<PAGE>
                                                               Exhibit 13







                        ALZA TTS RESEARCH PARTNERS, LTD.
                            (A limited partnership)

                 FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION

                               FOR THE YEARS ENDED
                           DECEMBER 31, 1996 AND 1995

                                     with

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

<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, 1996 and 1995, 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, 1996.  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, 1996 and 1995,
and its revenue collected and expenses and cash flows for each of the three
years in the period ended December 31, 1996, 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, 1997


<PAGE>

                         ALZA TTS RESEARCH PARTNERS, LTD.
                            (A limited partnership)

                      Statements of Assets, Liabilities, and
                            Partners' Capital (Deficit)

<TABLE>
<CAPTION>
                                                  December 31,    December 31,
ASSETS                                                1996            1995
                                                  ------------    ------------
<S>                                               <C>             <C>
Current assets:
  Cash                                            $     77,586    $     48,245
                                                  ------------    ------------
                                                  ------------    ------------


LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Current liabilities:
 Payable to ALZA Corporation                      $    146,381    $    227,446


Partners' capital (deficit):
 Class A Limited Partners,
   3,200 units outstanding                            (69,904)        (336,732)
 Class B Limited Partner                                1,805          159,343
 General Partner                                         (696)          (1,812)
                                                 ------------     ------------

   Total partners' deficit                            (68,795)        (179,201)
                                                 ------------     ------------

                                                 $     77,586     $     48,245
                                                 ------------     ------------
                                                 ------------     ------------
</TABLE>


                          See accompanying notes.

                                     -2-
<PAGE>

                          ALZA TTS RESEARCH PARTNERS, LTD.
                              (A limited partnership)

                     Statements of Revenue Collected and Expenses
                     Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                         1996             1995             1994
                                    --------------    -------------    ------------
<S>                                  <C>              <C>              <C>
REVENUE:

  Royalty income                     $ 6,265,401      $ 4,441,708       $ 3,167,914
  Interest income                         28,995           20,192            10,398
                                     -----------      -----------       -----------

    Total revenue                      6,294,396        4,461,900         3,178,312

EXPENSES:

  General and administrative              86,548          100,253           95,452
                                     -----------      -----------      -----------


NET INCOME                           $ 6,207,848      $ 4,361,647      $ 3,082,860
                                     -----------      -----------      -----------
                                     -----------      -----------      -----------

ALLOCATION OF NET INCOME:

    General Partner                  $    62,079     $    43,616      $    30,828
    Class A Limited Partners           6,035,020       4,318,031        3,052,032
    Class B Limited Partner              110,749               -                -
                                     -----------     -----------      -----------
                                     $ 6,207,848     $ 4,361,647      $ 3,082,860
                                     -----------     -----------      -----------
                                     -----------     -----------      -----------
</TABLE>


                              See accompanying notes.

                                     -3-
<PAGE>

                          ALZA TTS RESEARCH PARTNERS, LTD.
                              (A limited partnership)

                      Statements of Partners' Capital (Deficit)
                    Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                                                   Total
                      Class A        Class B                      Partners'
                      Limited        Limited        General       Capital
                      Partners       Partner        Partner       (Deficit)
                   -------------  ------------   -------------  -------------
<S>                <C>            <C>            <C>            <C>
BALANCE
  DECEMBER 31,
  1993             $   (764,075)  $   482,259   $    (2,883)    $  (284,699)

Net income            3,052,032             -        30,828       3,082,860

Payments to
  Partners           (2,868,864)     (133,435)      (30,309)     (3,032,608)
                   ------------   -----------   -----------     -----------
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)
                   ------------   -----------   -----------     -----------
                   ------------   -----------   -----------     -----------
</TABLE>

                              See accompanying notes.


                                     -4-
<PAGE>

                          ALZA TTS RESEARCH PARTNERS, LTD.
                             (A limited partnership)

                             Statements of Cash Flows
                     Years ended December 31, 1996, 1995 and 1994
                             Increase (Decrease) in Cash

<TABLE>
<CAPTION>
                                                1996               1995             1994
                                            ------------       ------------    --------------
<S>                                         <C>                <C>              <C>
Cash flows from operating activities:

   Net income                               $ 6,207,848        $  4,361,647     $  3,082,860

   Adjustments to reconcile net
    income to net cash
    used in operating activities:
      Decrease in liabilities:
         Payable to ALZA Corporation            (81,065)            (35,156)         (39,854)

   Payments to partners                      (6,097,442)         (4,306,401)      (3,032,608)
                                            -----------        ------------     ------------

Net increase in cash                             29,341              20,090           10,398

Cash at beginning of year                        48,245              28,155           17,757
                                            -----------        ------------     ------------

Cash at end of year                         $    77,586        $     48,245     $     28,155
                                            -----------        ------------     ------------
                                            -----------        ------------     ------------
</TABLE>


                           See accompanying notes.


                                     -5-
<PAGE>

                         ALZA TTS RESEARCH PARTNERS, LTD.
                             (A limited partnership)

                          Notes to Financial Statements
                                December 31, 1996

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 therapeutic system 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, 1996 and 1995, 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 as follows:
    $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
    Corporation) 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 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


                                     -6-
<PAGE>

                         ALZA TTS RESEARCH PARTNERS, LTD.
                             (A limited partnership)

                          Notes to Financial Statements
                                December 31, 1996

1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

    accounting and legal expenses, quarterly reports, tax returns and
    auditor's reports). Given the methodology for the allocation of
    losses and income as discussed above, deficit balances have
    resulted in the Class A Limited Partners' and General Partner's
    capital accounts and will continue until future allocated income
    exceeds cumulative cash distributions required of the General
    Partner.

    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.  Duragesic-Registered Trademark- (fentanyl transdermal
    system) CII and Testoderm-Registered Trademark-   (testosterone
    transdermal system) CIII were completed by ALZA under the
    continuation option.  Duragesic-Registered Trademark- has been
    cleared for marketing in the United States and in more than 30
    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.  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.  These licenses are
    exclusive for each product until thirteen years after the actual
    reduction to practice of such product and will become non-exclusive
    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 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.  ALZA Development Corporation, a wholly-owned
    subsidiary of ALZA, might have a conflict of interest in
    connection with any Partnership decision as to whether the
    product should be licensed to a third party in addition to
    ALZA.

    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.


                                     -7-
<PAGE>

                         ALZA TTS RESEARCH PARTNERS, LTD.
                             (A limited partnership)

                          Notes to Financial Statements
                                December 31, 1996

1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

    The exercise price is $120 million, less "Excess Cash" distributed
    to the Limited Partners. The exercise price may be paid in cash,
    ALZA common stock, or a combination, at the General Partner's
    option.  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 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.

    Royalty income:

    Janssen Pharmaceutica, Inc. (together with its affiliates,
    "Janssen"), a subsidiary of Johnson and Johnson, 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 20 other countries, including several in
    each of Europe, South America and Asia (excluding Japan).  During
    the second quarter of 1994, ALZA, through its sales and marketing
    division, 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, through ALZA Pharmaceuticals, began marketing
    Testoderm-Registered Trademark- in the United States.  The product
    will be marketed by one or more distributors outside the United
    States.  Commercialization agreements for Testoderm-Registered
    Trademark-  have been signed with Scitech Genetics Limited, in 1995,
    covering Bangladesh, Brunei, Burma, India, Indonesia, Malaysia,
    Pakistan, Philippines, Singapore, South Korea, Sri Lanka, Thailand
    and Vietnam and with Pharmagenesis, Inc., also in 1995, covering
    China, Hong Kong, Macau and Taiwan.  Scitech Genetics launched
    Testoderm-Registered Trademark- in Singapore in January


                                     -8-
<PAGE>

                         ALZA TTS RESEARCH PARTNERS, LTD.
                             (A limited partnership)

                          Notes to Financial Statements
                                December 31, 1996

1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

    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 pursuant to which Ferring has the rights to market
    Testoderm-Registered Trademark- in Austria, Belgium, Denmark,
    Finland, Germany, Ireland, Luxembourg, the Netherlands, Norway,
    Sweden, Switzerland and the United Kingdom.  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.  The Partnership received a license fee of $250,000 from
    ALZA 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 consist of 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.  Therefore, the amount available for
    distribution to the Limited Partners is net of ongoing
    administrative expenses.  These


                                     -9-
<PAGE>

                         ALZA TTS RESEARCH PARTNERS, LTD.
                             (A limited partnership)

                          Notes to Financial Statements
                                December 31, 1996

1.  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

    costs have been advanced by ALZA on behalf of the Partnership since
    December 1987 at which time all Partnership funds had been
    utilized. Initially, ALZA had agreed that the Partnership could
    reimburse these costs to ALZA 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 has been made from Excess
    Cash in an amount equal to the actual adminstrative expenses of the
    Partnership for the previous quarter plus $10.00 per Partnership
    unit to repay past administrative costs.  ALZA has not charged any
    interest on the past due amounts.  At the rate of $10.00 per
    Partnership unit per quarter, all unpaid past administrative costs
    (totalling $116,691 as of December 31, 1996) are expected to be
    repaid by the fourth quarter of 1997.

    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) the deferred revenue resulting from the accounting
    method change (see paragraph below), ii) royalty and license income
    accrued to be consistent with the accounting


                                     -10-
<PAGE>
                         ALZA TTS RESEARCH PARTNERS, LTD.
                             (A limited partnership)

                          Notes to Financial Statements
                                December 31, 1996

     method change and iii) the syndication costs, which reduce
     partners' capital for financial reporting purposes but which are
     recorded as an asset for tax purposes.


     Partners' deficit for financial reporting
       purposes at December 31, 1996                    $   (68,795)

     Deferred Revenue - Section 481(a) adjustment
       due to accounting method change
       (Total adjustment $1,123,277; 1994
       adjustment $374,426; 1995 adjustment
       $374,426; 1996 adjustment $374,425)                       0

     Accounts Receivable - Accrued royalty
       and license revenue                               3,911,256

     Syndication costs charged to partners'
       capital for financial purposes                    1,810,059
                                                     -------------
     Partners' capital for tax reporting
       purposes at December 31, 1996                 $  5,652,520
                                                     -------------
                                                     -------------

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 ($86,548 for 1996, $100,253 for 1995
     and $95,452 for 1994).

4.   CONTINGENT LIABILITIES

     ALZA performed research and development work during 1987
     amounting to $78,789. This amount has not been accrued for and will
     not be accrued for unless and until the Partnership has additional
     funding as provided in the Partnership Agreement.  This accrual was
     not made because the Partnership was required under the research and


                                     -11-
<PAGE>

                         ALZA TTS RESEARCH PARTNERS, LTD.
                             (A limited partnership)

                          Notes to Financial Statements
                                December 31, 1996

development contract with ALZA to pay only its Total Funds (as defined in the
research and development contract).


                                     -12-
<PAGE>







                            ADDITIONAL INFORMATION


                                     -13-
<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,
ASSETS                                             1996               1995
                                               ------------       ------------
<S>                                            <C>                <C>
Current assets:

  Cash                                         $     77,586      $      48,245

  Accounts receivable from ALZA Corporation       3,911,256          2,688,432
                                               ------------      -------------

Total current assets                              3,988,842          2,736,677

Syndication costs                                 1,810,059          1,810,059
                                               ------------      -------------

Total Assets                                   $  5,798,901      $   4,546,736
                                               ------------      -------------
                                               ------------      -------------

LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
  Payable to ALZA Corporation                  $    146,381      $    227,446

  Deferred revenue - Section 481(a)
    adjustment due to accounting
    method change (Note 2)                                -            374,425
                                               ------------      -------------

Total current liabilities                           146,381            601,871

Partners' capital:
  Class A Limited Partners                        5,341,728          3,665,728
  Class B Limited Partner                           254,267            239,710
  General Partner                                    56,525             39,427
                                               ------------      -------------

Total partners' capital                           5,652,520          3,944,865
                                               ------------      -------------

Total Liabilities and Partners' Capital        $  5,798,901      $   4,546,736
                                               ------------      -------------
                                               ------------      -------------
</TABLE>


                                     -14-
<PAGE>

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

                        Statements of Operations
                           (Income tax basis)

              Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                                           1996            1995             1994
                                                           ----            ----             ----
<S>                                                <C>             <C>               <C>
REVENUES:

  Royalty income (includes $374,425 in 1996
    and $374,426 in both 1995 and 1994
    recognized due to the accounting
    change in 1994)                                 $ 7,612,650     $ 5,595,628      $ 4,328,001
  License fee                                           250,000               -                -
  Interest income                                        28,995          20,192           10,398
                                                    -----------     -----------      -----------
    Total revenue                                     7,891,645       5,615,820        4,338,399

EXPENSES:

  General and administrative                             86,548         100,253           95,452
                                                    -----------     -----------      -----------
INCOME BEFORE CUMULATIVE
  EFFECT OF ACCOUNTING CHANGE                         7,805,097       5,515,567        4,242,947

CUMULATIVE EFFECT OF
  ACCOUNTING CHANGE:

  Conversion from modified
    cash to accrual basis, January 1, 1994                    -               -        1,123,277

  Less portion of above
    deferred to be recognized
    as revenue from 1994 through 1996                         -               -       (1,123,277)
                                                    -----------     -----------      -----------
  Effect of accounting
    change at December 31, 1994                               -               -                0
                                                    -----------     -----------      -----------
NET INCOME                                          $ 7,805,097     $ 5,515,567      $ 4,242,947
                                                    -----------     -----------      -----------
                                                    -----------     -----------      -----------
ALLOCATION OF NET INCOME:

  General Partner                                   $    78,061     $    55,151      $    42,435
  Class B Limited Partner                               282,844               -                -
  Class A Limited Partners                            7,444,192       5,460,416        4,200,512
                                                    -----------     -----------      -----------
                                                    $ 7,805,097     $ 5,515,567      $ 4,242,947
                                                    -----------     -----------      -----------
                                                    -----------     -----------      -----------
NET INCOME PER CLASS A
  LIMITED PARTNERSHIP UNIT                          $  2,326.31     $  1,706.38      $  1,312.66
                                                    -----------     -----------      -----------
                                                    -----------     -----------      -----------
</TABLE>


                                     -15-
<PAGE>

                          ALZA TTS RESEARCH PARTNERS, LTD.
                              (A limited partnership)

                          Statements of Partners' Capital
                               (Income tax basis)
                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                             Class A         Class B                         Total
                             Limited         Limited        General        Partners'
                             Partners        Partner        Partner         Capital
                           ------------    ------------   ------------   --------------
<S>                        <C>             <C>             <C>             <C>
BALANCE
 DECEMBER 31,
 1993                      $   947,520       $  562,626    $    15,214     $  1,525,360

Net income                   4,200,512                -         42,435        4,242,947

Payments to
 Partners                   (2,868,864)        (133,435)       (30,309)      (3,032,608)
                           -----------       ----------    -----------      -----------

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
                           -----------       ----------    -----------      -----------
                           -----------       ----------    -----------      -----------
</TABLE>

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