purchase Option and the General Partner will exercise the Purchase
Option only if ALZA deems such exercise to be in its best interest. The General
Partner has not made a determination as to whether to exercise the Purchase
Option.

    A summary of the Partnership's significant accounting policies follows:

    RESEARCH AND DEVELOPMENT:

    Until 1987, when Partnership funds raised at the time of its formation had
been fully expended, the Partnership funded research and development costs
quarterly, in advance, in an amount equal to ALZA's estimate of the research and
development costs to be incurred by ALZA during the next quarter. Research and
development expense was recognized by the Partnership during the period in which
work was performed by ALZA.

                                       20
<PAGE>
                        ALZA TTS RESEARCH PARNTERS, LTD.
                            (A LIMITED PARTNERSHIP)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    ROYALTY INCOME:

    Janssen began marketing Duragesic-Registered Trademark- in the United States
during the second quarter of 1991, and in Canada during the second quarter of
1992. In addition, Janssen has launched Duragesic-Registered Trademark- in more
than 25 other countries, including several in each of Europe, South America and
Asia (excluding Japan). During the second quarter of 1994, ALZA Pharmaceuticals
began co-promoting Duragesic-Registered Trademark- in the United States with
Janssen. As provided by the agreement between ALZA and Janssen, quarterly sales
reports and the resulting payments to ALZA on Duragesic-Registered Trademark-
sold by Janssen are due no later than 90 days after the end of each quarter.

    In April 1994, ALZA Pharmaceuticals began marketing
Testoderm-Registered Trademark- in the United States. ALZA Pharmaceuticals plans
to commercialize the product outside the United States through distributors.
Commercialization agreements for Testoderm-Registered Trademark- have been
signed with Scitech Genetics Limited ("Scitech") and Pharmagenesis, Inc.
("Pharmagenesis") in 1995 covering 17 Asian countries (excluding Japan). Scitech
launched Testoderm-Registered Trademark- in Singapore in January 1997. As
provided by the agreements between ALZA and Scitech and ALZA and Pharmagenesis,
quarterly sales reports and the resulting payments to ALZA on
Testoderm-Registered Trademark- sold by Scitech and Pharmagenesis are due within
45 days after the end of each quarter.

    During the fourth quarter of 1996, ALZA signed an agreement with Ferring NV
(together with its affiliates, "Ferring") pursuant to which Ferring has the
right to market Testoderm-Registered Trademark- in 12 European countries. As
provided by the agreement between ALZA and Ferring, quarterly sales reports and
the resulting payments to ALZA on Testoderm-Registered Trademark- sold by
Ferring will be due within 45 days after the end of the quarter. As a result of
the agreement between ALZA and Ferring, the Partnership received a license fee
of $250,000 from ALZA in 1997 pursuant to the terms of the License Agreement
between the Partnership and ALZA for Testoderm-Registered Trademark-.

    Agreements between ALZA and the Partnership provide for ALZA to report sales
and make associated royalty payments to the Partnership within 90 days after the
end of the quarter in which ALZA receives payment from Janssen on sales of
Duragesic-Registered Trademark-. In addition, within 90 days after the end of
each calendar quarter, ALZA reports sales and makes associated royalty payments
to the Partnership with respect to ALZA's sales of
Testoderm-Registered Trademark- in the United States during such quarter. Under
these agreements, the Partnership is entitled to receive 4% of net sales of
Duragesic-Registered Trademark- and Testoderm-Registered Trademark-.

    The Partnership currently records income in the quarter in which cash is
received. The Partnership maintains its books using a modified basis of cash
receipts and disbursements which is different from accrual basis accounting in
that royalty revenues are not recognized until the related cash is received.

    DISTRIBUTIONS:

    After payment of the Partnership expenses, distributions to the partners by
the Partnership are to be made on a quarterly basis as soon as practicable after
the end of each calendar quarter in which the Partnership receives a payment
from ALZA.

    According to the Partnership Agreement, quarterly distributions to the
Limited Partners are made from Excess Cash. Therefore, the amount available for
distribution to the Limited Partners is net of

                                       21
<PAGE>
                        ALZA TTS RESEARCH PARNTERS, LTD.
                            (A LIMITED PARTNERSHIP)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1997

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ongoing administrative expenses. Between December 1987 (at which time all
Partnership funds, raised at the time of its formation, had been utilized) and
December 1991 (when the Partnership began receiving royalty revenues on TTS
Partnership Product Sales), administrative costs were advanced by ALZA on behalf
of the Partnership. Initially, ALZA agreed that the Partnership could reimburse
these costs to ALZA over time at the rate of $5.00 per Partnership unit per
quarter, which were deducted from Excess Cash from December 1991 through
December 1993. In March 1994, the quarterly rate was increased to $10.00 per
Partnership unit. In June 1996, it was determined that a further increase in the
reimbursement rate was necessary to fully reimburse ALZA for past administrative
costs on a more timely basis. Therefore, beginning with the September 1996
distribution, a quarterly deduction was made from Excess Cash in an amount equal
to the actual administrative expenses of the Partnership for the previous
quarter plus $10.00 per Partnership unit to repay past administrative costs.
ALZA had not charged any interest on the past due amounts. All remaining past
administrative costs were paid in full as of September 30, 1997. In 1997,
payments made to ALZA for past and current administrative costs totaled
$256,496. In 1995 and 1996, payments made for past and current administrative
costs totaled $138,607 and $172,459, respectively.

    INCOME TAXES:

    Income or loss of the Partnership is included in the tax returns of the
individual partners. Accordingly, no provision for income taxes has been made by
the Partnership.

2. TAX BASIS

    Prior to fiscal year 1994, the Partnership's income tax reporting method was
consistent with the modified basis of cash receipts and disbursements method
used for financial reporting purposes.

    The Partnership applied to the Internal Revenue Service ("IRS") to change
its income tax reporting method to the accrual basis, effective January 1, 1994.
The IRS accepted the application and agreed to the Partnership making a one time
adjustment to be recognized over three years, beginning in 1994. The application
was filed to change the Partnership's income tax reporting method to a method
consistent with the current Internal Revenue Code.

    The following is a reconciliation of partners' deficit for financial
reporting purposes, as described in this report, to the partners' capital for
federal income tax reporting purposes. The current difference between the
financial and tax basis statements is due to i) royalty and license income
accrued to be consistent with the accounting method change and ii) the
syndication costs, which reduce partners' capital for financial reporting
purposes but which are recorded as an asset for tax purposes.

<TABLE>
<S>                                                                <C>
Partners' capital for financial reporting purposes at December
  31, 1997.......................................................  $   91,627
Accounts receivable--Accrued royalty.............................   5,206,338
Syndication costs charged to partners' capital for financial
  reporting purposes.............................................   1,810,059
                                                                   ----------
Partners' capital for tax reporting purposes at December 31,
  1997...........................................................  $7,108,024
                                                                   ----------
                                                                   ----------
</TABLE>

                                       22
<PAGE>
                        ALZA TTS RESEARCH PARNTERS, LTD.
                            (A LIMITED PARTNERSHIP)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                               DECEMBER 31, 1997

3. RELATED PARTIES

    ALZA Development Corporation, a wholly-owned subsidiary of ALZA, is the
general partner of the Partnership.

    ALZA, under a research and development contract, performed all research and
development for the Partnership. The Partnership requires certain
administrative, accounting, contract management and record keeping services
which are presently being provided by ALZA and billed to the Partnership at
ALZA's standard administrative services rate ($105,512 for 1997, $86,548 for
1996 and $100,253 for 1995).

4. CONTINGENT LIABILITIES

    ALZA performed research and development work during 1987 amounting to
$78,789. This amount has not been accrued for due to a contractual limitation
and will not be accrued for unless and until the Partnership has additional
funding as provided in the Partnership Agreement.

                                       23
<PAGE>
                             ADDITIONAL INFORMATION

                                       24
<PAGE>
                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A LIMITED PARTNERSHIP)

            STATEMENTS OF ASSETS, LIABILITIES, AND PARTNERS' CAPITAL

                               (INCOME TAX BASIS)

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,  DECEMBER 31,
                                                                                           1997          1996
                                                                                       ------------  ------------
<S>                                                                                    <C>           <C>
                                                     ASSETS

Current assets:
  Cash...............................................................................   $  109,262    $   77,586
  Accounts receivable from ALZA Corporation..........................................    5,206,338     3,911,256
                                                                                       ------------  ------------
Total current assets.................................................................    5,315,600     3,988,842
Syndication costs....................................................................    1,810,059     1,810,059
                                                                                       ------------  ------------
Total Assets.........................................................................   $7,125,659    $5,798,901
                                                                                       ------------  ------------
                                                                                       ------------  ------------

                                        LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
  Payable to ALZA Corporation........................................................   $   17,635    $  146,381
                                                                                       ------------  ------------
Total current liabilities............................................................       17,635       146,381
Partners' capital:
  Class A Limited Partners...........................................................    6,718,656     5,341,728
  Class B Limited Partner............................................................      318,309       254,267
  General Partner....................................................................       71,059        56,525
                                                                                       ------------  ------------
Total partners' capital..............................................................    7,108,024     5,652,520
                                                                                       ------------  ------------
Total Liabilities and Partners' Capital..............................................   $7,125,659    $5,798,901
                                                                                       ------------  ------------
                                                                                       ------------  ------------
</TABLE>

                                       25
<PAGE>
                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A LIMITED PARTNERSHIP)

            STATEMENTS OF ASSETS, LIABILITIES, AND PARTNERS' CAPITAL

                               (INCOME TAX BASIS)

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                            1997           1996          1995
                                                                        -------------  ------------  ------------
<S>                                                                     <C>            <C>           <C>
REVENUES:

  Royalty income (includes $374,425 in 1996 and $374,426 in 1995
    recognized due to the accounting change in 1994)..................  $  10,321,896  $  7,612,650  $  5,595,628
  License fee.........................................................       --             250,000       --
  Interest income.....................................................         31,687        28,995        20,192
                                                                        -------------  ------------  ------------
    Total revenue.....................................................     10,353,583     7,891,645     5,615,820

EXPENSES:

  General and administrative..........................................        105,512        86,548       100,253
                                                                        -------------  ------------  ------------
NET INCOME............................................................  $  10,248,071  $  7,805,097  $  5,515,567
                                                                        -------------  ------------  ------------
                                                                        -------------  ------------  ------------
ALLOCATION OF NET INCOME:

  General Partner.....................................................  $     102,468  $     78,061  $     55,151
  Class A Limited Partners............................................      9,694,688     7,444,192     5,460,416
  Class B Limited Partners............................................        450,915       282,844       --
                                                                        -------------  ------------  ------------
                                                                        $  10,248,071  $  7,805,097  $  5,515,567
                                                                        -------------  ------------  ------------
                                                                        -------------  ------------  ------------
NET INCOME PER CLASS A LIMITED PARTNERSHIP UNIT.......................  $    3,029.59  $   2,326.31  $   1,706.38
                                                                        -------------  ------------  ------------
                                                                        -------------  ------------  ------------
</TABLE>

                                       26
<PAGE>
                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A LIMITED PARTNERSHIP)

                        STATEMENTS OF PARTNERS' CAPITAL

                               (INCOME TAX BASIS)

                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                  CLASS A      CLASS B                  TOTAL
                                                                  LIMITED      LIMITED     GENERAL    PARTNERS'
                                                                  PARTNERS     PARTNER     PARTNER     CAPITAL
                                                                ------------  ----------  ---------  ------------
<S>                                                             <C>           <C>         <C>        <C>
BALANCE DECEMBER 31, 1994.....................................  $  2,279,168  $  429,191  $  27,340  $  2,735,699
Net income....................................................     5,460,416      --         55,151     5,515,567
Payments to Partners..........................................    (4,073,856)   (189,481)   (43,064)   (4,306,401)
                                                                ------------  ----------  ---------  ------------
BALANCE DECEMBER 31, 1995.....................................     3,665,728     239,710     39,427     3,944,865
Net income....................................................     7,444,192     282,844     78,061     7,805,097
Payments to Partners..........................................    (5,768,192)   (268,287)   (60,963)   (6,097,442)
                                                                ------------  ----------  ---------  ------------
BALANCE DECEMBER 31, 1996.....................................     5,341,728     254,267     56,525     5,652,520
Net income....................................................     9,694,688     450,915    102,468    10,248,071
Payments to Partners..........................................    (8,317,760)   (386,873)   (87,934)   (8,792,567)
                                                                ------------  ----------  ---------  ------------
BALANCE DECEMBER 31, 1997.....................................  $  6,718,656  $  318,309  $  71,059  $  7,108,024
                                                                ------------  ----------  ---------  ------------
                                                                ------------  ----------  ---------  ------------
</TABLE>

                                       27