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                                                                      EXHIBIT 99
 
RISK FACTORS
 
     Algos operates in a rapidly changing environment that involves a number of
risks that may significantly affect Algos' results, some of which are beyond
Algos' control. The following discussion highlights some of these risks, and
others are discussed elsewhere herein and in other documents filed by Algos with
the Securities and Exchange Commission.
 
DEVELOPMENT STAGE OF ALGOS; CONTINUING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
 
     Since its formation in January 1992, Algos has been engaged primarily in
organizational and start-up activities, conducting research and development
programs, recruiting officers and key scientists, and negotiating and
consummating technology licensing and research agreements. Algos has no revenues
from product sales and no history of commercial manufacturing or marketing. To
date, substantially all of its funding has been provided by contributions of
capital made by its founders, sales of its stock and payments under the license
agreement dated June 26, 1996 with McNeil Consumer Products Company (the McNeil
License Agreement). See 'Risk Factors -- Certain Risks Associated with the
McNeil License Agreement.' There can be no assurance that Algos will have any
source of product revenue or that its operations will eventually generate
sufficient revenues to achieve profitability. Algos has experienced losses since
its inception and losses are continuing and are expected to continue. Therefore,
Algos has a limited history upon which investors may base an evaluation of its
likely performance. Algos' prospects must be considered in light of the
potential problems, expenses, complications, and delays frequently encountered
in connection with the formation of a new business and the development of new
pharmaceutical products, including obtaining the necessary regulatory approvals,
the utilization of unproven technology and the competitive market environment in
which Algos plans to operate.
 
UNCERTAINTY ASSOCIATED WITH PRE-CLINICAL STUDIES AND CLINICAL TRIALS
 
     In order to receive regulatory approval to sell its products commercially,
Algos must demonstrate in pre-clinical studies and clinical trials that its
potential products are safe and effective in humans. Although the results of
Algos' pre-clinical studies and clinical trials to date have been encouraging,
the results of pre-clinical studies and clinical trials are not by themselves
predictive of results that will be obtained from subsequent or more extensive
trials. Furthermore, there can be no assurance that clinical trials of products
under development will demonstrate the safety and efficacy of such products to
the extent necessary to obtain regulatory approvals. Many pharmaceutical
companies have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. The failure to adequately demonstrate
the safety and efficacy of a product could delay or prevent regulatory approval
of such product and could have a material adverse effect on Algos.
 
     The rate of completion of clinical trials is dependent upon, among other
factors, the enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. Delays in planned patient enrollment in Algos'
current trials or future clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on Algos. There can
be no assurance that if clinical trials are completed Algos will be able to
submit a New Drug Application or that any such application will be reviewed and
approved by the United States Food and Drug Administration (FDA) in a timely
manner, or at all. See 'Business -- Government Regulation.'
 
GOVERNMENT REGULATION; NO ASSURANCE OF UNITED STATES OR FOREIGN REGULATORY
APPROVAL
 
     The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing and other costly and
time-consuming procedures. Satisfaction of these requirements typically takes a
number of years, varies substantially based upon the type, complexity and
novelty of the pharmaceutical products and is subject to uncertainty. Government
regulation also affects the
 
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manufacture and marketing of pharmaceutical products. Regulatory approvals, if
granted, may include significant limitations on the indicated uses for which a
product may be marketed. The FDA actively enforces regulations prohibiting
marketing of products for non-indicated use. Failure to comply with applicable
regulatory requirements can result in, among other things, government imposed
fines, suspensions of approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions. Furthermore, changes in existing
regulations or adoption of new regulations could prevent Algos from obtaining,
or affect the timing of, future regulatory approvals. The effect of government
regulation may be to delay marketing of Algos' new products for a considerable
period of time, to impose costly procedures upon Algos' activities and to
furnish a competitive advantage to larger companies that compete with Algos.
There can be no assurance that FDA or other regulatory approval for any products
developed by Algos will be granted on a timely basis, if at all. Any such delay
in obtaining, or failure to obtain, such approvals would adversely affect the
marketing of Algos' products and the ability to generate product revenue. Algos
is also subject to certain United States Drug Enforcement Agency (DEA)
regulations including restrictions on storage, transportation and
administration, for its narcotic products that could limit the distribution and
commercial usage of such products. Government regulation may increase at any
time creating additional hurdles for Algos. The extent of potentially adverse
government regulation which might arise from future legislation or
administrative action cannot be predicted. See 'Business -- Government
Regulation.'
 
UNCERTAINTY OF MARKET ACCEPTANCE
 
     Even if regulatory approvals are obtained, uncertainty exists as to whether
Algos' products will be accepted by the market. A number of factors may limit
the market acceptance of Algos' products, including the timing of regulatory
approvals and market entry relative to competitive products, the availability of
alternative products, the price of Algos' products relative to alternative
products, the availability of third-party reimbursement and the extent of
marketing efforts by third-party distributors or agents retained by Algos. There
can be no assurance of Algos' ability, or the length of time required, to
achieve market acceptance of Algos' products. In addition, some of Algos'
products contain narcotic ingredients that may require stringent record-keeping
obligations, strict storage requirements and other limitations on such products'
availability that could limit the distribution and commercial usage of such
products.
 
NEED FOR ADDITIONAL FUNDS
 
     The amount and timing of Algos' expenditures will depend on the progress of
its research and development, the cost and timing of regulatory approvals, the
amount of spending on sales, marketing and distribution activities in connection
with the possible commercialization of MorphiDex'TM', general market conditions,
relationships with potential strategic partners, changes in the focus and
direction of Algos' research and development programs, competitive and
technological advances and other factors. Algos' cash requirements may vary
materially from those now planned and no assurance can be given that development
costs will not exceed the amounts budgeted for such purposes. Algos may require
additional funding for its research and product development programs, operating
expenses, regulatory clearances and sales and marketing expenses. Adequate funds
for these purposes, whether obtained through financial markets or through
collaborative or other arrangements with partners or from other sources, may not
be available when needed or on terms acceptable to Algos. Insufficient funds may
require Algos to delay, scale back or eliminate certain of its research,
development or commercialization programs or to make arrangements with third
parties to develop or commercialize products or technologies that Algos would
otherwise seek to develop or commercialize itself. As a result, Algos may not be
able to independently develop or commercialize any or all of the products
described in its 1998 Annual Report on Form 10-K.
 
LIMITED SALES AND MARKETING EXPERIENCE
 
     Algos intends to market and sell some or all of its products, if
successfully developed and approved, through a direct sales force in the United
States. Algos currently has limited marketing and sales staff, and has yet to
establish any product distribution channels. In order to market its products
 
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directly, Algos must develop a sales force with technical expertise. There can
be no assurance that Algos will be able to successfully establish a direct sales
organization or distribution channels. Failure to establish a sales force
capability in the United States may have a material adverse effect on Algos.
 
RELIANCE ON THIRD-PARTY MANUFACTURERS
 
     Algos currently uses, and expects to continue to use, outside contractors
to manufacture drug supplies for its clinical trials. In addition, Algos
currently intends to use outside contractors to manufacture products approved
for sale, if any. There is no assurance that supplies from any such contractor
will not be reduced or interrupted due to FDA and/or DEA regulatory requirements
or other reasons. Such a reduction or interruption could have a material adverse
effect on Algos' development and commercialization activities. Algos currently
uses a single contract manufacturer for supplies of its most developmentally
advanced product, MorphiDex'TM', and suppliers of raw materials are limited. The
regulatory qualification of additional suppliers and/or manufacturers may
require significant time and expense. In addition, the acquisition of narcotics
as components of certain of Algos' products is subject to quota restrictions
imposed and administered by the DEA. There is no assurance that Algos will be
able to obtain its requested quantities of such narcotics.
 
DEPENDENCE ON QUALIFIED PERSONNEL
 
     Because of the specialized scientific nature of Algos' business, Algos is
highly dependent upon its ability to attract and retain qualified scientific and
technical personnel. The loss of significant scientific and technical personnel
or the failure to recruit additional key scientific and technical personnel
could have a material adverse effect on Algos. While Algos has consulting
agreements with certain key individuals and institutions and has employment
agreements with its key executives, there can be no assurance that Algos will be
successful in retaining such personnel or their services under existing
agreements. The loss of John Lyle, Algos' Chief Executive Officer, could have a
material adverse effect on Algos. Algos currently maintains a $6.0 million life
insurance policy on Mr. Lyle. There is intense competition for qualified
personnel in the areas of Algos' activities, and there can be no assurance that
Algos will be able to continue to attract and retain the qualified personnel
necessary for the development of its business.
 
UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY
 
     Algos' success, competitive position and amount of potential future income
will depend in part on its ability to obtain patent protection relating to the
technologies, processes and products it is developing and may develop in the
future. Algos' policy is to seek patent protection and enforce intellectual
property rights. No assurance can be given that any patent issued or licensed to
Algos will provide protection against competitive products or otherwise be
commercially viable. In this regard, the patent position of pharmaceutical
compounds and compositions is particularly uncertain. Even issued patents may
later be modified or revoked by the United States Patent and Trademark Office
(PTO) or in legal proceedings. Moreover, Algos believes that obtaining foreign
patents may be more difficult than obtaining domestic patents because of
differences in patent laws, and accordingly, its patent position may be stronger
in the United States than abroad. In addition, foreign patents may be more
difficult to protect and/or the remedies available may be less extensive than in
the United States. Patent applications in the United States are maintained in
secrecy until patents issue and, since publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries, Algos
cannot be certain that it was the first creator of the inventions covered by
pending patent applications or the first to file patent applications on such
inventions. No assurance can be given that any of Algos' pending patent
applications will be allowed, or if allowed, whether the scope of the claims
allowed will be sufficient to protect Algos' products.
 
     Algos also expects to rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or be
issued patents that may prevent the sale of Algos' products or know-how or
require licensing and the payment
 
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of significant fees or royalties by Algos in order to produce its products.
Moreover, there can be no assurance that Algos' technology does not infringe
upon any valid claims of patents owned by others. If Algos were found to be
infringing on a patent held by another, Algos might have to seek a license to
use the patented technology. There can be no assurance that, if required, Algos
would be able to obtain such a license on terms acceptable to Algos, if at all.
If a legal action were to be brought against Algos or its licensors or
licensees, Algos could incur substantial costs in defending itself, and there
can be no assurance that such an action would be resolved in Algos' favor. If
such a dispute were to be resolved against Algos, Algos could be subject to
significant damages and the testing, manufacture or sale of one or more of
Algos' technologies or proposed products, if developed, could be enjoined.
 
     No assurance can be given as to the degree of protection any patents will
afford, whether patents will be issued or whether Algos will be able to avoid
violating or infringing upon patents issued to others. Despite the use of
confidentiality agreements and non-compete agreements, which themselves may be
of limited effectiveness, it may be difficult for Algos to protect its trade
secrets. See 'Risk Factors -- Dependence on Qualified Personnel.'
 
UNCERTAIN AVAILABILITY OF HEALTH CARE REIMBURSEMENT
 
     Algos' ability to commercialize its pain management products may depend in
part on the extent to which reimbursement for the costs of such products will be
available from government health administration authorities, private health
insurers and others. There can be no assurance that third-party insurance
coverage will be adequate for Algos to establish and maintain price levels
sufficient for realization of an appropriate return on its investment.
Government, private insurers and other third-party payers are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new products approved for marketing by the FDA and by
refusing, in some cases, to provide any coverage for uses of approved products
for indications for which the FDA has not granted marketing approval. If
adequate coverage and reimbursement levels are not provided by government and
third-party payers for uses of Algos' products, the market acceptance of these
products could be adversely affected.
 
LIMITED PRODUCT LIABILITY INSURANCE
 
     Algos will be exposed to potential product liability risks, which are
inherent in the testing, manufacturing and marketing of human therapeutic
products. Algos is contractually obligated under certain of its license
agreements to indemnify the individuals and/or institutions from whom it has
licensed the technology against claims relating to the manufacture and sale of
the products to be sold by Algos. McNeil Consumer Products Company, however, has
agreed to indemnify Algos for third party claims or suits resulting from the
manufacture, use or sale of the products pursuant to the McNeil License
Agreement. Algos' indemnification liability, as well as direct liability to
consumers for any defects in the products sold, could expose Algos to
substantial risk and losses. Algos currently carries certain liability insurance
for its clinical trial activities but does not have product liability insurance
covering commercial use of its products. Algos plans to purchase such product
liability insurance as it deems appropriate prior to marketing its products.
McNeil Consumer Products Company is required by the McNeil License Agreement to
maintain product liability insurance and may self-insure to cover its
indemnification obligations to Algos. However, there can be no assurance that
Algos will be able to obtain or maintain such insurance on acceptable terms or
that any insurance obtained will provide adequate coverage against potential
liabilities.
 
CERTAIN RISKS ASSOCIATED WITH THE MCNEIL LICENSE AGREEMENT
 
     The McNeil License Agreement extends until the later of the expiration of
Algos' patent rights or ten years from the date of execution, provided that the
McNeil License Agreement is terminable: (i) by either party in the event of a
breach by the other party upon 90 days notice or upon certain events of
bankruptcy; (ii) by McNeil Consumer Products Company at any time upon 60 days
notice; and (iii) by Algos upon certain other circumstances. Under certain
circumstances, the McNeil License Agreement could terminate with respect to
either acetaminophen or non-steroidal anti-inflammatory drug products
 
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without terminating with respect to the other category. In the event of a
termination by McNeil Consumer Products Company, McNeil must pay all royalty
payments and milestone payments due, if any, through the date of termination and
the technology licensed by McNeil reverts to Algos. In such event, Algos retains
the rights to the results of the two clinical studies funded by Algos, and
McNeil Consumer Products Company retains the rights to the results of the
clinical studies funded by it during the term of the McNeil License Agreement.
 
COMPETITION AND TECHNOLOGICAL CHANGES, UNCERTAINTY AND OBSOLESCENCE
 
     Algos' success will depend, in part, upon its ability to successfully
achieve market share at the expense of existing and established products in
Algos' target markets. Algos' products will be competing directly with the
products of companies that are well-established and which may have a
significantly higher degree of brand and name recognition and substantially more
financial resources than those of Algos. Algos is also in competition with other
pharmaceutical companies, hospitals, research organizations, individual
scientists and non-profit organizations engaged in the development of new
pharmaceuticals. Many of these companies and entities have greater research and
development capacities, experience, recognition and marketing, financial and
managerial resources than Algos and represent significant competition for Algos.
Also, Algos' competitors may succeed in developing competing technologies and
obtaining FDA approval for products more rapidly than Algos. There can be no
assurance that developments by others will not render Algos' products or
technologies non-competitive or obsolete.
 
CONCENTRATION OF OWNERSHIP
 
     Algos' directors and officers beneficially own approximately 24% of Algos
common stock and two additional stockholders and related investors control
approximately 17% of the common stock (assuming all warrants held by such
entities are currently exercisable). As a result, these stockholders, if they
acted together, would have the ability to influence significantly the election
of Algos' directors as well as the management and policies of Algos. This
concentration of ownership may have the effect of delaying or preventing a
change of control of Algos.
 
POSSIBLE VOLATILITY OF STOCK PRICE
 
     The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. The market price of Algos common stock may prove to be
highly volatile from a variety of variable influences. Announcements of
technological innovations, regulatory matters or new commercial products by
Algos or its competitors, developments or disputes concerning patent or
proprietary rights, publicity regarding actual or potential clinical results
relating to products under development by Algos or its competitors, regulatory
developments in both the United States and foreign countries, public concern as
to the safety of pharmaceutical products, economic and other external factors,
as well as period-to-period fluctuations in financial results, may have a
significant impact on the market price of Algos common stock. The timing and
amount of Algos' development and commercialization expenditures are subject to
significant uncertainties; operating results for any accounting period may not
be indicative of expected results for future periods.
 
ABSENCE OF DIVIDENDS
 
     Algos has never declared or paid any cash dividends on its capital stock.
Algos currently intends to retain earnings, if any, to support its growth
strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of Algos'
Board of Directors after taking into account various factors, including Algos'
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
 
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EFFECT OF ANTI-TAKEOVER PROVISIONS
 
     Algos' Amended and Restated Certificate of Incorporation provides for a
classified Board of Directors and that members of the Board of Directors may be
removed only for cause upon the affirmative vote of holders of at least a
majority of the shares of capital stock of Algos entitled to vote. Algos'
Amended and Restated Certificate of Incorporation requires that any action
required or permitted to be taken by stockholders of Algos must be effected at a
duly called annual or special meeting of stockholders and may not be effected by
any consent in writing, and will require reasonable advance notice by a
stockholder of a proposal or director nomination which such stockholder desires
to present at any annual or special meeting of stockholders. Special meetings of
stockholders may be called only by the Chairman of the Board or the President of
Algos or by the majority of the whole of the Board of Directors. In addition,
the Board of Directors has the authority, without further action by the
stockholders, to fix the rights and preferences of, and issue shares of,
preferred stock. Algos is subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law, which prohibits Algos from engaging in
a 'business combination' with an 'interested stockholder' for a period of three
years after the date of the transaction in which the person first becomes an
'interested stockholder,' unless the business combination is approved in a
prescribed manner. The application of these provisions could have the effect of
delaying or preventing a change of control of Algos. Certain other provisions of
Algos' Amended and Restated Certificate of Incorporation could also have the
effect of delaying or preventing changes of control or management of Algos,
which could adversely affect the market price of the common stock.
 
YEAR 2000
 
     A potential problem exists for all companies that rely on computers as the
year 2000 approaches. Any of Algos' computer software applications and systems
that use only the last two digits of a year to refer to a year may not properly
recognize the year 2000. This phenomenon (the Year 2000 Issue) could cause a
disruption of operations, including, among other things, a temporary inability
to engage in normal business activities.
 
     Algos is in the process of evaluating the impact of the Year 2000 Issue and
currently believes that the financial and operational systems of Algos, as
currently used, will function adequately with respect to the Year 2000 Issue
given that Algos is not significantly reliant on its computer software
applications and systems during its developmental stage. In addition, Algos has
very limited information concerning the compliance status of its third party
contractors. Algos' current third party contractors generally test Algos
products and provide Algos with the results of those tests. Algos believes that
any Year 2000 Issue for such third-party contractors would not be material,
since many activities could be performed without the aid of a computer. As part
of the commercialization of MorphiDex'TM', Algos intends to have third parties
manufacture and distribute its products. Algos will evaluate each potential
third party manufacturer's and distributor's readiness for the Year 2000 Issue
and will reevaluate the Year 2000 Issue as it relates to Algos as part of its
preparation for the commercialization of MorphiDex'TM'. Algos has filed a New
Drug Application for MorphiDex'TM' and may make significant additions to and
changes in its existing computer software applications and systems and/or the
use of such systems in anticipation of the possible commercialization of
MorphiDex'TM'. If Algos makes any such additions or changes, it would affect
Algos' exposure to the Year 2000 Issue since Algos would become more reliant on
its computer software applications and systems. Therefore, Algos' assessment of
its Year 2000 Issue is not complete and Algos cannot complete its assessment or
develop any contingency plans until mid-1999.
 
     At this time, Algos does not expect that the cost of its Year 2000 Issue
compliance program will be material to its business, financial condition or
results of operations and does not currently anticipate any material disruption
in its operations. Algos has not incurred more than $5,000 of costs to date
related to the Year 2000 Issue.
 
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