<PAGE>

===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                          ---------------------------

                                    FORM 10-K
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                        COMMISSION FILE NUMBER 000-31145
                        --------------------------------

                                  VERSICOR INC.
             (Exact Name of Registrant as Specified in its Charter)

          DELAWARE                                    04-3278032
(State or Other Jurisdiction of
 Incorporation or Organization)        (I.R.S. Employer Identification No.)

      34790 ARDENTECH COURT                             94555
          FREMONT, CA
(Address of Principal Executive Offices)              (Zip Code)

(Registrant's Telephone Number, Including Area Code):        (510) 739 3000

           Securities Registered Pursuant to Section 12(b) of the Act:

     TITLE OF EACH CLASS             NAME OF EACH EXCHANGE ON WHICH REGISTERED

  Common Stock, Par Value $0.001                      NASDAQ
          Per Share

      Indicate by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

      The aggregate market value of the voting stock held by  non-affiliates  of
the  registrant,  based upon the closing sale price of the common stock on March
13,  2001  as  reported  on  the  NASDAQ  National  Market,   was  approximately
$102,497,499. Shares of common stock held by each executive officer and director
and by each person who owns 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate  status is not  necessarily  a conclusive  determination  for other
purposes.

      As of March 13, 2001, there were outstanding  23,065,363  shares of Common
Stock of Versicor Inc.

     Documents  Incorporated  By  Reference:  Part  III:  Portions  of the Proxy
Statement for Registrant's  Annual  Stockholders  Meeting to be filed within 120
days of fiscal year end.


===============================================================================

<PAGE>

                                TABLE OF CONTENTS
                                                                           PAGE

PART I

ITEM 1.    BUSINESS...........................................................1

ITEM 2.    PROPERTIES........................................................24

ITEM 3.    LEGAL PROCEEDINGS.................................................24

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............24

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
           STOCKHOLDER MATTERS...............................................25

ITEM 6.    SELECTED FINANCIAL DATA...........................................27

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS.........................................28

ITEM 7.A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........31

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................31

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE............................................32

 PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................33

ITEM 11.  EXECUTIVE COMPENSATION.............................................33

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....33

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................33

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....34


<PAGE>
                                     PART I

ITEM 1  BUSINESS

          THE  FOLLOWING   DESCRIPTION  OF  OUR  BUSINESS   SHOULD  BE  READ  IN
CONJUNCTION  WITH THE  INFORMATION  INCLUDED  ELSEWHERE IN THIS ANNUAL REPORT ON
FORM 10-K. THE  DESCRIPTION  CONTAINS  CERTAIN  FORWARD-LOOKING  STATEMENTS THAT
INVOLVE RISKS AND  UNCERTAINTIES.  WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K,
THE WORDS "INTEND," "ANTICIPATE," "BELIEVE," "ESTIMATE," "PLAN" AND "EXPECT" AND
SIMILAR   EXPRESSIONS   AS  THEY   RELATE  TO  US  ARE   INCLUDED   TO  IDENTIFY
FORWARD-LOOKING  STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE
RESULTS  DISCUSSED IN THE  FORWARD-LOOKING  STATEMENTS AS A RESULT OF CERTAIN OF
THE RISK  FACTORS SET FORTH BELOW AND IN THE  DOCUMENTS  INCORPORATED  HEREIN BY
REFERENCE,  AND THOSE  FACTORS  DESCRIBED  UNDER "RISK  FACTORS." IN THIS ANNUAL
REPORT ON FORM 10-K,  REFERENCES  TO  "VERSICOR,"  "WE," "US" AND "OUR" REFER TO
VERSICOR INC.

OVERVIEW

          Versicor is a biopharmaceutical company focused on the marketing,
development and discovery of pharmaceutical products for the treatment of
bacterial and fungal infections. The market for antiinfective products is
large and growing, reporting nearly $24 billion in worldwide sales in 1998.
We intend to focus on antiinfective products that have competitive advantages
over existing products, such as greater potency, improved effectiveness
against resistant strains and reduced toxicity. Because the development
process for antiinfectives is relatively efficient and well-defined, we
believe the costs and time required to bring new products to market can be
significantly less than other major therapeutic categories.

          We have a  distinct,  two-fold  approach  to product  development  and
marketing.  Our primary  strategy is to focus on the  development of proprietary
products, concentrating on injectable antibiotic and antifungal products for the
hospital market, which accounted for $6.5 billion in worldwide sales in 1998. We
expect to market these  products to hospitals in North  America  through our own
direct  sales  force,  which we believe can be  established  with a targeted and
cost-effective sales and marketing infrastructure. Our product candidates target
disease   indications  that  represent   substantial   markets  where  there  is
significant demand for new therapies.

        Our  secondary  strategy is  to  collaborate  with  major pharmaceutical
companies to develop orally  administered  antibiotic  and antifungal  products.
Orally administered  products require substantial  development  expenditures and
extensive  sales  and  marketing  infrastructures  to reach  their  full  market
potential.  Through these  collaborations,  we intend to leverage our technology
platform  to discover  and supply  lead  compounds  while our  partners  conduct
pre-clinical,  clinical development, marketing and sales activities to transform
the  compounds  into  pharmaceutical  products.  We expect to  receive  research
funding,  milestone  payments  and  equity  investments  from our  collaborative
partners, as well as royalty fees if the products are commercialized.

 PROPRIETARY PRODUCTS

          Our lead  product  candidate,  V-Echinocandin  (anidulafungin),  is an
antifungal  intended for the  intravenous  treatment of serious  systemic fungal
infections.  V-Echinocandin has potent fungicidal  activity, a broad spectrum of
activity   against  CANDIDA   (including   fluconazole-resistant   strains)  and
ASPERGILLUS,  low potential for developing  resistance and a novel  mechanism of
action. We believe V-Echinocandin will have competitive advantages over existing
therapies  because it combines  potent  fungicidal  activity  with a good safety
profile.  We began a Phase  III  trial in  esophageal  candidiasis  in the first
quarter of 2001. We plan to begin additional clinical trials in invasive CANDIDA
and ASPERGILLUS in the second half of 2001.

          Our  second  product  candidate,  V-Glycopeptide  (dalbavancin),  is a
second-generation  antibiotic  belonging to the same class as Vancomycin  and is
intended  for  the  treatment  of  serious  systemic  infections,   particularly
STAPHYLOCOCCI.  V-Glycopeptide has potent bactericidal  effect. In comparison to
Vancomycin,  V-Glycopeptide  has more potent activity,  enhanced potency against
methicillin-resistant  STAPHYLOCOCCUS  strains,  and appears to be suitable  for
once-daily  administration.  V-Glycopeptide  is  currently in Phase I safety and
tolerance  studies in the United  States and we expect to begin Phase II studies
in the United States during the first half of 2001.

                                        1
<PAGE>


PARTNERED PRODUCT PROGRAMS

          Our first partnered product program is a collaboration  with Pharmacia
Corporation  aimed at identifying  second and third  generation  oxazolidinones.
Oxazolidinones are the first new major chemical class of antibacterial  products
to enter the market in over 30 years.  They are active  against a broad range of
bacteria,   including  multidrug  resistant   STAPHYLOCOCCI,   STREPTOCOCCI  and
ENTEROCOCCI.  Pharmacia  Corporation  received FDA approval , independent of us,
for the first generation  oxazolidinone  called LinezolidTM  (ZyvoxTM).  We have
identified several structurally novel second generation oxazolidinone candidates
that have a broader spectrum of activity (including the key respiratory pathogen
H. INFLUENZAE),  improved potency against multidrug resistant bacteria, and good
activity in preclinical IN VIVO studies when administered orally.

          Our second partnered product program is a collaboration  with Novartis
Pharma AG to develop deformylase inhibitors.  Deformylase is an essential enzyme
present in bacteria but absent in human cells, and thus represents a good target
for the discovery of inhibitors  that can serve as broad spectrum  antibacterial
agents.  We have  identified  several  lead  molecules  that are active  against
multidrug resistant strains, as well as important  respiratory pathogens such as
S.  PNEUMONIAE,  H. INFLUENZAE and M.  CATARRHALIS.  Several lead compounds have
demonstrated  activity in IN VIVO preclinical studies when administered  orally,
representing a rare example of DE NOVO design of an active antibacterial agent.

 DISCOVERY PLATFORM

          We intend to expand  our  product  portfolio  through  our  integrated
discovery platform that combines our proprietary expertise in the critical areas
of genomics and rational drug design, as well as lead optimization. In addition,
we have established a lead optimization partnership called BIOCOR with Biosearch
Italia.  Through this partnership,  Biosearch  contributes lead compounds and we
contribute our expertise in genomics, rational drug design and lead optimization
to generate promising new antiinfective product candidates.

 RECENT DEVELOPMENTS

          V-Echinocandin  began a Phase III trial in esophageal  candidiasis  in
the first quarter of 2001.  V-Glycopeptide  is still in Phase I clinical trials;
Phase II clinical  trials are  expected to begin by the end of the first half of
2001.

          Our licensing and collaboration agreements have been successful during
2000. In December 2000, we expanded our  collaboration  with  Biosearch  Italia,
known as BIOCOR,  by  sponsoring  additional  chemists  in Italy and  increasing
assays put into the partnership,  while Biosearch Italia increased the number of
product  libraries it is contributing.  BIOCOR is an exclusive lead optimization
partnership in which Biosearch contributes leads and we supply our combinatorial
and  medicinal  chemistry  expertise to optimize the leads and identify  product
candidates.

          In October 2000, Pharmacia  Corporation  increased its funding for our
collaboration by 30%. Through this  collaboration  agreement we intend to pursue
the discovery of second and third generation oxazolidinone product candidates.

          Changes in our management  and Board of Directors  included the hiring
of Dr. Timothy Henkel,  M.D., Ph.D. to serve as our Chief Medical  Officer.  Dr.
Henkel was most recently  Vice  President of Worldwide  Anti-Infective  Clinical
Development at SmithKline  Beecham where he was employed for the last six years.
Prior to  joining  SmithKline  Beecham,  Dr.  Henkel  was a  faculty  member  at
Washington University School of Medicine.  Mr. Thomas C. McConnell resigned as a
member of our Board of Directors in December 2000 as a result of a change in his
investment focus from healthcare to telecommunications.


                                        2
<PAGE>


 THE ANTIINFECTIVE MARKET

          Infectious  diseases  are caused by  pathogens,  such as bacteria  and
fungi that enter the body  through  the skin or mucous  membranes  of the lungs,
nasal  passages or  gastrointestinal  tract,  and  overwhelm  the body's  immune
system.  These pathogens then establish themselves in various tissues and organs
throughout  the body and cause a number of serious  and, in some  cases,  lethal
infections,  including those of the  bloodstream,  skin and soft tissue,  heart,
lung, liver and urinary tract. Patients with impaired immune systems due to age,
chemotherapy,   bone  marrow   transplants,   organ   transplants  or  AIDS  are
particularly susceptible to such infections.

          According  to the most  recent data  provided by the U.S.  Centers for
Disease Control and Prevention,  for the period 1980 to 1992,  approximately two
million  hospital-acquired  infections  occurred  annually in the United States,
accounting  for more than  eight  million  days of  extended  hospital  stay and
causing more than $4 billion in  additional  health care costs for each of those
years.  While overall per capita  mortality  rates declined in the United States
from 1980 to 1992,  the per capita  mortality  rate due to  infectious  diseases
increased  58% over this period,  making  infectious  diseases the third leading
cause of death in the  United  States.  We  believe  that  bacterial  and fungal
infections,  especially infections caused by difficult-to-treat,  drug resistant
bacteria  and fungi,  cause or  contribute  to a  substantial  majority of these
deaths.

          Antiinfective   pharmaceutical   products  work  by  interfering  with
specific  targets in a bacterial or fungal pathogen,  thereby  inhibiting a cell
function essential to its growth or survival.  Currently available antiinfective
products can be divided into the following five broad  categories,  according to
the type of cell  function  they  inhibit:  (1)  tetracyclines,  macrolides  and
aminoglycosides   (protein   synthesis);   (2)   penicillins,    cephalosporins,
carbapenems,  and  glycopeptides  (cell wall  synthesis);  (3)  fluoroquinolones
(nucleic acid synthesis);  (4) trimethoprim and sulfonamides  (cell metabolism);
and (5) azoles and polyenes (fungal cell membrane synthesis/function).

          Currently   available   antiinfective   products   have  a  number  of
limitations. Many are not as potent as new products under development, and their
efficacy is fading as the number of multidrug  resistant strains of bacteria and
fungi  increases.  Many also have severe  adverse side  effects.  Despite  these
limitations,  there  has been  only one new  class  of  anti-bacterial  products
(oxazolidinones)  brought to the market in over 30 years. We believe the lack of
new products is due to the  misperception  that bacterial and fungal  infections
had  been  conquered.   As  a  result,  most  major   pharmaceutical   companies
de-emphasized their efforts to discover and develop new antiinfective therapies

          We believe  the  antiinfective  market  presents  a highly  attractive
opportunity for three major reasons, as follows:

     -    LARGE MARKET.  The market for antibiotics  and antifungals  represents
          the third  largest  worldwide  pharmaceutical  drug market,  with 1998
          sales of nearly $24 billion. The hospital  antiinfective market, where
          we  will  target  our  proprietary  products,   totaled  $6.5  billion
          worldwide in 1998.

     -    GROWING  NEED FOR NEW DRUGS.  The  number of  patients  with  impaired
          immune systems has been  increasing  dramatically  due to the aging of
          the population,  growing use of therapies, such as chemotherapy,  bone
          marrow  transplants and organ  transplantation,  and the prevalence of
          AIDS. These patients are particularly susceptible to serious infection
          because  of  their  immunosuppression.  In  addition,  the  increasing
          resistance  of  infectious  agents has led to an  increased  number of
          serious  infections  in patients  who are not  immunosuppressed.  As a
          result,  there is a strong  demand for new drugs that are more potent,
          more  effective  against  resistant  strains and that cause fewer side
          effects than existing therapies.

     -    EFFICIENT AND  WELL-DEFINED  DRUG  DEVELOPMENT  PROCESS.  IN VITRO and
          early IN VIVO testing of antiinfective drugs has been shown to be more
          predictive  of clinical  results  than other  therapeutic  categories.
          Moreover,  antiinfectives that successfully  complete Phase I clinical
          testing are more likely to be  efficacious  and to receive  regulatory
          approval.  As a  result,  the  costs  and  time  required  to  develop
          antiinfectives  are  greatly  reduced  in  comparison  to other  major
          therapeutic categories.

OUR STRATEGY

           Versicor's  objective  is  to  be  a  leader  in  the  marketing  and
development of pharmaceutical products for the treatment of bacterial and fungal
infections in the hospital  setting.  We intend to focus on products that have a
competitive

                                        3
<PAGE>


marketing advantage over existing drugs, such as greater potency,  effectiveness
against  resistant strains and reduced  toxicity.  We have a distinct,  two-fold
approach to product development and marketing.  Our primary strategy is to focus
on  the  development  of  proprietary  products,   concentrating  on  injectable
antibiotic  and  antifungal  products for the  hospital  market.  Our  secondary
strategy is to collaborate with major pharmaceutical companies to develop orally
administered products. Versicor's top management has over 50 years of experience
with  large  multinational   pharmaceutical  companies  evaluating  preclinical,
clinical and marketed  antiinfective drugs. We believe this extensive experience
will give us a  competitive  advantage in selecting  those  products that can be
most effectively commercialized.

 OUR PRODUCT CANDIDATES

           Our  product   candidates   can  be  divided  into  two   categories:
proprietary  products and partnered product programs.  Proprietary  products are
injectable  antibiotics  and  antifungals  developed  or  acquired by us for the
treatment of serious  infections  in the  hospital  setting.  Partnered  product
programs are orally administered  antibiotics and antifungals  developed through
our collaborations for the treatment of  community-acquired  infections that can
often be treated with  bacteriostatic  agents.  The table below  summarizes  our
product  candidates  and  programs,  their  target  infections,  their nature of
activity and their development status.


                         PRODUCT CANDIDATES AND PROGRAMS
<TABLE>
<CAPTION>

------------------------ ---------------------------   -------------------------  -------------------------
      PRODUCT                      TARGET                      NATURE OF              DEVELOPMENT
  CANDIDATE/PROGRAM               INFECTIONS                    ACTIVITY                 STATUS
------------------------  --------------------------   -------------------------  -------------------------
--------------------------------------------------------------------------------  -------------------------
                                         PROPRIETARY
--------------------------------------------------------------------------------  -------------------------
------------------------- --------------------------   -------------------------  -------------------------
<S>                        <C>                          <C>                       <C>
V-Echinocandin             CANDIDA                      Fungicidal                Phase III
ASPERGILLUS

-------------------------  -------------------------    ------------------------  -------------------------
-------------------------  -------------------------    ------------------------  -------------------------
V-Glycopeptide             STAPHYLOCOCCI                Bactericidal             Phase I

-------------------------  -------------------------    ------------------------  -------------------------
-------------------------  -------------------------    ------------------------  -------------------------
VRC-3950                   E. COLI                      Bactericidal             Pre-clinical
                           S. AUREUS                                             IN VIVO
                           PSEUDOMONAS

-------------------------  -------------------------    ------------------------  -------------------------
-----------------------------------------------------------------------------------------------------------
                                                PARTNERED
-----------------------------------------------------------------------------------------------------------
-------------------------  -------------------------    ------------------------  -------------------------
Oxazolidinones             STAPHYLOCOCCI                Bacteriostatic           Pre-clinical
(Pharmacia Corporation)    STREPTOCOCCI                                          IN VIVO
                           ENTEROCOCCI

-------------------------  -------------------------    ------------------------  ------------------------
-------------------------  -------------------------    ------------------------  ------------------------
Deformylase                S. PNEUMONIAE                Bacteriostatic           Pre-clinical
Inhibitors                 H. INFLUENZA                                          IN VIVO
(Novartis Pharma AG)       M. CATARRHALIS

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


 PROPRIETARY PRODUCTS

V-ECHINOCANDIN, A NOVEL ANTIFUNGAL FOR THE TREATMENT OF SERIOUS INFECTIONS

           TARGET  INFECTIONS.  Serious  fungal  infections  such as CANDIDA and
ASPERGILLUS  generally  occur in patients with impaired  immune systems In 1998,
2.5 million  patients were  hospitalized in the United States for  chemotherapy,
organ  transplantation  or AIDS.  Approximately 25% of these patients  developed
serious fungal  infections,  which in these patient  populations  are associated
with a high  percentage  of morbidity  and  mortality.  The  mortality  rate for
CANDIDA infections has been reported to be 38%, and that for ASPERGILLUS is over
80%.

           The number of patients  suffering from serious  fungal  infections is
increasing and the treatment options remain very limited.  Currently,  there are
only two major classes of antifungal drugs widely used clinically: the polyenes

                                       4
<PAGE>


(amphotericin  B  and  related  compounds)  and  the  azoles   (fluconazole  and
itraconazole).  A compound,  CancidasTM  (caspofunginTM) or MK-0991, in the same
class as our V-Echinocandin,  recently received FDA approval for salvage therapy
in Aspergillosis.  V-Echinocandin has shown superior IN VITRO potency to MK-0991
against  CANDIDA  and  ASPERGILLUS  (see  Figures A and B below).  The  polyenes
generally  are limited by serious  side  effects,  including  chills,  diarrhea,
nausea, vomiting and metabolic/nutritional  disorders. The azoles are limited by
the  fact  that  they  inhibit  rather  than  kill  fungi  and by an  increasing
resistance problem. Despite these limitations,  these two drug classes generated
over $1 billion in U.S. sales in 1998.

           PRODUCT DESCRIPTION.  Versicor is developing V-Echinocandin to target
the need for a new class of  antifungal  drug that  combines  the  efficacy  and
killing  effect  of  the  polyenes  with  the  safety  profile  of  the  azoles.
V-Echinocandin is a novel intravenous  antifungal product candidate derived from
a naturally  occurring  molecule that has been  significantly  improved  through
chemical  modification.  We believe V-Echinocandin has the following competitive
advantages:

           POTENT BROAD SPECTRUM  ACTIVITY.  V-Echinocandin has highly potent IN
VITRO activity against the fungi  responsible for serious  systemic  infections,
and  is  especially  active  against  CANDIDA,  including  fluconazole-resistant
strains, and ASPERGILLUS. Figures A and B below illustrates the IN VITRO potency
of V-Echinocandin.

           FUNGICIDAL.  Five minutes exposure to  V-Echinocandin  IN VITRO kills
more  than  99% of  CANDIDA.  By  comparison,  azoles  such as  fluconazole  are
fungistatic,  meaning  that they  merely  inhibit the growth of fungi and do not
kill them. This is an important  feature of  V-Echinocandin,  because its target
patient   population   is   immunosuppressed.   Patients   that   are   severely
immunosuppressed  can be  more  effectively  treated  with  a  therapy  that  is
fungicidal rather than fungistatic.

           NOVEL  MECHANISM  OF  ACTIVITY.  V-Echinocandin  is a  new  class  of
antifungal drug that selectively  inhibits a critical enzyme found only in fungi
that is involved in cell wall synthesis.  This mechanism is completely different
from that of the polyenes and azoles. Because of this different mechanism, there
is no known  cross-resistance  with marketed  pharmaceutical  products (products
with same mechanism frequently show cross-resistance).

           LOW POTENTIAL FOR DEVELOPING RESISTANCE. In the laboratory it has
proved very difficult to develop resistance to V-Echinocandin. Under the same
conditions it is easy to develop resistance to fluconazole.

           WELL TOLERATED IN HUMANS.  In five separate clinical trials involving
over 100 volunteers and patients, V-Echinocandin was well tolerated and safe.


                                       5
<PAGE>


 POTENCY.

                                    FIGURE A

                                  CANDIDA spp.

[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]

<TABLE>
<CAPTION>

                        C.albicans      C.glabrata
<S>                     <C>              <C>
MIC90
V-Echinocandin           0.25             0.25
Amphotercin B            2.00             2.00
Fluconazole             32.00            64.00
MK-0991                  1.00             1.00
</TABLE>

                                    Source: J. Clin. Microbiol. (1998), 36:2950
                                            J. Clin. Microbiol. (1997), 36.198


                                    FIGURE B

                                ASPERGILLUS spp.

[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
<TABLE>
<CAPTION>
MEAN MIC                A.fumigatus     A.flavus
MIC90
<S>                      <C>              <C>
V-Echinocandin           0.06             0.08
MK-0991                  2.15             0.50
Amphotercin B            1.00             1.07
</TABLE>


                                    Source: J. Clin. Microbiol. (1998), 36:2950
                                            J. Clin. Microbiol. (1997), 36:198

           Figure A above illustrates IN VITRO potency for  V-Echinocandin  and
three control drugs against CANDIDA as measured by the minimal  concentration of
drug that  inhibits  the  growth  of 90% of  species,  or MIC90.  Figure B above
illustrates  the IN VITRO  potency  for  V-Echinocandin  and two  control  drugs
against ASPERGILLUS,  as measured by the mean minimal concentration of drug that
inhibits  growth,  or mean MIC. The lower the MIC number (shown by the bar), the
more potent the drug. The results show that  V-Echinocandin has superior potency
to the comparative antifungal drugs.


                                       6
<PAGE>


            PHASE II RESULTS.  V-Echinocandin demonstrated clinical efficacy and
was well tolerated in a  non-comparative  Phase II clinical  trial  involving 29
evaluable patients with esophagitis. Esophagitis is an inflammation of the lower
part of the esophagus,  usually caused by a fungal infection such as CANDIDA. It
is a disease  occurring  largely  in AIDS  patients  and is a  serious  cause of
morbidity.  Patients  enrolled in this trial were treated with daily intravenous
infusions of V-Echinocandin for up to 21 days. By the end of the treatment, over
80% of evaluable patients were cured or improved as measured by an endoscope, an
instrument  permitting  visual  examination  of the  esophagus.  No  significant
drug-related  complications  were  reported.  The  results  of  this  study  are
summarized in the table below:

-------------------------   ---------   ---------  ---------   ----------------
         DOSAGE              COMPLETE    PARTIAL   TREATMENT      OBJECTIVE
  (LOADING/MAINTENANCE)     RESPONSES   RESPONSES   FAILURES     RESPONSE RATE

-------------------------    --------   --------   --------    ---------------
-------------------------    --------   --------   --------    ---------------
50 mg / 25 mg                       8          5          3    13/16 (81%)
-------------------------    --------   --------   --------    ---------------
-------------------------    --------   --------   --------    ---------------
70 mg / 35 mg                       9          2         2     11/13 (85%)
-------------------------    --------   --------   --------    ---------------


           A subsequent  safety and tolerance study indicated that people can be
safely  dosed  with  twice the  amount  of  V-Echinocandin  administered  in the
above-mentioned  esophagitis  trial.  We believe  V-Echinocandin  should achieve
improved  efficacy at this higher dose. In the first quarter of 2001, we began a
Phase III  trial  against  esophagitis  that will  compare  V-Echinocandin  with
fluconazole.  We also intend to initiate  additional trials for the treatment of
other infections caused by CANDIDA and ASPERGILLUS in the second half of 2001.

V-GLYCOPEPTIDE,  A SECOND  GENERATION  ANTIBIOTIC  FOR THE  TREATMENT OF SERIOUS
GRAM-POSITIVE INFECTIONS

           TARGET  INFECTIONS.  In  1995,  there  were  1.9  million  nosocomial
(occurring in a hospital)  infections and there were 88,000 deaths attributed to
them.  Bacteria  causing  infections  are  commonly  divided  into two  types of
infections,  Gram-positive and Gram-negative.  Clinically  important examples of
Gram-positive  bacteria  include  STAPHYLOCOCCI,  STREPTOCOCCI  and ENTEROCOCCI.
Gram-positive  cocci,  especially  STAPHYLOCOCCI,  are a  significant  cause  of
nosocomial infections (e.g., they are responsible for 44% of those that occur in
the  bloodstream).  It has been  estimated  that the overall  mortality rate for
staphylococcal  infections is about 25%. The two major STAPHYLOCOCCI responsible
for  nosocomial   infections  are   STAPHYLOCOCCUS   AUREUS  and  STAPHYLOCOCCUS
EPIDERMIDIS.  There is particular concern regarding the increasing prevalence of
multidrug resistant forms of these two pathogens,  which are referred to as MRSA
and MRSE,  respectively.  Vancomycin  is  currently  the drug of choice to treat
serious  staphylococcal  infections  caused  by MRSA  and  MRSE in the  hospital
setting. Vancomycin is an intravenous drug and, although widely used, is limited
by an infusion related side effect called the "Red Man Syndrome" that results in
a marked flushing of the patient and other more serious effects. Vancomycin also
has a rather short  duration of action in the patient after  administration  and
requires dosing to be administered two to four times a day.

           PRODUCT  DESCRIPTION.  Versicor is  developing  V-Glycopeptide  as an
improved  alternative  to  Vancomycin.  V-Glycopeptide  is a  second  generation
glycopeptide  intended for the intravenous  treatment of serious  hospital-based
infections  caused by gram-positive  cocci,  especially those caused by MRSA and
MRSE,  where the majority of Vancomycin is currently used.  V-Glycopeptide  will
not be targeted for infections  caused by ENTEROCOCCI,  which account for only a
small portion of Vancomycin use. This novel  glycopeptide  has been developed by
chemical   modification  of  a  naturally  occurring   antibiotic.   We  believe
V-Glycopeptide offers the following competitive advantages over Vancomycin:

     -    More potent broad spectrum of gram-positive activity. V-Glycopeptide
          is a significantly more potent antibiotic IN VITRO against a range of
          gram-positive bacteria, including all of the staphylococcal species.

     -    Enhanced  potency  against MRSA and MRSE.  The most difficult
          STAPHYLOCOCCI to treat are multidrug resistant MRSA and MRSE, for
          which Vancomycin is virtually the only treatment option available.
          As shown in Figure C below, V-Glycopeptide is IN VITRO the most potent
          antibiotic belonging to the glycopeptide class against MRSA and MRSE.


                                       7
<PAGE>


     -    Once daily dosing. A variety of different animal model studies have
          shown that V-Glycopeptide has a long duration of action after
          administration, permitting a less frequent dosing regimen. It is
          anticipated that V-Glycopeptide will need to be administered only
          once a day to patients, which represents an improvement over
          Vancomycin, which has to be administered two to four times a day.

                                    FIGURE C

                       Methicillin-Resistant STAPHYLOCOCCI

[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]


<TABLE>
<CAPTION>
MIC90           MRSA            MRSE
<S>             <C>             <C>
V-Glycopeptide  0.25            0.25
Vancomycin      4.00            4.00
Teicoplanin     8.00           16.00
LY333328        2.00            1.00
</TABLE>

                                                 Source:    JAC (1999), 44:179

           Figure  C   compares   the  IN  VITRO   potency  of  the  four  major
glycopeptides as measured by the minimal concentration of drug that inhibits the
growth of 90%, or MIC90 of species of MRSA or MRSE. The lower the amount of drug
required to inhibit the bacteria, the greater the potency. The results show that
V-Glycopeptide  has significantly  greater potency than the other  glycopeptides
shown.

           PHASE I STATUS. V-Glycopeptide is currently in Phase I testing during
which its safety and tolerance are being investigated. Initial studies have been
completed in the United  Kingdom and we  anticipate  completing  further Phase I
studies in the  United  States  during the first half of 2001.  Phase II studies
will be conducted in the United States starting in the first half of 2001. These
studies  will  involve  indications  for  bloodstream  and skin and soft  tissue
infections.  In both cases V-Glycopeptide will be tested against drugs currently
used for similar indications.

VRC-3950, A BROAD SPECTRUM BACTERICIDAL ANTIBIOTIC CLASS FOR HOSPITALS

           We  are   currently   developing  a  new  class  of  broad   spectrum
bactericidal antibiotics for hospital-based infections called VRC-3950. After an
extensive search of the literature for lead molecules that were  underexploited,
had good IN VIVO activity and were suitable for  optimization  by  combinatorial
chemistry, we have chosen to work with a compound called VRC-3950.  VRC-3950 has
a novel mechanism of activity and has demonstrated excellent IN VIVO activity in
preclinical studies. It has no cross-resistance to existing  antibacterial drugs
and  has a low  frequency  of  resistance  development  in the  laboratory.  Our
scientists have overcome difficulties in measuring the activity of this molecule
by  developing a  proprietary  IN VITRO assay.  We are  currently  preparing and
screening  VRC-3950  analog  libraries and following up on initial leads to find
new patentable preclinical compounds.


                                       8
<PAGE>

 PARTNERED PRODUCTS

 Oxazolidinones

           Versicor is  collaborating  with Pharmacia  Corporation to identify a
second  generation  oxazolidinone.  The  oxazolidinones  are the first major new
chemical class of  antibacterial  products to enter the market in over 30 years.
Pharmacia  Corporation  has received FDA approval,  independent of us, for a new
drug  called  ZyvoxTM,  the  most  advanced  molecule  in this  class.  Based on
historical  precedents  for  antibiotics,  we  believe  it is  likely  that  the
development of subsequent  generations of  oxazolidinones  with improved potency
and  broader  spectrum  of  activity  will  create a major  market  opportunity.
Oxazolidinones  are active against a broad spectrum of gram-positive  pathogens,
including multidrug resistant STAPHYLOCOCCI,  STREPTOCOCCI and ENTEROCOCCI. They
have a novel  mechanism  of  action  involving  inhibition  of an early  step in
protein  biosynthesis.  Oxazolidinones  are  mechanistically  novel  and have no
cross-resistance  to  other  classes  of  antibiotics.  In  addition,  IN  VITRO
preclinical studies have shown that it is very difficult for bacteria to develop
resistance to the oxazolidinones.

           We began  working  on  oxazolidinones  at a time when  several  major
pharmaceutical  companies  were  already  actively  involved  in  the  area.  By
leveraging our expertise in combinatorial  chemistry,  our scientists  performed
lead optimization around the core oxazolidinone structure and identified several
novel lead structures with good IN VIVO activity when administered  orally. As a
result of our relatively rapid progress in this area, Pharmacia Corporation, the
leader in this field, signed a collaboration agreement with us in March 1999. We
have identified  several novel molecules with an enhanced  spectrum of activity,
including  activity against the pathogen H. INFLUENZA,  improved potency against
multidrug  resistant  bacteria  including  MRSA,  MRSE,   Vancomycin   resistant
ENTEROCOCCI and penicillin resistant STREPTOCOCCUS PNEUMONIAE. Several compounds
have  also  demonstrated  good  activity  in IN VIVO  preclinical  studies  when
administered  orally and are  therefore  undergoing  advanced  IN VIVO  testing.
Advanced IN VIVO testing  includes  testing the efficacy of the  compounds  with
increased dosages,  the absorption of the compound in the blood, the differences
between the oral formulation and the intravenous formulation and the toxicity of
the  compound.   We  believe  this  represents   significant   progress  in  our
collaborative  effort to identify a product candidate for clinical  development.
In  October  2000,  we  announced  a 30%  increase  in  funding  from  Pharmacia
Corporation for this collaboration.

 DEFORMYLASE INHIBITORS

           We are collaborating  with Novartis Pharma AG to develop  deformylase
inhibitors as antibacterial  agents.  Deformylase is an essential enzyme present
in bacteria but absent in human cells,  thus  representing a good target for the
discovery of inhibitors that can serve as broad spectrum  antibacterial  agents.
Deformylase is a  metal-containing  enzyme, or  metalloenzyme.  If this metal is
removed or  interfered  with,  the enzyme  can no longer  function.  Since it is
possible  to design  molecules  that bind to metals,  this  makes it  especially
attractive for the design of mechanism-based drugs. Captopril, the first drug to
be  rationally  designed  using  this  approach,  as  opposed  to using  empiric
screening,  is an inhibitor of a  metalloenzyme  called  Angiotensin  Converting
Enzyme,  or ACE.  The design of  Captopril  represented  a major  pharmaceutical
breakthrough.  Deformylase  offers a unique  opportunity  for  integrating  this
principle of mechanism-based drug design with our combinatorial chemistry-based
approach.

           Based on our  scientists'  experience in the Captopril field and with
other metalloenzyme  inhibitors,  we initiated a highly focused chemistry effort
targeting  the rational  design and  synthesis  of  deformylase  inhibitors.  We
designed a set of pharmacophoric libraries specifically suited for metalloenzyme
targets and also developed new synthetic  methodologies  for the  preparation of
these  libraries.  Screening  these  libraries  against  deformylase  led to the
identification  of several  molecules  with  excellent  enzymatic and whole cell
inhibitory  activity.  Our proprietary Gene to Screen technology helped identify
those  leads  that  inhibited   bacterial  growth  by  specifically   inhibiting
deformylase.   Through  proper  integration  of  combinatorial   chemistry  with
medicinal  chemistry,  more  specific  lead series were further  optimized  with
excellent  selectivity,  as  well as  activity  against  clinically  significant
multidrug  resistant  bacteria.  Several of these compounds have demonstrated IN
VIVO activity in preclinical  studies when  administered  orally. IN VIVO active
molecules  superior  to  the  initial  lead  are  currently  undergoing  further
pre-clinical  evaluation  that  examines the  absorption of the molecules in the
blood over time.  During 2000, we achieved the second and third  milestones  for
this collaboration.


                                       9
<PAGE>


OUR DISCOVERY PLATFORM

           We use our  capabilities  in genomics,  rational  drug  design,  lead
optimization and our BIOCOR  collaboration to fuel both our proprietary  product
and  partnered  product  pipelines.  We believe the  strength  of our  discovery
platform has been validated by our corporate collaborations.

 LEAD OPTIMIZATION

        Several  members of our  scientific  staff are  pioneers in the field of
 combinatorial   chemistry.  We  have  focused  our  efforts  on  the  practical
 applications  of this powerful  technology for the discovery and development of
 new  antibacterial  agents.  We  believe  that the  best  use of  combinatorial
 chemistry  is in lead  optimization  via  preparation  of hundreds of discrete,
 well-characterized  compounds based on core lead  structures.  We have analyzed
 the  antibacterial  field to arrive at potential lead  optimization  candidates
 that are either previously  abandoned  molecules or are molecules on which work
 is still being  done.  In both cases,  we have chosen  molecules  that have the
 potential  for  significant  improvements  in potency,  spectrum of activity or
 other properties.  Our expertise allows us to develop  combinatorial methods of
 analoging  synthetically  complex lead structures  that would otherwise  appear
 unapproachable.  Once a suitable molecule for lead optimization is selected, we
 establish a proprietary  position by using  combinatorial  chemistry to prepare
 new analogs intended to be outside the patent scope of our likely  competitors.
 Following the discovery of novel  bioactive lead  structures,  we integrate our
 combinatorial and medicinal  chemistry efforts to prepare individual  molecules
 that can be navigated  efficiently through preclinical testing. Once an IN VIVO
 active lead has been  established,  we determine whether the molecule best fits
 our  proprietary  product or our partnered  product  portfolio.  The successful
 execution of this strategy has been demonstrated by our partnered oxazolidinone
 project with Pharmacia Corporation.

 RATIONAL DRUG DESIGN - MECHANISM-BASED DRUG DESIGN

       The  complete  genetic  blueprints,   or  genomes,  of  the  majority  of
clinically relevant bacteria are now accessible through the internet.  We take a
highly  focused  and  practical  approach to using the  genomic  information  by
carefully  selecting  targets  that have a  mechanism  suited to  rational  drug
design. To facilitate  efficient  integration of mechanism-based  drug discovery
with combinatorial chemistry, we select mechanism-based families of targets such
as metalloenzymes.  We search genomes for characteristic  genetic signatures and
compare  different  genomes to identify targets that are present in a clinically
relevant spectrum of bacteria.  We use genetic  techniques to establish that any
target  selected is essential for growth,  and confirm this in several  relevant
bacterial species. Once we have carefully selected the target, we begin a highly
focused  chemistry effort using  mechanism-based  drug design. We then apply our
"Gene to Screen" technology that allows us to increase or decrease the amount of
target  gene  product  (usually  an  enzyme)  inside a cell by use of a  special
genetic tool regulator. Our ability to vary the concentration of a target enzyme
inside a cell has proved an important support tool for our chemists, as they can
then confirm  whether a potent enzyme  inhibitor stops the growth of bacteria by
inhibiting the same enzyme. "Gene to Screen" allows our chemists to select leads
that have the correct  mechanism,  without the  inhibition of other enzymes that
could result in toxicity.  This  integrated  approach has been  validated by our
metalloenzyme program with Novartis Pharma AG to develop deformylase inhibitors.
We are  currently  working  with four  additional  metalloenzyme  targets in our
internal  research  program  to build on this  success  in our  novel  molecules
programs.

 BIOCOR COLLABORATION

           In February  1998,  we  established  an exclusive  lead  optimization
partnership  called BIOCOR with Biosearch  Italia of Gerenzano,  Italy.  Through
this   partnership,   Biosearch   contributes   leads  and  we  contribute   our
combinatorial  and  medicinal  chemistry  expertise  to  optimize  the leads and
identify product  candidates.  The advantage of working with these leads is that
they have  already been shown to inhibit the growth of intact  bacterial  cells.
Penetrating  an intact cell is  frequently  a major  obstacle to the  successful
development of an active drug. Biosearch Italia is the management spin-off of an
infectious  disease  research  center that was formerly  part of Hoechst  Marion
Roussel,   now  called   Aventis.   Biosearch  has  been   screening   microbial
fermentations at this site for over 20 years.  BIOCOR provides us with access to
the   attractive   area  of  natural   product   leads   without  the  expensive
infrastructure necessary to generate such leads independently. In December 2000,
we expanded this  collaboration by sponsoring  additional  chemists in Italy and
increasing  assays put in BIOCOR.  Biosearch  Italia has increased the number of
natural product libraries that they are contributing to BIOCOR.


                                       10
<PAGE>


LICENSING AND COLLABORATIVE AGREEMENTS

           Our strategy  includes the selective  in-licensing  of compounds that
have demonstrated  potential, as well as entering into collaborations with major
pharmaceutical  companies  to develop  partnered  products  targeted for markets
outside the hospital setting.  To date, we have entered into license  agreements
with Eli Lilly with respect to  V-Echinocandin  and with  Biosearch  Italia with
respect to V-Glycopeptide.  We have entered into  collaboration  agreements with
Pharmacia  Corporation  with  respect to the  development  of second  generation
oxazolidinones  and with Novartis with respect to the development of deformylase
inhibitors.  As discussed  above,  we also have a  collaboration  agreement with
Biosearch Italia with respect to the generation of leads.

 ELI LILLY

           In May  1999,  we  obtained  from Eli  Lilly an  exclusive  worldwide
license for the development and  commercialization of V-Echinocandin,  which was
then known as  LY303366.  We paid $11 million for the license and have agreed to
pay an  additional  $3 million  for product  inventory  of which we have paid $1
million.  We are also  obligated to make $51 million in payments to Eli Lilly if
specified   milestones  are  achieved  on  the   intravenous   formulations   of
V-Echinocandin.  Of the $51 million payment for the intravenous formulation, $14
million is  contingent  on  developments  in the United  States and Canada,  $16
million is  contingent  on  developments  in Japan and Europe and $21 million is
contingent on cumulative sales of the intravenous formulation.  We are obligated
to make $79 million in additional payments to Eli Lilly if specified  milestones
are achieved on the oral formulations of V-Echinocandin.  We are required to pay
to Eli Lilly  royalties  in respect of sales of any product  resulting  from the
compound.  We may terminate  this agreement with Eli Lilly at any time by giving
ninety  days'  written   notice.   Otherwise,   the  license   terminates  on  a
country-by-country basis as all of our royalty obligations are satisfied in each
country.  We have also  granted to Eli Lilly an option to license the  exclusive
worldwide  development  and  commercialization  rights to oral  formulations  of
V-Echinocandin,  which is  exercisable  upon  successful  completion of Phase II
clinical trials.  If Eli Lilly exercises this option,  we will have the right to
receive  royalty  payments and  reimbursement  of 125% of the prior  development
expenses and 100% of the milestone  payments  attributed to the  development and
commercialization  of the oral formulation of V-Echinocandin.  We will also have
the right to co-promote the oral product with Eli Lilly.

 BIOSEARCH ITALIA

           In February  1998,  we entered  into two  agreements  with  Biosearch
Italia:  a license  agreement and a collaborative  agreement.  Under the license
agreement,   Biosearch   granted  us  an   exclusive   license  to  develop  and
commercialize  V-Glycopeptide,  then  called  BI-397,  in the United  States and
Canada. In exchange for the license and upon the receipt of favorable results in
pre-clinical studies, we paid $3 million and issued 250,000 shares of our common
stock to  Biosearch.  We are  obligated to make up to $9.5 million in additional
payments upon the achievement of specified  milestones.  We are also required to
pay Biosearch royalties in respect of sales of any product that results from the
compound. Subject to certain conditions,  Biosearch has a right of first refusal
to  manufacture  and supply us with our  requirements  for  V-Glycopeptide.  The
license  agreement  terminates  upon the later of the expiration of all licensed
patents or the date on which Biosearch is no longer entitled to royalties.

           Under  the   collaborative   agreement  with  Biosearch   Italia,  we
established a lead optimization partnership called BIOCOR. Biosearch contributes
leads, while we contribute our combinatorial and medicinal  chemistry  expertise
to  optimize  the  leads.  Biosearch  has the  exclusive  license  in  Europe to
commercialize  intravenous  products  resulting from this collaboration and will
retain  all  income  derived  from  commercialization  in  Europe.  We have  the
exclusive license in Canada and the United States for the  commercialization  of
intravenous  products in these  countries  and will retain all income  resulting
from  commercialization  in the  United  States and  Canada.  We will share with
Biosearch all revenue from the  commercialization  of  intravenous  drugs in all
countries other than the United States and Canada and outside of Europe, as well
as from any oral products  that are  developed.  Subject to certain  conditions,
Biosearch  has a right of first  refusal to  manufacture  and supply us with our
requirements for products that result from this collaboration. The collaboration
agreement  terminates upon the expiration of all licensed  patents.  In December
2000, we expanded this collaboration by sponsoring  additional chemists in Italy
and increasing  assays put in BIOCOR.  Biosearch Italia has increased the number
of natural product libraries they are contributing to BIOCOR.


                                       11
<PAGE>


PHARMACIA CORPORATION

           In  March  1999,  we  entered  into a  collaboration  agreement  with
Pharmacia  Corporation pursuant to which we are collaborating to discover second
and third generation  oxazolidinone  product candidates.  In connection with the
collaboration,  Pharmacia Corporation made an initial equity investment of $3.75
million and paid  research  support and license fee  payments of $1.2 million to
us. Under the terms of this  agreement,  we are  entitled to receive  additional
research support payments,  and if specified milestones are achieved,  up to $14
million  in  additional  milestone  payments  per  compound.  In  October  2000,
Pharmacia  Corporation  increased its funding for this  collaboration by 30%. We
have  assigned  to  Pharmacia  Corporation  one U.S.  patent  application  and a
corresponding  PCT  patent  application  relating  to this  collaboration.  Both
applications involve the methodology of preparing oxazolidinones,  libraries and
pharmaceutical compositions. Pharmacia Corporation will conduct the development,
manufacture  and  sale of  products  resulting  from the  collaboration.  We are
entitled  to  receive  royalties  on the  sales of any  products  developed  and
commercialized,  however, Pharmacia Corporation may offset royalty payments with
previous  milestone  payments made to us. This agreement will terminate upon the
expiration of all licensed patents.

 NOVARTIS PHARMA AG

           In  March  1999,  we  entered  into a  collaboration  agreement  with
Novartis  Pharma AG  pursuant  to which we are  collaborating  to  discover  and
develop novel  deformylase  inhibitors.  In connection  with the  collaboration,
Novartis  has made a $3  million  equity  investment  and has made $1 million in
milestone   payments  to  us.   Subject  to  the  approval  of  certain  of  our
stockholders,  we have the  option  from  March 31,  2000 to March  31,  2001 to
require  Novartis to make an additional $2 million equity  investment in us at a
price of $5.66 per share. Under the terms of this agreement,  we are entitled to
receive up to $21.25  million in  additional  payments  from  Novartis  upon the
achievement of specified milestones,  a portion of which may be credited against
future royalty payments. We have granted Novartis an exclusive worldwide license
to commercialize  products resulting from this  collaboration.  The development,
manufacture  and  sale of  products  resulting  from the  collaboration  will be
conducted by Novartis, and we will be entitled to receive royalties on the sales
of any product developed and commercialized from this  collaboration.  A portion
of the milestone payments  previously paid may be used by Novartis to offset its
royalty  payments  to us. We have the  option to  co-promote  with  Novartis  in
hospitals in the United  States and Canada any product that  contains a Versicor
compound as an active  ingredient.  We will not be entitled  to  royalties  from
sales in the United States and Canada if we choose to  co-promote  products with
Novartis. This agreement terminates on a country-by-country basis as all royalty
obligations are satisfied in each country.

 SALES AND MARKETING

           We intend  to market  and sell our  products  through a direct  sales
force in the United  States and Canada.  Because we are  targeting  the hospital
market,  we believe a relatively small sales force will be sufficient to provide
full coverage. We plan to begin hiring this sales force six to nine months prior
to introducing our first product into the North American market.  Our management
has experience in building specialty  pharmaceutical  sales forces. We expect to
partner  with other  pharmaceutical  companies  to market our  products  outside
hospitals in the United States and Canada, and in overseas markets.

 MANUFACTURING

           We  have no  manufacturing  facilities.  We  intend  to use  contract
manufacturers  to produce our drugs  rather than  develop our own  manufacturing
capability.   We  have  not  yet  selected  contract   manufacturers  for  final
formulation of V-Echinocandin. Eli Lilly and Biosearch are our suppliers of bulk
drug substance  V-Echinocandin and V-Glycopeptide,  respectively.  Eli Lilly has
supplied us with  sufficient  product to finish clinical  trials.  Biosearch has
provided us with sufficient product to complete our Phase II clinical trials.

 INTELLECTUAL PROPERTY

           We seek U.S.  and  international  patent  protection  for our product
candidates  and other  technology.  We also rely on trade secret  protection for
some of our  confidential  and  proprietary  information.  In  addition,  we use
license  agreements to access external products and technologies,  as well as to
convey to others rights to our own intellectual property. We will be


                                       12
<PAGE>


able to protect our proprietary  rights from  unauthorized  use by third parties
only to the  extent  that our  proprietary  rights  are  covered  by  valid  and
enforceable patents or are effectively maintained as trade secrets.

          We own by assignment one issued U.S.  patent,  six pending U.S. patent
applications,  and one PCT patent  application.  Our license  agreement with Eli
Lilly with  respect to  V-Echinocandin  includes 11 U.S.  patents,  several U.S.
patent  applications,  33 foreign  patents and  several  PCT and foreign  patent
applications.  Our license  agreement  with  Biosearch  Italia  with  respect to
V-Glycopeptide  includes three issued U.S. patents,  two issued Canadian patents
and several pending U.S. and Canadian  patent  applications.  Our  collaborative
agreement  with  Pharmacia  Corporation  with  respect  to  the  development  of
oxazolidinones includes one U.S. patent application and one PCT application.

 COMPETITION

           We believe  our  products  will face  intense  competition  from both
existing therapies and new generations of antibiotics and antifungals. We expect
to compete against existing therapies on the basis of greater potency,  improved
effectiveness   against  resistant   strains  and  reduced   toxicity.   Several
pharmaceutical and biotechnology  companies are actively engaged in research and
development related to new generations of antibiotic and antifungal products. We
cannot  predict the basis upon which we will compete with new products  marketed
by  others.  Many  of our  competitors  have  substantially  greater  financial,
operational, sales and marketing, and research and development resources than we
have.  Companies  that  market  or are  known  to be in  active  development  of
antibiotic  or  antifungal  products  in our  target  markets  include  Aventis,
Fujisawa, Janssen, J.B. Roerig (Pfizer), Merck, Cubist, Intrabiotics and Gilead.

 PHARMACEUTICAL PRICING AND REIMBURSEMENT

           In both domestic and foreign markets, sales of our product candidates
will depend in part upon the  availability  of  reimbursement  from  third-party
payors. Third-party payors include government health administrative authorities,
managed care providers,  private health insurers and other organizations.  These
third-party  payors are  increasingly  challenging  the price and  examining the
cost-effectiveness  of medical products and services.  In addition,  significant
uncertainty exists as to the reimbursement  status of newly approved  healthcare
products. We may need to conduct  post-marketing studies in order to demonstrate
the cost-effectiveness of our products.  These studies may require us to provide
a significant amount of resources.  Our product candidates may not be considered
cost-effective.  Adequate  third-party  reimbursement  may not be  available  to
enable us to maintain price levels  sufficient to realize an appropriate  return
on our  investment  in product  development.  Domestic  and foreign  governments
continue  to  propose  and  pass  legislation  designed  to  reduce  the cost of
healthcare.  Accordingly,  legislation and regulations  affecting the pricing of
pharmaceuticals  may change  before  our  proposed  products  are  approved  for
marketing.  Adoption of such legislation  could further limit  reimbursement for
pharmaceuticals.  If the  government  and  third-party  payors  fail to  provide
adequate coverage and reimbursement rates for our product candidates, the market
acceptance  of our products may be  adversely  affected.  If our products do not
receive  market  acceptance,  our business,  financial  condition and results of
operations will be materially adversely affected.

 NEW DRUG DEVELOPMENT AND APPROVAL PROCESS

           Regulation by governmental authorities in the United States and other
countries  is  a  significant   factor  in  the  manufacture  and  marketing  of
pharmaceuticals and in our ongoing research and development  activities.  All of
our products will require regulatory approval by governmental  agencies prior to
commercialization.  In  particular,  human  therapeutic  products are subject to
rigorous  preclinical  testing  and  clinical  trials  and  other  pre-marketing
approval requirements by the FDA and regulatory  authorities in other countries.
In the United  States,  various  federal,  and in some cases state  statutes and
regulations  also govern or impact  upon the  manufacturing,  safety,  labeling,
storage,  record-keeping and marketing of such products.  The lengthy process of
seeking  required   approvals  and  the  continuing  need  for  compliance  with
applicable  statutes and  regulations,  require the  expenditure  of substantial
resources.  Regulatory approval,  when and if obtained, may be limited in scope,
which may  significantly  limit the  indicated  uses for which a product  may be
marketed.  Further, approved drugs, as well as their manufacturers,  are subject
to ongoing  review,  and  discovery of  previously  unknown  problems  with such
products  may result in  restrictions  on their  manufacture,  sale or use or in
their withdrawal from the market.


                                       13
<PAGE>


 EMPLOYEES

           As of December  31,  2000,  we  employed 41 persons,  of whom 18 hold
Ph.D. or M.D.  degrees.  Approximately  34 employees are engaged in research and
development,  and seven support administration,  finance, management information
systems and human resources. We believe that we maintain good relations with our
employees.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

           The following is a summary of the many risks we face in our business.
You should carefully read these risk factors in evaluating our business.

                          RISKS RELATED TO OUR BUSINESS

IF  WE  ARE  UNABLE  TO  DEVELOP  AND  SUCCESSFULLY  COMMERCIALIZE  OUR  PRODUCT
CANDIDATES, WE MAY NEVER GENERATE SIGNIFICANT REVENUES OR BECOME PROFITABLE.

           You must evaluate us in light of the  uncertainties  and complexities
present  in an  early  stage  biopharmaceutical  company.  All  of  our  product
candidates  are in early  stages of  development,  and only two are in  clinical
trials.  To date we have not  commercialized  any  products  or  recognized  any
revenue from product sales. We will require significant additional investment in
research and development,  preclinical  testing and clinical trials,  regulatory
approval,  and  sales and  marketing  activities.  Our  product  candidates,  if
successfully  developed,  may not generate sufficient or sustainable revenues to
enable us to be profitable.

WE EXPECT TO INCUR  LOSSES  FOR THE  FORESEEABLE  FUTURE  AND MAY NEVER  ACHIEVE
PROFITABILITY.

           We have  incurred  net losses  since our  inception  in 1995.  Before
deemed  dividends and accretion to redemption  value of preferred stock, our net
losses were  approximately  $1.1  million in 1995,  $4.8  million in 1996,  $6.3
million in 1997,  $12.6 million in 1998, $29.2 million in 1999 and $15.3 million
in 2000.  As of December 31, 2000,  our  accumulated  deficit was  approximately
$71.0 million. Our losses to date have resulted principally from:

     -    research and  development  costs  relating to the  development  of our
          product candidates;

     -    costs of acquiring product candidates; and

     -    general and administrative costs relating to our operations.

           We  expect  to  incur  substantial  and  increasing  losses  for  the
foreseeable  future as a result of increases  in our  research  and  development
costs,  including  costs  associated  with  conducting  preclinical  testing and
clinical trials, and charges related to purchases of technology or other assets.
We expect that the amount of operating losses will fluctuate  significantly from
quarter to quarter as a result of  increases  or  decreases  in our research and
development efforts, the execution or termination of collaborative arrangements,
the initiation,  success or failure of clinical  trials,  or other factors.  Our
chances for achieving  profitability will depend on numerous factors,  including
success in:

     -    developing and testing new product candidates;

     -    receiving regulatory approvals;

     -    manufacturing products;

     -    marketing products; and

     -    competing with products from other companies.

                                       14
<PAGE>

           Many of  these  factors  will  depend  on  circumstances  beyond  our
control. We expect to rely heavily on third parties with respect to many aspects
of  our  business,   including  research  and  development,   clinical  testing,
manufacturing  and  marketing.  We cannot  assure  you that we will ever  become
profitable.

OUR REVENUES  WILL BE SUBJECT TO  SIGNIFICANT  FLUCTUATIONS,  WHICH WILL MAKE IT
DIFFICULT TO COMPARE OUR OPERATING RESULTS TO PRIOR PERIODS.

           We expect that  substantially all of our revenues for the foreseeable
future will result from  payments  under  collaborative  arrangements.  To date,
these  payments  have been in the form of upfront  payments,  reimbursement  for
research and development expenses and milestone payments.  We may not be able to
generate additional revenues.  Furthermore,  payments under our existing and any
future collaborative  arrangements will be subject to significant fluctuation in
both  timing  and  amount.  Our  revenues  may not be  indicative  of our future
performance or of our ability to continue to achieve additional milestones.  Our
revenues and results of operations  for any period may also not be comparable to
the revenues or results of operations for any other period.

IF WE CANNOT ENTER INTO NEW LICENSING ARRANGEMENTS, OUR FUTURE PRODUCT PORTFOLIO
COULD BE ADVERSELY AFFECTED.

           An important  component of our business strategy is in-licensing drug
compounds  developed  by other  pharmaceutical  and  biotechnology  companies or
academic  research  laboratories.  Competition  for  promising  compounds can be
intense. If we are not able to identify future licensing  opportunities or enter
into future  licensing  arrangements  on acceptable  terms,  our future  product
portfolio could be adversely affected.

IF OUR COLLABORATIVE  PARTNERS DO NOT PERFORM,  WE WILL BE UNABLE TO DEVELOP OUR
PARTNERED PRODUCT CANDIDATES.

           We have entered into collaborative arrangements with third parties to
develop certain product candidates.  These collaborations are necessary in order
for us to:

     -    fund our research and development activities;

     -    fund manufacturing by third parties;

     -    seek and obtain regulatory approvals; and

     -    successfully commercialize existing and future product candidates.

           Only a  limited  number of  product  candidates  have been  generated
pursuant  to our  collaborations.  We  cannot  assure  you that any of them will
result in  commercially  successful  products.  Current or future  collaborative
arrangements  may  not be  successful.  If we  fail  to  maintain  our  existing
collaborative  arrangements  or  fail to  enter  into  additional  collaborative
arrangements,  the number of  product  candidates  from  which we could  receive
future revenues would decline.

           Our  dependence  on  collaborative  arrangements  with third  parties
subjects us to a number of risks. These collaborative arrangements may not be on
terms favorable to us. Agreements with  collaborative  partners  typically allow
partners significant discretion in electing whether to pursue any of the planned
activities.   We  cannot   control  the  amount  and  timing  of  resources  our
collaborative  partners may devote to the product  candidates,  and our partners
may choose to pursue  alternative  products.  Our partners may not perform their
obligations  as expected.  Business  combinations  or  significant  changes in a
collaborative  partner's  business  strategy  may  adversely  affect a partner's
willingness  or ability  to  complete  its  obligations  under the  arrangement.
Moreover,  we could become  involved in disputes with our partners,  which could
lead to  delays  or  termination  of our  development  programs  with  them  and
time-consuming and expensive  litigation or arbitration.  Even if we fulfill our
obligations  under a  collaborative  agreement,  our partner can  terminate  the
agreement  under certain  circumstances.  If any  collaborative  partner were to
terminate or breach our  agreement  with it, or  otherwise  fail to complete its
obligations  in a timely  manner,  our chances of  successfully  commercializing
products would be adversely affected.

                                       15
<PAGE>

IF CLINICAL  TRIALS FOR OUR PRODUCTS  ARE  UNSUCCESSFUL  OR DELAYED,  WE WILL BE
UNABLE TO MEET OUR  ANTICIPATED  DEVELOPMENT  AND  COMMERCIALIZATION  TIMELINES,
WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

           Before obtaining  regulatory approvals for the commercial sale of any
products,  we must demonstrate  through  preclinical testing and clinical trials
that our product candidates are safe and effective for use in humans. Conducting
clinical trials is a lengthy, time-consuming and expensive process.

           Completion  of clinical  trials may take several  years or more.  Our
commencement  and rate of completion  of clinical  trials may be delayed by many
factors, including:

     -    lack of efficacy during the clinical trials;

     -    unforeseen safety issues;

     -    slower than expected rates of patient recruitment;

     -    government or regulatory delays;

     -    inability to adequately follow patients after treatment; and

     -    inability to manufacture sufficient quantities of materials for use in
          clinical trials.

           The results from  preclinical  testing and early clinical  trials are
often not predictive of results  obtained in later clinical  trials. A number of
new drugs have shown  promising  results in clinical  trials,  but  subsequently
failed to  establish  sufficient  safety and efficacy  data to obtain  necessary
regulatory approvals. Data obtained from preclinical and clinical activities are
susceptible  to  varying  interpretations,  which may  delay,  limit or  prevent
regulatory  approval.  In  addition,  regulatory  delays  or  rejections  may be
encountered  as a result of many  factors,  including  perceived  defects in the
design of  clinical  trials and  changes in  regulatory  policy  during  product
development.

           As  of  December   31,   2000,   two  of  our   product   candidates,
V-Echinocandin and  V-Glycopeptide,  were in clinical trials.  Patient follow-up
for these  clinical  trials has been  limited  and more  trials will be required
before  we will be able to  apply  for  regulatory  approvals.  Clinical  trials
conducted by us or by third parties on our behalf may not demonstrate sufficient
safety  and  efficacy  to  obtain  the   requisite   regulatory   approvals  for
V-Echinocandin  and  V-Glycopeptide or any other potential  product  candidates.
This failure may delay  development  of other product  candidates and hinder our
ability to conduct related preclinical  testing and clinical trials.  Regulatory
authorities  may not permit us to undertake any additional  clinical  trials for
our  product  candidates.  Our  other  product  candidates  are  in  preclinical
development,  and we have not submitted investigational new drug applications to
commence clinical trials involving these compounds.  Our preclinical development
efforts  may  not  be  successfully  completed  and  we  may  not  file  further
investigational  new drug  applications.  Any delays in, or termination  of, our
clinical  trials  will  materially  and  adversely  affect our  development  and
commercialization  timelines,  which would cause our stock price to decline. Any
of these events  would also  seriously  impede our ability to obtain  additional
financing.

IF OUR THIRD PARTY CLINICAL TRIAL MANAGERS DO NOT PERFORM,  CLINICAL  TRIALS FOR
OUR PRODUCT CANDIDATES MAY BE DELAYED OR UNSUCCESSFUL.

           We have limited experience in conducting and managing clinical trials
and only have one  full-time  clinical  development  employee.  We rely on third
parties,  including our collaborative partners,  clinical research organizations
and  outside  consultants,  to assist us in  managing  and  monitoring  clinical
trials.  Our reliance on these third parties may result in delays in completing,
or failing to complete,  these trials if they fail to perform under the terms of
our agreements with them.


                                       16
<PAGE>


IF OUR PRODUCTS  ARE NOT  ACCEPTED BY THE MARKET,  WE ARE NOT LIKELY TO GENERATE
SIGNIFICANT REVENUES OR BECOME PROFITABLE.

           Even if we  obtain  regulatory  approval  to  market a  product,  our
products may not gain market acceptance among physicians,  patients,  healthcare
payors  and the  medical  community.  The  degree  of market  acceptance  of any
pharmaceutical  product  that we  develop  will  depend on a number of  factors,
including:

     -    demonstration of clinical efficacy and safety;

     -    cost-effectiveness;

     -    potential advantages over alternative therapies;

     -    reimbursement policies of government and third-party payors; and

     -    effectiveness of our marketing and distribution capabilities.

           Physicians  will not  recommend  therapies  using our products  until
clinical data or other factors demonstrate their safety and efficacy as compared
to other  drugs or  treatments.  Even if the  clinical  safety and  efficacy  of
therapies  using  our  products  is  established,  physicians  may  elect not to
recommend the therapies for any number of other reasons,  including  whether the
mode of administration of our products is effective for certain indications. For
example,  many antibiotic or antifungal  products are typically  administered by
infusion or injection,  which requires  substantial  cost and  inconvenience  to
patients. Our product candidates, if successfully developed, will compete with a
number of drugs and therapies  manufactured and marketed by major pharmaceutical
and other  biotechnology  companies.  Our  products  may also  compete  with new
products   currently  under   development  by  others.   Physicians,   patients,
third-party  payors and the  medical  community  may not accept and  utilize any
product  candidates  that  we or  our  collaborative  partners  develop.  If our
products  do not achieve  significant  market  acceptance,  we are not likely to
generate significant revenues or become profitable.

IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS, WE WILL BE
UNABLE TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS.

           We are highly  dependent on the principal  members of our scientific,
clinical and management  staff.  In addition,  we have depended to date on third
parties  to perform  significant  management  functions.  In order to pursue our
product development, marketing and commercialization plans, we will need to hire
additional personnel with experience in clinical testing, government regulation,
manufacturing,  marketing and finance.  We may not be able to attract and retain
personnel on acceptable  terms given the intense  competition for such personnel
among high technology enterprises,  including biotechnology,  pharmaceutical and
healthcare companies, universities and non-profit research institutions. Most of
our scientific and management staff do not have employment contracts. If we lose
any of these persons,  or are unable to attract and retain qualified  personnel,
our business,  financial  condition and results of operations  may be materially
and adversely affected.

           In  addition,  we rely on  members  of our  scientific  and  clinical
advisory  boards and other  consultants to assist us in formulating our research
and  development  strategy.  All of  our  consultants  and  the  members  of our
scientific and clinical advisory boards are employed by other entities. They may
have  commitments to, or advisory or consulting  agreements with, other entities
that may  limit  their  availability  to us.  If we lose the  services  of these
advisors,  the  achievement of our development  objectives may be impeded.  Such
impediments  may  materially  and  adversely  affect  our  business,   financial
condition  and results of  operations.  In addition,  except for work  performed
specifically for and at our direction, the inventions or processes discovered by
our scientific and clinical  advisory board members and other  consultants  will
not become our intellectual  property,  but will be the intellectual property of
the individuals or their institutions.  If we desire access to these inventions,
we will be required to obtain  appropriate  licenses from the owners.  We cannot
assure you that we will be able to obtain such licenses.


                                       17
<PAGE>


IF OUR  THIRD-PARTY  MANUFACTURERS  FAIL  TO  DELIVER  OUR  PRODUCT  CANDIDATES,
CLINICAL  TRIALS  AND  COMMERCIALIZATION  OF OUR  PRODUCT  CANDIDATES  COULD  BE
DELAYED.

           We do not  have  our own  manufacturing  facilities  to  produce  our
product candidates and anticipate that we will continue to rely on third parties
to  manufacture   our  product   candidates  and  our  products.   Our  contract
manufacturers  have  a  limited  number  of  facilities  in  which  our  product
candidates  can be produced.  These  manufacturers  have limited  experience  in
manufacturing  V-Echinocandin  and  V-Glycopeptide in quantities  sufficient for
conducting clinical trials or for commercialization.

           Contract  manufacturers  often  encounter  difficulties in scaling up
production,  including problems involving production yields, quality control and
assurance,  shortage of qualified  personnel,  compliance with FDA  regulations,
production  costs,  and  development  of advanced  manufacturing  techniques and
process  controls.  Our contract  manufacturers may not perform as agreed or may
not remain in the contract manufacturing business for the time required by us to
successfully  produce  and  market  our  product  candidates.  If  our  contract
manufacturers fail to deliver the required  quantities of our product candidates
for clinical use on a timely basis and at commercially reasonable prices, and if
we fail to find a  replacement  manufacturer  or develop  our own  manufacturing
capabilities,  clinical trials involving our products,  or  commercialization of
our products, could be delayed.

IF WE FAIL TO ESTABLISH  SUCCESSFUL  MARKETING AND SALES CAPABILITIES OR FAIL TO
ENTER INTO SUCCESSFUL MARKETING ARRANGEMENTS WITH THIRD PARTIES, WE WOULD NOT BE
ABLE TO COMMERCIALIZE OUR PRODUCTS AND WE WOULD NOT BECOME PROFITABLE.

           We intend to sell a portion  of our  products  through  our own sales
force.  Versicor currently has no sales and marketing  infrastructure and has no
experience in direct marketing, sales and distribution. Our future profitability
will depend in part on our ability to develop a direct sales and marketing force
to sell our products to our customers.  We may not be able to attract and retain
qualified  salespeople or be able to build an efficient and effective  sales and
marketing  force.  To  the  extent  that  we  enter  into  marketing  and  sales
arrangements  with other  companies,  our revenues will depend on the efforts of
others.  These  efforts  may not be  successful.  If we are unable to enter into
third-party  arrangements,  then we must substantially  expand our marketing and
sales force in order to achieve  commercial  success for certain  products,  and
compete with other companies that have experienced and well-funded marketing and
sales operations.

IF CIRCUMSTANCES  REQUIRE US TO OBTAIN ADDITIONAL  FUNDING,  WE MAY BE FORCED TO
DELAY OR CURTAIL THE DEVELOPMENT OF OUR PRODUCT CANDIDATES.

           Our requirements  for additional  capital may be substantial and will
depend on many factors, some of which are beyond our control, including:

     -    payments received or made under possible future collaborative  partner
          agreements;

     -    continued progress of our research and development of our products;

     -    costs  associated  with  protecting our patent and other  intellectual
          property rights;

     -    development of marketing and sales capabilities; or

     -    market acceptance of our products.

We have no committed  sources of additional  capital.  To the extent our capital
resources are insufficient to meet future capital requirements,  we will have to
raise additional funds to continue the development of our product candidates. We
cannot assure you that funds will be available on favorable terms, if at all. To
the  extent  that  additional  capital is raised  through  the sale of equity or
convertible  debt  securities,  the issuance of those securities could result in
dilution to our stockholders.  Moreover,  the incurrence of debt financing could
result in a substantial  portion of our operating  cash flow being  dedicated to
the payment of principal and interest on such indebtedness. This could render us
more vulnerable to competitive pressures and economic downturns and could impose

                                       18
<PAGE>

restrictions on our operations.  If adequate funds are not available,  we may be
required to curtail operations significantly or to obtain funds through entering
into  collaboration  agreements on  unattractive  terms.  Our inability to raise
capital  would  have  a  material  adverse  effect  on our  business,  financial
condition and results of operations.

IF WE FAIL TO MANAGE OUR GROWTH, OUR BUSINESS COULD BE HARMED.

           Our  business  plan  contemplates  a period of rapid and  substantial
growth  that  will  place  a  strain  on  our   administrative  and  operational
infrastructure. To date, our management infrastructure has been very limited and
dependent on third  parties,  including  our former parent  company,  to provide
significant  administrative  and operational  assistance.  Our ability to manage
effectively  our  operations  and growth  requires  us to expand and improve our
operational, financial and management controls, reporting systems and procedures
and to attract and retain sufficient numbers of talented  employees.  We may not
successfully  implement  improvements to our management  information and control
systems in an  efficient  or timely  manner  and may  discover  deficiencies  in
existing systems and controls.

IF WE MAKE ANY  ACQUISITIONS,  WE WILL  INCUR A  VARIETY  OF COSTS AND MAY NEVER
REALIZE THE ANTICIPATED BENEFITS.

           If  appropriate  opportunities  become  available,  we may attempt to
acquire  products,  product  candidates  or  businesses  that we  believe  are a
strategic fit with our business.  We currently have no commitments or agreements
with respect to any material acquisitions. If we do undertake any transaction of
this sort, the process of integrating an acquired product,  product candidate or
business may result in operating  difficulties  and  expenditures and may absorb
significant  management  attention that would otherwise be available for ongoing
development  of our business.  Moreover,  we may never  realize the  anticipated
benefits of any  acquisition.  Future  acquisitions  could result in potentially
dilutive  issuances of equity  securities,  the  incurrence of debt,  contingent
liabilities  and/or   amortization   expenses  related  to  goodwill  and  other
intangible  assets,  which  could  adversely  affect  our  business,   financial
condition and results of operations.

IF OUR USE OF HAZARDOUS  MATERIALS  RESULTS IN CONTAMINATION OR INJURY, WE COULD
SUFFER SIGNIFICANT FINANCIAL LOSS.

           Our research and manufacturing  activities involve the controlled use
of hazardous materials. We cannot eliminate the risk of accidental contamination
or injury from these  materials.  In the event of an  accident or  environmental
discharge, we may be held liable for any resulting damages, which may exceed our
financial resources.

                   RISKS RELATED TO OPERATING IN OUR INDUSTRY

IF WE DO NOT COMPETE  SUCCESSFULLY IN THE DEVELOPMENT AND  COMMERCIALIZATION  OF
PRODUCTS  AND KEEP PACE WITH RAPID  TECHNOLOGICAL  CHANGE,  WE WILL BE UNABLE TO
CAPTURE AND SUSTAIN A MEANINGFUL MARKET POSITION.

           The   biotechnology   and   pharmaceutical   industries   are  highly
competitive and subject to significant and rapid  technological  change.  We are
aware of several  pharmaceutical  and biotechnology  companies that are actively
engaged  in  research  and  development  in  areas  related  to  antibiotic  and
antifungal  products.  These  companies have commenced  clinical  trials or have
successfully   commercialized  their  products.  Many  of  these  companies  are
addressing the same diseases and disease  indications as us or our collaborative
partners.

           Many of these  companies and  institutions,  either alone or together
with  their  collaborative   partners,   have  substantially  greater  financial
resources and larger  research and  development  staffs than we do. In addition,
many of these  competitors,  either alone or together  with their  collaborative
partners, have significantly greater experience than we do in:

     -    developing products;

     -    undertaking preclinical testing and human clinical trials;

     -    obtaining FDA and other regulatory approvals of products; and

     -    manufacturing and marketing products.


                                       19
<PAGE>


           Developments   by  others  may  render  our  product   candidates  or
technologies  obsolete  or  noncompetitive.  We face and will  continue  to face
intense  competition from other companies for  collaborative  arrangements  with
pharmaceutical and biotechnology  companies for establishing  relationships with
academic and research institutions,  and for licenses of proprietary technology.
These  competitors,  either  alone or with  their  collaborative  partners,  may
succeed in  developing  technologies  or products that are more  effective  than
ours.

IF OUR INTELLECTUAL PROPERTY DOES NOT ADEQUATELY PROTECT OUR PRODUCT CANDIDATES,
OTHERS  COULD  COMPETE   AGAINST  US  MORE   DIRECTLY,   WHICH  WOULD  HURT  OUR
PROFITABILITY.

Our success depends in part on our ability to:

     -    obtain patents or rights to patents;

     -    protect trade secrets;

     -    operate without infringing upon the proprietary rights of others; and

     -    prevent others from infringing on our proprietary rights.

           We will be able to protect our proprietary  rights from  unauthorized
use by third parties only to the extent that our proprietary  rights are covered
by valid and enforceable patents or are effectively maintained as trade secrets.
The patent position of  biopharmaceutical  companies  involves complex legal and
factual  questions  and,  therefore,  enforceability  cannot be  predicted  with
certainty.  Patents, if issued, may be challenged,  invalidated or circumvented.
Thus,  any patents that we own or license from third parties may not provide any
protection against competitors.  Our pending patent  applications,  those we may
file in the future,  or those we may license from third parties,  may not result
in patents  being issued.  Also,  patent rights may not provide us with adequate
proprietary  protection  or  competitive  advantages  against  competitors  with
similar  technologies.  The laws of certain foreign countries do not protect our
intellectual  property  rights to the same  extent as do the laws of the  United
States.

           In  addition  to patents,  we rely on trade  secrets and  proprietary
know-how. We seek protection,  in part, through  confidentiality and proprietary
information  agreements.  These agreements may not provide meaningful protection
or adequate  remedies for our  technology  in the event of  unauthorized  use or
disclosure of confidential and proprietary  information.  Failure to protect our
proprietary rights could seriously impair our competitive position.

IF THIRD PARTIES CLAIM WE ARE INFRINGING THEIR INTELLECTUAL  PROPERTY RIGHTS, WE
COULD SUFFER  SIGNIFICANT  LITIGATION OR LICENSING EXPENSES OR BE PREVENTED FROM
MARKETING OUR PRODUCTS.

           Research has been  conducted  for many years in the areas in which we
have  focused our  research  and  development  efforts.  This has  resulted in a
substantial  number of issued patents and an even larger number of still-pending
patent  applications.  Patent  applications  in the United  States  are, in most
cases, maintained in secrecy until patents issue. The publication of discoveries
in the scientific or patent  literature  frequently occurs  substantially  later
than the date on which the  underlying  discoveries  were made.  Our  commercial
success depends  significantly on our ability to operate without  infringing the
patents and other  proprietary  rights of third parties.  Our  technologies  may
infringe the patents or violate other  proprietary  rights of third parties.  In
the event of such infringement or violation,  we and our collaborative  partners
may be prevented from pursuing product development or commercialization.

           The   biotechnology   and   pharmaceutical   industries   have   been
characterized by extensive  litigation  regarding patents and other intellectual
property  rights.  The defense and prosecution of  intellectual  property suits,
U.S. Patent and Trademark Office interference  proceedings and related legal and
administrative  proceedings  in the United  States and  internationally  involve
complex legal and factual  questions.  As a result,  such proceedings are costly
and  time-consuming to pursue and their outcome is uncertain.  Litigation may be
necessary to:

                                       20
<PAGE>


     -    enforce patents that we own or license;

     -    protect trade secrets or know-how that we own or license; or

     -    determine the  enforceability,  scope and validity of the  proprietary
          rights of others.

           If we  become  involved  in any  litigation,  interference  or  other
administrative proceedings, we will incur substantial expense and the efforts of
our  technical and  management  personnel  will be  significantly  diverted.  An
adverse  determination may subject us to loss of our proprietary  position or to
significant  liabilities,  or  require  us to  seek  licenses  that  may  not be
available  from  third   parties.   We  may  be  restricted  or  prevented  from
manufacturing  and  selling  our  products,  if any,  in the event of an adverse
determination in a judicial or administrative proceeding or if we fail to obtain
necessary licenses.  Costs associated with these arrangements may be substantial
and may include ongoing royalties. Furthermore, we may not be able to obtain the
necessary licenses on satisfactory terms, if at all.

IF WE  EXPERIENCE  DELAYS IN OBTAINING  REGULATORY  APPROVALS,  OR ARE UNABLE TO
OBTAIN THEM AT ALL, WE COULD BE DELAYED OR PRECLUDED  FROM  COMMERCIALIZING  OUR
PRODUCTS.

           Our product candidates under development are subject to extensive and
rigorous domestic government regulation.  The FDA regulates, among other things,
the  development,   testing,  manufacture,  safety,  efficacy,   record-keeping,
labeling,  storage, approval,  advertising,  promotion, sale and distribution of
pharmaceutical  products. If our products are marketed abroad, they will also be
subject to  extensive  regulation  by foreign  governments.  None of our product
candidates  has been  approved  for sale in the  United  States  or any  foreign
market.  The regulatory  review and approval process takes many years,  requires
the expenditure of substantial resources,  involves post-marketing surveillance,
and may involve  ongoing  requirements  for  post-marketing  studies.  Delays in
obtaining regulatory approvals may:

     -    adversely  affect  the  commercialization  of any drugs that we or our
          collaborative partners develop;

     -    impose costly procedures on us or our collaborative partners;

     -    diminish  any  competitive  advantages  that  we or our  collaborative
          partners may attain; and

     -    adversely affect our receipt of revenues or royalties.

           Any required approvals, once obtained, may be withdrawn.  Further, if
we fail to comply with applicable FDA and other  regulatory  requirements at any
stage during the regulatory process, we may be subject to sanctions, including:

     -    delays in clinical trials or commercialization;

     -    refusal of the FDA to review pending market  approval  applications or
          supplements to approval applications;

     -    product recalls or seizures;

     -    suspension of production;

     -    withdrawals of previously approved marketing applications; and

     -    fines, civil penalties and criminal prosecutions.

           We   expect   to  rely  on  our   collaborative   partners   to  file
investigational  new drug  applications  and  generally  direct  the  regulatory
approval process for many of our products. Our collaborative partners may not be
able to conduct clinical  testing or obtain necessary  approvals from the FDA or
other regulatory  authorities for any product  candidates.  If we fail to obtain
required  governmental   approvals,   we  or  our  collaborative  partners  will
experience delays in or be precluded from marketing  products  developed through
our research. In addition, the commercial use of our products will be limited.


                                       21
<PAGE>


           We and our  contract  manufacturers  also are required to comply with
the  applicable  FDA  current  good  manufacturing  practice  regulations.  Good
manufacturing  practice  regulations  include  requirements  relating to quality
control  and  quality  assurance  as well as the  corresponding  maintenance  of
records and documentation. Manufacturing facilities are subject to inspection by
the FDA. These  facilities must be approved before we can use them in commercial
manufacturing of our products. We or our contract  manufacturers may not be able
to comply with the applicable good manufacturing practice requirements and other
FDA regulatory requirements. If we or our contract manufacturers fail to comply,
we could be subject to fines or other sanctions,  or be precluded from marketing
our products.

IF THE GOVERNMENT AND THIRD-PARTY  PAYORS FAIL TO PROVIDE ADEQUATE  COVERAGE AND
REIMBURSEMENT  RATES FOR OUR PRODUCT  CANDIDATES,  THE MARKET  ACCEPTANCE OF OUR
PRODUCTS MAY BE ADVERSELY AFFECTED.

           In both domestic and foreign markets, sales of our product candidates
will depend in part upon the  availability  of  reimbursement  from  third-party
payors.  Such  third-party  payors  include  government  health   administration
authorities,   managed  care  providers,   private  health  insurers  and  other
organizations.  These third-party payors are increasingly  challenging the price
and  examining  the cost  effectiveness  of medical  products and  services.  In
addition, significant uncertainty exists as to the reimbursement status of newly
approved healthcare products. We may need to conduct  post-marketing  studies in
order to demonstrate the  cost-effectiveness  of our products.  Such studies may
require us to commit a significant  amount of management  time and financial and
other resources.  Our product  candidates may not be considered  cost-effective.
Adequate third-party reimbursement may not be available to enable us to maintain
price levels  sufficient to realize an  appropriate  return on our investment in
product  development.  Domestic and foreign governments  continue to propose and
pass  legislation  designed  to  reduce  the  cost of  healthcare.  Accordingly,
legislation and regulations  affecting the pricing of pharmaceuticals may change
before our  proposed  products  are  approved  for  marketing.  Adoption of such
legislation could further limit reimbursement for pharmaceuticals.

IF A SUCCESSFUL  PRODUCT  LIABILITY CLAIM OR SERIES OF CLAIMS IS BROUGHT AGAINST
US FOR UNINSURED  LIABILITIES OR IN EXCESS OF INSURED  LIABILITIES,  WE COULD BE
FORCED TO PAY SUBSTANTIAL DAMAGE AWARDS.

           The use of any of our product  candidates in clinical trials, and the
sale of any approved  products,  may expose us to liability claims and financial
losses resulting from the use or sale of our products.  We have obtained limited
product  liability  insurance  coverage for our clinical  trials.  Our insurance
coverage  limits are $4 million per  occurrence and $4 million in the aggregate.
We intend to expand our  insurance  coverage to include  the sale of  commercial
products  if  marketing   approval  is  obtained  for  product   candidates   in
development.  We may not be able to maintain  insurance coverage at a reasonable
cost or in sufficient amounts or scope to protect us against losses.

                     RISKS RELATED TO OWNERSHIP OF OUR STOCK

OUR STOCK PRICE COULD BE VOLATILE, AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE.

           The trading price of our common stock is likely to be highly volatile
and could be  subject  to wide  fluctuations  in price in  response  to  various
factors, many of which are beyond our control, including:

     -    changes in, or failure to achieve,  financial  estimates by securities
          analysts;

     -    new  products  or  services  introduced  or  announced  by us  or  our
          competitors;

     -    announcements of technological innovations by us or our competitors;

     -    actual or anticipated variations in quarterly operating results;

     -    conditions  or  trends  in  the   biotechnology   and   pharmaceutical
          industries;

     -    announcements   by   us   of   significant   acquisitions,   strategic
          partnerships, joint ventures or capital commitments;

                                       22
<PAGE>

     -    additions or departures of key personnel; and

     -    sales of our common stock.

           In  addition,  the stock market in general,  and the Nasdaq  National
Market in particular, has experienced significant price and volume fluctuations.
Volatility in the market price for particular companies has often been unrelated
or  disproportionate to the operating  performance of those companies.  Further,
there has been  particular  volatility  in the market  prices of  securities  of
biotechnology  and  pharmaceutical  companies.  These broad  market and industry
factors may seriously  harm the market price of our common stock,  regardless of
our operating performance.  In addition,  securities class action litigation has
often been  initiated  following  periods of volatility in the market price of a
company's securities.  A securities class action suit against us could result in
substantial  costs,  potential  liabilities  and the  diversion of  management's
attention and resources.

 OUR PRINCIPAL STOCKHOLDERS,  DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT
 PORTION OF OUR COMMON STOCK,  WHICH MAY PREVENT NEW INVESTORS FROM  INFLUENCING
 CORPORATE DECISIONS.

           Our  principal   stockholders,   directors  and  executive   officers
currently own a significant portion of our common stock. These stockholders will
be able to exercise significant influence over all matters requiring stockholder
approval,  including the election of directors  and the approval of  significant
corporate  transactions.  This  concentration  of  ownership  may also  delay or
prevent a change in control of Versicor even if  beneficial to our  stockholders
and deprive the stockholders of a control premium for their shares.

 FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

           The market  price of our common  stock  could  decline as a result of
sales of substantial  amounts of our common stock in the public  market,  or the
perception that these sales could occur.  In addition,  these factors could make
it more  difficult  for us to raise funds  through  future  offerings  of common
stock.  There were 23,065,363 shares of common stock outstanding as of March 13,
2001. The 5,290,000  shares sold in our public offering are freely  transferable
without restriction or further registration under the Securities Act, except for
any  shares  purchased  by our  "affiliates,"  as  defined  in  Rule  144 of the
Securities Act. The remaining  17,775,363 shares of common stock outstanding are
"restricted  securities" as defined in Rule 144. These shares may be sold in the
future without registration under this Securities Act to the extent permitted by
Rule 144 or other exemption under the Securities Act.

           We  have  registered,  1,100,000  shares  for  offering  in our
2000 Employee Stock Purchase Plan. We also intend to register approximately
3,809,262 shares of common stock which are reserved for issuance  upon
exercise of options granted under our stock option plans. Once we register
these shares, they can be sold in the public  market  upon  issuance,
subject to  restrictions  under the securities laws applicable to resales by
affiliates.

                                       23
<PAGE>


ITEM 2.    PROPERTIES

           Versicor currently leases 29,384 square feet of office and laboratory
facilities  in  Fremont,  California.  Management  believes  that these  current
facilities  are adequate for  Versicor's  needs for the  foreseeable  future and
that,  should it be  needed,  suitable  additional  space will be  available  to
accommodate expansion of Versicor's operations on commercially reasonable terms.

ITEM 3.    LEGAL PROCEEDINGS

           We are not party to any material legal proceedings.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

           No matters were submitted to a vote of  shareholders  during the last
quarter of our fiscal year ended December 31, 2000.


                                       24
<PAGE>


                                     PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

           Our common stock is listed for trading on the Nasdaq  National Market
under symbol "VERS".  The following  table sets forth for the period from August
8, 2000, the date of our initial public offering, through December 31, 2000, the
high and low closing prices, as reported on the Nasdaq National Market composite
trading system, for the periods shown:


<TABLE>
<CAPTION>
                                                          SALES PRICES
                                                 -------------------------------
                                                      HIGH             LOW
                                                 ---------------- --------------
<S>                                                  <C>              <C>
2000
Third Quarter, commencing on August 8, 2000
   through September 30, 2000                        $16.31           $9.38
Fourth Quarter                                       $14.06           $5.75

2001
First Quarter, through March 23, 2001                 $9.44           $7.06
</TABLE>


           As of March 13, 2001, there were  approximately 122 holders of record
of our common stock.

           We have never  declared or paid a cash  dividend on our common  stock
and do not anticipate  paying any cash dividends in the foreseeable  future.  We
currently  intend to retain our  earnings,  if any, for the  development  of our
business. The declaration of any future dividends by us is within the discretion
of our Board of  Directors  and will be  dependent  on our  earnings,  financial
condition and capital  requirements as well as any other factors deemed relevant
by our Board of Directors.

 RECENT SALES OF UNREGISTERED SECURITIES

           From January 1, 1998 through  December 31, 2000, the Company sold and
issued the following unregistered securities:

     -    In March 1999, the Company sold 625,000 shares of Series D-1 Preferred
          Stock to a strategic investor for $3.75 million.

     -    In March 1999, the Company sold 625,000 shares of Series E-1 Preferred
          Stock to another strategic investor for $3 million.

     -    In  October  1999,  the  Company  sold  8,513,388  shares  of Series F
          Preferred Stock to private investors; 1,204,072 shares upon conversion
          of $5.5  million of bridge  loans  issued in June 1999,  plus  accrued
          interest, and 7,309,316 shares for cash of $35 million.

           The above  securities  were  offered and sold by us in reliance  upon
exemptions from registration  pursuant to Section 4 (2) of the Securities Act of
1933 as  transactions  not involving any public offering or Rule 701 promulgated
under  the  Securities  Act of  1933.  The  recipients  of  the  above-described
securities  represented their intention to acquire the securities for investment
only and not  with a view to  distribution  thereof.  Appropriate  legends  were
affixed to the stock certificates  issued in such  transactions.  All recipients
had adequate access to information about the Registrant.


                                       25
<PAGE>


 INITIAL PUBLIC OFFERING

           A Registration Statement on Form S-1 (File No. 333-33022) registering
4,600,000 shares of our Common Stock was declared effective by the SEC on August
8, 2000. The amount of net offering  proceeds from the initial  public  offering
and over-allotment option was approximately $52.7 million. To date we have
not used any of the net offering proceeds from the initial public offering.
We expect to use approximately 75% of the net proceeds for commercialization
activities, approximately 15% for clinical development of drug candidates and
approximately 10% for general corporate purposes, including working capital
and research expenses.

                                       26
<PAGE>


ITEM 6.    SELECTED FINANCIAL DATA

           The following  selected  financial data should be read in conjunction
with  the  financial   statements   and  the  notes  to  those   statements  and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" included elsewhere in this document. The selected financial data for
the years ended December 31, 2000, 1999, 1998, 1997 and 1996 is derived from our
audited financial statements.

<TABLE>
<CAPTION>

                                                            YEAR ENDED DECEMBER 31,
                                              -----------------------------------------------
                                                2000      1999      1998       1997     1996

                                              -----------------------------------------------
                                                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues:
<S>                                          <C>        <C>       <C>        <C>       <C>
License fees and milestones                     $533       $525   $   --     $  --     $  --
Collaborative research and development and
contract services                              5,338      3,750       --        --        --
Related party research and development          --         --         --        --       2,965
----------------------------------------------------------------------------------------------
Total revenues                                 5,871      4,275       --        --       2,965
----------------------------------------------------------------------------------------------
Operating expenses:
Research and development - non-cash
compensation expense                           2,073      3,315        536      --        --
Research and development - other              13,458     22,157     10,893     5,403     5,945
----------------------------------------------------------------------------------------------
                                              15,531     25,472     11,429     5,403     5,945
----------------------------------------------------------------------------------------------
General and administrative - non-cash
compensation expense                           5,631      1,081          1      --        --
General and administrative - other             3,260      1,505      1,385       807     1,405
----------------------------------------------------------------------------------------------
                                               8,891      2,586      1,386       807     1,405
----------------------------------------------------------------------------------------------
Total operating expenses                      24,422     28,058     12,815     6,210     7,350
----------------------------------------------------------------------------------------------
Loss from operations                         (18,551)   (23,783)   (12,815)   (6,210)   (4,385)
Other income (expense):
Interest income                                3,712        749        770       104        10
Interest expense                                (482)    (6,171)      (540)     (178)     (418)
Other                                             18        (14)      --        --           2
----------------------------------------------------------------------------------------------
Net loss                                     (15,303)   (29,219)   (12,585)   (6,284)   (4,791)
Deemed dividends related to beneficial
conversion feature of preferred stock           --      (35,112)      --        --        --
Accretion of dividends on preferred stock     (3,486)    (3,063)    (2,527)     (422)     --
----------------------------------------------------------------------------------------------
Net loss available to common stockholders   $(18,789)  $(67,394)  $(15,112)  $(6,706)  $(4,791)
==============================================================================================
Net loss per share:
Basic and diluted                             $(1.95)  $(127.28)   $(47.11)  $(24.31)  $(20.40)
==============================================================================================
Weighted average shares                        9,638        530        321       276       235
==============================================================================================
</TABLE>


<TABLE>
<CAPTION>

                                                                AS OF DECEMBER 31,
                                                ------------------------------------------------
                                              2000       1999        1998       1997     1996
                                                             (IN THOUSANDS)
<S>                                          <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents                    $67,989    $34,619     $4,507     $9,562   $  --

Marketable securities                         17,945       --         --        4,929      --

Total assets                                  91,596     45,233     15,865     26,258     3,293

Term loan payable, less current portion        3,448      4,310      5,172      6,034      --

Convertible subordinated note to Sepracor       --         --         --         --       5,066

Advance from Sepracor                           --         --         --         --       2,680

Convertible and redeemable preferred stock      --       83,843     33,984     31,472        60


Accumulated deficit                          (70,976)   (55,673)   (26,454)   (12,536)   (5,901)

Total stockholders' equity (deficit)          80,287    (48,796)   (27,076)   (12,551)   (5,880)
</TABLE>

                                       27
<PAGE>

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

           The following  discussion  of our financial  condition and results of
operations  should be read in conjunction with the financial  statements and the
notes to those statements  included elsewhere in this document.  This discussion
may contain forward-looking statements that involve risks and uncertainties.  As
a result of many  factors,  such as those set forth  under  "Risk  Factors"  and
elsewhere in this document,  our actual results may differ materially from those
anticipated in these forward-looking statements.

 BACKGROUND

           Since  we  began  our   operations  in  May  1995,  we  have  devoted
substantially  all  of  our  resources  to  the  discovery  and  development  of
pharmaceutical  products for the treatment of bacterial  and fungal  infections,
primarily in the  hospital  setting.  We have not  generated  any revenues  from
product sales. We have one product  candidate in Phase III clinical trials,  one
product  candidate  in Phase I clinical  trials and several  lead  compounds  in
preclinical studies.

           Our  revenues in the near term are  expected to consist  primarily of
license  fees,  milestone  payments and  collaborative  research  payments to be
received  from  our  collaborative  partners.  Certain  of  these  payments  are
dependent on the achievement of certain  milestones.  If our development efforts
result in clinical success, regulatory approval and successful commercialization
of our products,  we will generate  revenues from sales of our products and from
receipt of royalties on sales of licensed products.

           Our expenses have consisted  primarily of costs incurred in licensing
existing product candidates,  research and development of new product candidates
and in  conjunction  with our  collaborative  agreements,  and from  general and
administrative  costs  associated with our  operations.  We expect our licensing
costs to increase as certain  milestones  are  achieved,  and our  research  and
development  expenses  to  increase  as  we  continue  to  develop  our  product
candidates.  We also expect that our general and  administrative  expenses  will
increase as we add personnel and assume the  obligations  of a public  reporting
company.  In addition,  we expect to incur sales and  marketing  expenses in the
future when we establish our sales and marketing organization.

           We have recorded  deferred stock  compensation  expense in connection
with the grant of stock options to employees  and  consultants.  Deferred  stock
compensation for options granted to employees is the difference between the fair
value for  financial  reporting  purposes  of our common  stock on the date such
options were granted and their exercise price.  Deferred stock  compensation for
options  granted to consultants has been determined in accordance with Statement
of  Financial  Accounting  Standards  No.  123 as the fair  value of the  equity
instruments   issued.   Deferred  stock  compensation  for  options  granted  to
consultants  is  periodically  remeasured  as the  underlying  options  vest  in
accordance with Emerging Issues Task Force No. 96-18.

           We  recorded  deferred  stock   compensation  of  approximately  $4.4
million,  $15.9 million and $1.2 million for the years ended  December 31, 2000,
1999 and 1998,  respectively.  These  amounts  were  recorded as a component  of
stockholders'  equity (deficit) and are being amortized as charges to operations
over the vesting  periods of the options.  We recorded  amortization of deferred
stock compensation of approximately $7.7 million,  $4.4 million and $537,000 for
the years ended December 31, 2000, 1999 and 1998, respectively.

           Since our  inception,  we have  incurred  significant  losses.  As of
December 31, 2000, we had an accumulated deficit of $71.0 million. We anticipate
incurring  additional losses,  which may increase,  for the foreseeable  future,
including at least through December 31, 2001.


                                       28
<PAGE>


 RESULTS OF OPERATIONS

 YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

           REVENUES.  Revenues were $5.9  million,  $4.3 million and $0 in 2000,
1999 and 1998, respectively. Revenues consisted of $3.1 million and $2.1 million
of collaborative research and development,  contract services and licensing fees
from Pharmacia  Corporation in 2000 and 1999,  respectively and $2.3 million and
$1.7 million of  collaborative  research and  development  fees from Novartis in
2000 and 1999,  respectively.  Milestone  payments  received  from Novartis were
$500,000 in both 2000 and 1999.  The  increase in revenues in 2000 is due to the
increase in  collaborative  research  and  development  funding  from  Pharmacia
Corporation and Novartis.

           RESEARCH AND DEVELOPMENT EXPENSES.  Research and development expenses
were $15.5  million,  $25.5  million and $11.4  million in 2000,  1999 and 1998,
respectively.  Research and development expenses consist of salaries and related
costs of research and development personnel as well as the costs of consultants,
parts and supplies and clinical trials  associated with research and development
projects. During 2000 we recorded $2.1 million of amortization of non-cash stock
compensation. During 1999, we recorded $14 million of expense related to license
fees and for product  inventory to Eli Lilly and  amortization of non-cash stock
compensation of $3.3 million.  During 1998,  research and  development  expenses
included  license fees and  milestone  payments of $3.6 million  relating to our
agreements with Biosearch Italia and amortization of non-cash stock compensation
of $536,000.  Excluding these initial license fees and milestone payments to our
collaborative  partners and the non-cash stock compensation  expenses,  research
and  development  expenses were $13.5 million,  $8.2 million and $7.3 million in
2000,  1999 and 1998,  respectively.  The increase in research  and  development
expenses  in  2000  was  due   primarily  to  increased   expenditures   in  the
V-Echinocandin and V-Glycopeptide  clinical trial programs. The increase in 1999
was  primarily   attributable  to  research   activities   conducted  under  our
collaborative agreements for which we received collaborative research funding.

           GENERAL  AND  ADMINISTRATIVE  EXPENSES.  General  and  administrative
expenses  were $8.9  million,  $2.6 million and $1.4  million in 2000,  1999 and
1998, respectively.  General and administrative expenses consist of salaries and
related costs for executive  and other  administrative  personnel as well as the
costs of facilities,  insurance,  legal support and administrative  service fees
paid to Sepracor.  General and  administrative  costs included  amortization  of
non-cash stock compensation expense of $5.6 million,  $1.1 million and $1,000 in
2000, 1999 and 1998, respectively.  Excluding the amortization of non-cash stock
compensation  charges,  general and  administrative  expenses were $3.3 million,
$1.5 million and $1.4 million in 2000, 1999 and 1998, respectively. The increase
in general and  administrative  expense in 2000 is due  primarily  to  increased
expenses  associated  with being a public  company,  as well as the  transfer of
finance and accounting functions from our former parent company Sepracor.

           NET INTEREST INCOME (EXPENSE). Net interest income (expense) was $3.2
million, $(5.4) million and $230,000 in 2000, 1999 and 1998,  respectively.  Net
interest  income  (expense)  consists  of  interest  income  on  cash  and  cash
equivalents,  marketable  securities and restricted cash and interest expense on
term loans payable, and in 1999, on a bridge financing. The increase in interest
income in 2000 is due to the higher  average cash and  investment  balances as a
result of our initial public  offering in August 2000.  Also, in 1999,  interest
expense  includes  non-cash  interest  expense  of $5.5  million  related to the
beneficial  conversion  feature  and  the  fair  value  of  warrants  issued  in
connection with the bridge loan financing.

           INCOME  TAXES.  As of December 31, 2000, we had federal and state net
operating loss  carryforwards of  approximately  $22.0 million and $8.5 million,
respectively.  As of  December  31,  2000,  we have  recorded  a full  valuation
allowance  for  our  existing  net  deferred  tax  assets  due to  uncertainties
regarding their realization.  We also have federal research credit carryforwards
of $1.0 million.  The federal net operating loss and credit carryforwards may be
limited by the change in  ownership  provisions  contained in Section 382 of the
Internal Revenue Code.


                                       29
<PAGE>


 LIQUIDITY AND CAPITAL RESOURCES

           Since our  inception  through  1999,  we have  funded our  operations
principally  with the proceeds of $78.5  million from a series of six  preferred
stock offerings over the period 1995 through 1999.

<TABLE>
<CAPTION>
                                                                      AMOUNT
                                           NO. OF       PRICE PER   (DOLLARS IN
ISSUE                            YEAR     SHARES         SHARE       MILLIONS)
-----------                    --------  ------------ ------------ ------------
<S>                              <C>       <C>           <C>          <C>
Preferred Stock, Series A        1995         45,000    $1.34             $0.06
Preferred Stock, Series B        1997      1,368,750     6.96              9.53
Preferred Stock, Series C        1997      5,500,000     4.00             22.00
Preferred Stock, Series D-1      1999        625,000     6.00              3.75
Preferred Stock, Series E-1      1999        625,000     4.80              3.00
Preferred Stock, Series F        1999      8,513,388     4.72             40.18
                                                                    -----------
                                                                      $   78.52
                                                                    ===========
</TABLE>

           In  addition,  on August 8, 2000,  we sold 4.6 million  shares of our
common  stock at $11 per share in an initial  public  offering.  On September 7,
2000,  the  underwriters  exercised  an  overallotment  option and  purchased an
additional  690,000  shares of common stock at $11 per share.  We received total
net proceeds of approximately $52.7 million from the initial public offering and
the  overallotment  after payment of underwriting  discounts and commissions and
other expenses.  The net proceeds have been invested in highly liquid,  interest
bearing,  investment  grade  securities.  Upon the closing of the initial public
offering,  all of our preferred  stock  automatically  converted  into shares of
common stock.

           As of December  31,  2000,  we have also  received  $14.5  million in
payments for collaborative  research,  contract services and milestone payments,
as well as license fees from our collaborative  partners including Sepracor.  Of
these payments,  $1.3 million  constitutes  deferred  revenue as of December 31,
2000 that will be recognized on a straight-line  basis through the first quarter
of 2002.

           In  addition  we have a $6  million  term loan  agreement  with Fleet
National  Bank.  This loan bears  interest  at a rate of prime plus 0.50% and is
payable in 15 equal quarterly installments of $216,000,  with the balance due on
December  31, 2002.  The  proceeds of this loan were used to repay  Sepracor for
leasehold  improvements to our facilities and for general corporate purposes. As
of December 31, 2000,  there was an  outstanding  balance of $4.3 million  under
this agreement.

           Cash used in  operations  was $233,000 and $15.4  million in 2000 and
1999, respectively.  The net loss of $15.3 million for 2000 was partially offset
by non-cash  charges for  depreciation of $880,000 and  amortization of non-cash
stock compensation of $7.7 million. Another source of cash was the release of $5
million of restricted cash that is no longer required to be maintained under our
term loan  agreement  with Fleet  National  Bank. In 1999, the net loss of $25.1
million was partially offset by non-cash charges of $6.7 million;  other sources
of cash were increases in deferred revenue and other long-term liabilities of $3
million.

           Financing   activities  provided  $52.0  million  of  cash  in
2000, primarily  from the net  proceeds  of $52.7  million  from  our
initial  public offering in August 2000. In 1999 financing  activities
provided $45.8 million of cash primarily from net proceeds of $41.1 million
received from the issuance of preferred stock and $5.5 million from the
issuance of convertible subordinated notes.

           Investing   activities  used  $18.4  million  of  cash  during  2000,
primarily due to the purchase of marketable  securities with the net proceeds of
our  initial  public  offering.  We  have  budgeted  $1.5  million  for  capital
expenditure in 2001, primarily for leasehold improvements.


                                       30
<PAGE>


           We  expect  to  have  negative  cash  flow  from  operations  for the
foreseeable  future. We expect to incur increasing  research and development and
general and administrative expenses,  including expenses related to additions to
personnel and  production  and  commercialization  efforts.  Our future  capital
requirements  will  depend on a number of  factors,  including  our  success  in
developing   markets  for  our  products,   payments   received  or  made  under
collaborative  agreements,  continued  research and  development  of our product
candidates,  the timing and outcome of regulatory approvals, the need to acquire
licenses to new products or compounds,  the status of  competitive  products and
the  availability  of other  financing.  We believe our  existing  cash and cash
equivalents  and marketable  securities will be sufficient to fund our operating
expenses,  debt repayments and capital  equipment  requirements for at least the
next two years.

           Except for the Fleet National Bank loan agreement,  we have no credit
facility  or other  committed  sources of  capital.  To the  extent our  capital
resources are insufficient to meet future capital requirements,  we will need to
raise additional capital or incur indebtedness to fund our operations. We cannot
guarantee  that  additional  debt  or  equity  financing  will be  available  on
acceptable  terms,  if at all. If adequate  funds are not  available,  we may be
required to delay,  reduce the scope of or eliminate  research  and  development
programs,   reduce  our  commercialization   efforts  or  obtain  funds  through
arrangements  with  collaborative  partners  or others  that may  require  us to
relinquish rights to certain product  candidates or lead compounds that we might
otherwise  seek to develop or  commercialize.  Any future funding may dilute the
ownership of our equity investors.

 ACCOUNTING PRONOUNCEMENTS

           In June 1998, The Financial  Accounting  Standards  Board issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS
No. 133  establishes  new standards of accounting  and reporting for  derivative
instruments and hedging  activities.  SFAS No. 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that the
corresponding  gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of relationship
that exists. We have not engaged in significant  hedging  activities or invested
in derivative  instruments.  The Company will adopt SFAS No. 133, as amended, in
the first  quarter of 2001.  We do not expect the  adoption of this  standard to
have any material impact on our financial statements.

ITEM 7.A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Our  exposure  to  market  risk  currently  relates  to our  cash and cash
equivalents and our available-for-sale securities.

INTEREST RATES

           Our  available-for-sale  investments  are  sensitive  to  changes  in
interest rates. Interest rate changes would result in a change in the fair value
of these financial instruments due to the difference between the market interest
rate and the rate at the date of purchase of the financial  instrument;  however
such exposure is limited due to the short-term nature of our investments.  A 10%
decrease in  year-end  2000 market  interest  rates would  result in no material
impact on the net fair value of our interest-sensitive financial instruments.

 INFLATION

           We do not believe that inflation has had a material adverse impact on
our business or operating results during the years presented.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           The information  required by this item is included in Item 14 of Part
IV of this report on Form 10-K and is incorporated by reference.


                                       31
<PAGE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

           None.


                                       32
<PAGE>


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

           Pursuant to General  Instructions  G(3) to Form 10-K, the information
required by this item is incorporated by reference to such information contained
in  the  Company's   definitive  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held on June 7, 2001,  filed with the Securities and Exchange
Commission pursuant to Regulation 14-A.

ITEM 11.  EXECUTIVE COMPENSATION

           Pursuant to General  Instructions  G(3) to Form 10-K, the information
required by this item is incorporated by reference to such information contained
in  the  Company's   definitive  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held on June 7, 2001,  filed with the Securities and Exchange
Commission pursuant to Regulation 14-A.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           Pursuant to General  Instructions  G(3) to Form 10-K, the information
required by this item is incorporated by reference to such information contained
in  the  Company's   definitive  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held on June 7, 2001,  filed with the Securities and Exchange
Commission pursuant to Regulation 14-A.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           Pursuant to General  Instructions  G(3) to Form 10-K, the information
required by this item is incorporated by reference to such information contained
in  the  Company's   definitive  Proxy  Statement  for  the  Annual  Meeting  of
Shareholders to be held on June 7, 2001,  filed with the Securities and Exchange
Commission pursuant to Regulation 14-A.


                                       33
<PAGE>


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

ITEM 14(A)1.  FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                      PAGE
<S>                                                                   <C>
Report of Independent Accountants                                     F-1
Balance Sheets                                                        F-2
Statements of Operations                                              F-3
Statements of Stockholders' Equity (Deficit)                          F-4
Statements of Cash Flows                                              F-5
Notes to Financial Statements                                         F-6
</TABLE>

ITEM 14(A)2.  FINANCIAL STATEMENT SCHEDULES

           All schedules have been omitted  because the  information  either has
been shown in the financial statements or notes thereto, or is not applicable or
required under the instructions.

ITEM 14(A)3.  EXHIBITS
<TABLE>
<CAPTION>

EXHIBIT
 NUMBER                   DESCRIPTION
<S>       <C>
  3.1     Restated Certificate of Incorporation of Versicor Inc. (1)
  3.2     Amended and Restated Bylaws of Versicor Inc. (1)
  4.1     Form of Common Stock Certificate (1)
  4.2     Warrant for the Purchase of Shares of Common  Stock dated as of
          March 10, 1997 by and between  Genome  Therapeutics,  Inc. and
          Versicor Inc. (1)
  4.3     Form of Warrant for the Purchase of Shares of Series C Preferred
          Stock dated as of December  9, 1997 (1)
  4.4     Form of Warrant for the  Purchase of Shares  of  Series F  Preferred
          Stock  dated as of June 25,  1999 (1)
  4.5     Second Amended and Restated Investor Rights Agreement (1)
 10.1*    1995 Stock Option Plan (1)
 10.2*    Form of 1995 Incentive Stock Option Agreement (1)
 10.3*    Form of 1995 Non-Statutory Stock Option Agreement (1)
 10.4*    1997 Equity Incentive Plan (1)
 10.5*    Form of 1997 Stock Option Award Agreement (1)
 10.6*    2000 Employee Stock Purchase Plan (1)
 10.7     License Agreement dated as of February 12, 1998 by and between
          Biosearch Italia, S.p.A. and Versicor Inc. (1)
 10.8     License Agreement dated as of May 17, 1999 by and between Eli Lilly
          and Versicor Inc. (1)
 10.9     Collaboration and License Agreement dated as of March 31, 1999 by and
          between Novartis Pharma AG and Versicor Inc. (1)
 10.10    Collaboration and License Agreement dated as of March 31, 1999 by and
          between Pharmacia Corporation and Versicor Inc. (1)
 10.11    Collaboration Agreement dated as of February 12, 1998 by and between
          Biosearch Italia, S.p.A. and Versicor Inc. (1)
10.11.1   Addendum No. 1 to  Collaboration  Agreement  dated as of January 2001
          by and between  Versicor Inc. and Biosearch  Italia, S.p.A. (2)
 10.12    Administrative Services Agreement dated as of December 1997 by and
          between Sepracor Inc. and Versicor Inc. (1)
 10.13*   Employment Agreement dated as of July 28, 2000 by and between George
          F. Horner III and Versicor Inc. (1)
 10.14*   Employment Agreement dated as of July 28, 2000 by and between Richard
          J. White and Versicor Inc. (1)
 10.15*   Employment Agreement dated as of July 28, 2000 by and between Dinesh
          V. Patel and Versicor Inc. (1)
</TABLE>

                                       34
<PAGE>

<TABLE>
<CAPTION>
<S>                                             <C> <C>
 10.16*   Employment Agreement dated as of July 28, 2000 by and between Paul F.
          Truex and Versicor Inc. (1)
 10.17*   Promissory Note dated as of May 15, 1997 by and between Richard J.
          White and Versicor Inc. (1)
 10.18*   Promissory Note dated as of April 24, 1996 by and between Dinesh V.
          Patel and Versicor Inc. (1)
 10.19*   Consulting Agreement dated as of March 11, 1998 by and between Dr.
          Christopher Walsh and Versicor Inc. (1)
 10.20*   Consulting Agreement dated as of January 1, 1997 by and between Dr.
          David Milligan and Versicor Inc. (1)
 10.21    Term Loan Agreement dated as of December 30, 1997 by and between
          Fleet National Bank and Versicor Inc. (1)
 10.22    Industrial Lease dated as of November 18, 1996 by and between
          Arcadia-Tavistock, L.C. and Versicor Inc. (1)
 10.23    Indemnity Agreement dated as of October 29, 1999 by and between
          Thomas C. McConnell and Versicor Inc. (1)
 10.24    Indemnity Agreement dated as of October 29, 1999 by and between Marck
          Leschly and Versicor Inc. (1)
 10.25    Indemnity Agreement dated as of October 29, 1999 by and between George
          F. Horner III and Versicor Inc. (1)
 10.26    Indemnity Agreement dated as of October 29, 1999 by and between James
          H. Cavanaugh and Versicor Inc. (1)
 10.27    Indemnity Agreement dated as of October 29, 1999 by and between
          Christopher T. Walsh and Versicor Inc. (1)
 10.28    Indemnity Agreement dated as of October 29, 1999 by and between
          Richard J. White and Versicor Inc (1)
 10.29    Indemnity Agreement dated as of October 29, 1999 by and between David
          V. Milligan and Versicor Inc. (1)
 10.30    Indemnity Agreement dated as of October 29, 1999 by and between Lori
          Rafield and Versicor Inc. (1)
 10.31    Indemnity Agreement dated as of October 29, 1999 by and between
          Timothy J. Barberich and Versicor Inc. (1)
 10.32*   Employment Agreement dated as of July 28, 2000 by and between Dov A
          Goldstein and Versicor Inc. (1)
 10.33*   Employment Agreement dated as of July 28, 2000 by and between Mikhail
          F. Gordeev and Versicor Inc. (1)
 10.34*   Employment Agreement dated as of July 28, 2000 by and between Joaquim
          Trias and Versicor Inc. (1)
 10.35*   Employment Agreement dated as of July 28, 2000 by and between Zhengyu
          Yuan and Versicor Inc. (1)
 10.36*   Employment Agreement, dated as of December 18, 2000, by and between
          Versicor Inc. and Tim Henkel (2)
 10.37*   Amended and Restated Promissory Note dated as of December 28, 2000 by
          and between Paul F. Truex and Versicor Inc. (2)
 23.1     Consent of PricewaterhouseCoopers, LLP, Independent Accountants (2)

----------------------------
   *      Denotes management contract or compensatory plan.
  (1)     Previously  filed as an exhibit  to the  Company's  registration
          statement  on Form S-1,  effective  August 2, 2000,  and
          incorporated here by reference.
  (2)     Filed herewith.
</TABLE>

ITEM 14(B).  REPORTS ON FORM 8-K

None.


                                       35
<PAGE>


                                   SIGNATURES


           Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934,  as amended,  Versicor Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                                               VERSICOR INC.
                                                                (REGISTRANT)




                                  BY:     /s/    GEORGE F. HORNER III
                                          -----------------------------------
Dated:     March 30, 2001                 George F. Horner III
                                           CHIEF EXECUTIVE OFFICER AND PRESIDENT


                                POWER OF ATTORNEY

           KNOW ALL PERSONS BY THESE  PRESENTS,  that each of the persons  whose
names  appear below  appoint and  constitute  George F.  Horner,  III and Dov A.
Goldstein,  M.D.,  and each one of them,  acting  individually  and  without the
other, as his or her true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities,  to execute any and all amendments to this
Report on Form 10-K and to file the same,  together  with all exhibits  thereto,
with the Securities and Exchange  Commission,  and such other agencies,  offices
and  persons  as  may  be  required  by  applicable  law,   granting  unto  said
attorney-in-fact  and agent, full power and authority to do and perform each and
every  act and  thing  requisite  and  necessary  to be done  in and  about  the
premises,  as  fully  to all  intents  and  purposes  as he might or could do in
person,  hereby ratifying and confirming all that each said attorney-in-fact and
agent may lawfully do or cause to be done by virtue hereof.

           Pursuant  to the  requirements  of the  Securities  Act of  1933,  as
amended,  this Report on Form 10-K has been signed by the  following  persons in
the capacities and on the dates indicated:

<TABLE>
<CAPTION>

                  SIGNATURE                            TITLE                            DATE


<S>                                    <C>                                         <C>
/s/ David V. Milligan, Ph.D.                   Chairman of the Board
      David V. Milligan, Ph.D.                                                     March 30, 2001


/s/ George F. Horner III               President and Chief Executive Officer
      George F. Horner, III              (and principal executive officer)         March 30, 2001


/s/ Dov A. Goldstein, M.D.                    Chief Financial Officer              March 30, 2001
      Dov A. Goldstein, M.D.             (and principal accounting officer)


/s/ Timothy J. Barberich                              Director                     March 30, 2001
      Timothy J. Barberich

/s/ James H. Cavanaugh, Ph.D.                         Director                     March 30, 2001
      James H. Cavanaugh, Ph.D.

</TABLE>

                                       36
<PAGE>

<TABLE>
<CAPTION>
<S>                                                   <C>                          <C>
/s/ Mark Leschly                                      Director                     March 30, 2001
      Mark Leschly


/s/ Lori F. Rafield, Ph.D.                            Director                     March 30, 2001
      Lori F. Rafield, Ph.D.


/s/ Christopher T. Walsh, Ph.D.                       Director                     March 30, 2001
      Christopher T. Walsh, Ph.D.


/s/ Richard J. White, Ph.D.                           Director                     March 30, 2001
      Richard J. White, Ph.D.
</TABLE>



                                       37
<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Versicor Inc.

           In  our  opinion,  the  financial  statements  listed  in  the  index
appearing  under  Item  14(a)1 on  page 34  present  fairly,  in all  material
respects, the financial position of Versicor Inc. at December 31, 2000 and 1999,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2000, in conformity with accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which 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,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

/s/  PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 19, 2001

                                      F-1
<PAGE>



                                  VERSICOR INC.
                                 BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                            December 31,
                                                  ------------------------------
                                                             2000        1999
                                                  ------------------------------
<S>                                                          <C>         <C>
ASSETS
Current assets:
Cash and cash equivalents                                    $67,989     $34,619
Marketable securities                                         17,945        --
Employee notes receivable                                        357        --
Prepaid expenses and other current assets                        591          44
                                                  ------------------------------
Total current assets                                          86,882      34,663

Restricted cash                                                 --         5,000
Property and equipment, net                                    4,384       4,817
Employee notes receivable                                        188         593
Other assets                                                     142         160
                                                 ------------------------------
Total assets                                                 $91,596     $45,233

                                                 ===============================

LIABILITIES, CONVERTIBLE AND REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable                                              $1,421         $86
Accrued liabilities                                            3,225       1,932
Related party payable                                             12          21
Current portion of term loan payable                             862         862
Deferred revenue                                               1,233         433
                                                 -------------------------------
Total current liabilities                                      6,753       3,334
Deferred revenue                                                 108         542
Term loan payable                                              3,448       4,310
Other long-term liabilities                                    1,000       2,000
                                                 -------------------------------
Total liabilities                                             11,309      10,186
                                                 -------------------------------

Convertible and Redeemable Convertible
Preferred Stock, $0.001 par value, none
and 17,865 shares authorized; none
and 16,677 shares issued and outstanding
at December 31, 2000 and 1999, respectively                     --        83,843
                                                  ------------------------------

Commitments (Notes 7 and 12)

Stockholders' equity (deficit):
Preferred Stock, $0.001 par value; 5,000 and
none authorized at December 31, 2000 and 1999,
respectively; no shares issued and outstanding                    --          --
Common stock, $0.001 par value, 100,000 and
43,750 shares authorized at December 31, 2000
and 1999, respectively; 23,042 and 683 shares
issued and outstanding at December 31, 2000
and 1999, respectively                                            23           1
Additional paid-in capital                                   160,059      18,984
Deferred stock compensation                                  (8,819)    (12,108)
Accumulated deficit                                         (70,976)    (55,673)
                                                   -----------------------------

Total stockholders' equity (deficit)                         80,287     (48,796)
                                                   -----------------------------
Total liabilities, convertible and redeemable
convertible preferred stock and stockholders'
equity (deficit)                                             $91,596     $45,233

                                                   =============================
</TABLE>

    The accompanying notes are an integral part of these financial statements
                                      F-2
<PAGE>


                                  VERSICOR INC.
                            STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                                 Year Ended December 31,
                                         --------------------------------------
                                                    2000       1999        1998

                                         --------------------------------------
Revenues:
<S>                                              <C>        <C>       <C>
License fees and milestones                         $533       $525   $   --
Collaborative research and development
and contract services                              5,338      3,750       --
                                          -------------------------------------


Total revenues                                     5,871      4,275       --
                                          -------------------------------------

Operating expenses:
Research and development - non-cash
compensation expense                               2,073      3,315        536
Research and development - other                  13,458     22,157     10,893
                                          -------------------------------------

                                                  15,531     25,472     11,429
                                          -------------------------------------

General and administrative - non-cash
compensation expense                               5,631      1,081          1
General and administrative - other                 3,260      1,505      1,385
                                              ---------------------------------

                                                    8,891      2,586      1,386
                                              ---------------------------------

Total operating expenses                           24,422     28,058     12,815
                                               --------------------------------


Loss from operations                             (18,551)   (23,783)   (12,815)

Other income (expense):
Interest income                                     3,712        749        770
Interest expense                                    (482)    (6,171)      (540)

Other                                                  18       (14)         --
                                               ---------------------------------

Net loss                                         (15,303)   (29,219)   (12,585)

Deemed dividends related to beneficial
conversion feature of preferred stock                  --   (35,112)         --

Accretion of dividends on preferred stock         (3,486)    (3,063)    (2,527)


Net loss available to common stockholders       $(18,789)  $(67,394)  $(15,112)

                                              =================================

Net loss per share:
Basic and diluted                                 $(1.95)  $(127.28)   $(47.11)

                                              =================================

Weighted average shares                             9,638        530        321
                                              =================================
</TABLE>

   The accompanying notes are an integral part of these financial statements



                                      F-3
<PAGE>


                                  VERSICOR INC.
                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>

                                       COMMON STOCK
                                      ---------------
                                      SHARES   AMOUNT  ADDITIONAL  DEFERRED
                                                        PAID-IN    STOCK         ACCUMULATED
                                                        CAPITAL    COMPENSATION  DEFICIT      TOTAL
                                      ------   ------- ---------   ------------- ---------- -----------

<S>                               <C>         <C>      <C>        <C>            <C>        <C>
Balances, December 31, 1997           299     $   --    $     --       $   --     $(12,536)  $(12,536)

Exercise of common stock options       87         --          35                                   35

Deferred stock compensation                                1,159       (1,159)                     --

Amortization of deferred stock
 compensation                                                             537                     537

Accretion of dividends on
 preferred stock                                          (1,194)                   (1,333)    (2,527)

Net loss                                                                           (12,585)   (12,585)
                          ----------------------------------------------------------------------------

Balances, December 31, 1998           386         --          --        (622)      (26,454)   (27,076)

Exercise of common stock options       47         --          19                                   19

Issuance of common stock under
license agreement                     250          1         646                                  647

Issuance of warrants                                         623                                  623

Issuance of bridge loans with
beneficial conversion feature                              4,877                                4,877

Deferred stock compensation                               15,882     (15,882)                      --

Amortization of deferred stock
compensation                                                           4,396                    4,396

Accretion of dividends on
preferred stock                                           (3,063)                              (3,063)

Issuance of preferred stock with
beneficial conversion feature                             35,112                               35,112

Deemed dividends on preferred
stock                                                    (35,112)                             (35,112)

Net loss                                                                           (29,219)   (29,219)
                          ----------------------------------------------------------------------------

Balances, December 31, 1999           683          1      18,984     (12,108)      (55,673)   (48,796)

Exercise of common stock options      392         --         151                                  151

Conversion of preferred stock
to common stock                    16,677         17      87,312                               87,329

Issuance of common stock at $11
per share, net of issuance costs
of $5,502                           5,290          5      52,683                               52,688

Deferred stock compensation                                4,415      (4,415)                      --

Amortization of deferred stock
compensation                                                           7,704                    7,704

Accretion of dividends on
preferred stock                                           (3,486)                              (3,486)

Net loss                                                                           (15,303)   (15,303)
                          ----------------------------------------------------------------------------

Balances, December 31, 2000        23,042        $23    $160,059     $(8,819)     $(70,976)   $80,287

                          ============================================================================
</TABLE>

The accompanying notes are an integral part of these financial statements



                                      F-4
<PAGE>


                                  VERSICOR INC.
                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 Year Ended
                                                               December 31,
                                                   -------------------------------
                                                       2000      1999       1998

                                                   ----------  --------  ---------
<S>                                                <C>         <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                            $(15,303)  $(29,219)  $(12,585)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization                            880        944        861
Non cash stock compensation                            7,704      4,396        537
Accrued interest on convertible note                    --          182       --
Non-cash interest expense on bridge loans               --        5,500       --
Changes in operating assets and liabilities:
Prepaid expenses and other current assets               (547)       104         13
Employee notes receivable                                 48        (24)       (17)
Restricted cash                                        5,000       --         --
Accounts payable                                       1,335       (119)       (69)
Accrued liabilities                                    1,293        (93)     1,724
Related party payable                                     (9)       (26)       (35)
Deferred revenue                                         366        975       --
Other long-term liabilities                           (1,000)     2,000       --
                                                   ------------------------------------


Net cash used in operating activities                   (233)   (15,380)    (9,571)
                                                   -------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of marketable securities                   (41,153)      --         --
Sales and maturities of marketable securities         23,208       --        4,929
Additions to property and equipment                     (447)      (264)      (448)
Change in other assets                                    18        (15)         1
                                                   -------------------------------------

Net cash provided by (used in) investing
activities                                           (18,374)      (279)     4,482
                                                  --------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bridge loans and warrants                 --        5,500       --
Proceeds from initial public offering, net            52,688       --         --
Proceeds from issuance of common stock                   151         19         35
Repayments of long-term debt                            (862)      (862)      --
Proceeds from issuance of preferred stock, net          --       41,113       --
Other                                                   --            1       --
                                                  --------------------------------------

Net cash provided by financing
activities                                            51,977     45,771         35
                                                  --------------------------------------


Net change in cash and cash equivalents               33,370     30,112     (5,054)
Cash and cash equivalents at beginning of year        34,619      4,507      9,561
                                                  --------------------------------------

Cash and cash equivalents at end of year             $67,989    $34,619     $4,507
                                                  ======================================

NONCASH TRANSACTIONS:
Conversion of convertible subordinated notes and
accumulated interest into Series F Preferred Stock  $   --       $5,683   $   --
                                                   ====================================
Issuance of common stock under license agreement    $   --         $647   $   --
                                                   ====================================
Conversion of preferred stock to common stock        $87,329   $   --     $   --
                                                   ====================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for interest                  $440       $651       $540
                                                   ====================================
</TABLE>

    The accompanying notes are an integral part of these financial statements

                                      F-5
<PAGE>


                                  VERSICOR INC.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 THE COMPANY

           Versicor Inc.  ("Versicor" or the  "Company") is a  biopharmaceutical
company  focused on the  marketing,  development  and discovery of drugs for the
treatment of serious bacterial and fungal infections,  primarily in the hospital
setting.  Since its  inception  on May 2, 1995 as a wholly owned  subsidiary  of
Sepracor Inc.  ("Sepracor"),  the Company has devoted  substantially  all of its
efforts to  establishing  its business and carrying on research and  development
activities.  Since  1996,  the  Company  has been  operating  as an  independent
company.

           On August 8, 2000,  the Company sold  4,600,000  shares of its common
stock at $11 per share in an initial public offering.  On September 7, 2000, the
underwriters  executed  an  overallotment  option and  purchased  an  additional
690,000  shares of common  stock at $11 per  share.  The  Company  received  net
proceeds of approximately $52.7 million from the initial public offering and the
overallotment after payment of underwriting  discounts and commissions and other
expenses.

           As a result of the  recent  series  of  preferred  financing  and the
Company's  initial  public  offering,  Sepracor's  ownership  of the  Company is
approximately 7% at December 31, 2000.  Certain  facilities and support services
of the Company, including administrative support, have been provided by Sepracor
under an administrative  services agreement.  For these facilities and services,
the  Company  was charged  approximately  $143,000,  $78,000 and $84,000 for the
years ended  December  31,  2000,  1999 and 1998,  respectively.  Although  this
agreement expired on June 30, 1998, the companies continued to operate under the
terms of that  agreement  until  December  2000 at which time  Sepracor  and the
Company agreed to terminate the agreement. As a result of these agreements,  the
financial  statements  presented may not be indicative of the results that would
have been achieved had the Company operated as a nonaffiliated  entity.  General
and  administrative  costs on a stand-alone basis would not have been materially
different from those recorded in the Company's  statements of operations for the
years presented.

 USE OF ESTIMATES

           The preparation of financial  statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

 CERTAIN RISKS AND UNCERTAINTIES

           The Company is subject to risks  common to  companies in the
bio-pharmaceutical industry including, but not limited to, new technological
innovations,  dependence on key personnel,  protection of proprietary
technology,  compliance  with  government regulations, uncertainty of market
acceptance of products, product liability and the need to obtain financing.

                                      F-6
<PAGE>


 CASH AND CASH EQUIVALENTS

      The  Company  considers  all highly  liquid  investments  with an original
maturity  of  three  months  or less to be cash  equivalents.  Included  in cash
equivalents are commercial paper instruments aggregating $56.1 million and $32.9
million at December 31, 2000 and 1999, respectively.

 MARKETABLE SECURITIES

           The   Company   has   classified   its   marketable   securities   as
available-for-sale in accordance with Statement of Financial Accounting Standard
No. 115,  "Accounting for Certain Investments in Debt and Equity Securities" and
are reported at cost, which due to the short-term maturities of these securities
approximates fair value.  Unrealized gains and losses are recorded as a separate
component of stockholders' equity, if material.

FAIR VALUE OF FINANCIAL INSTRUMENTS

           The  carrying   amounts  of  certain  of  the   Company's   financial
instruments  including  cash and cash  equivalents  marketable  securities,  and
accounts payable approximate fair value due to their short maturities.  Based on
borrowing rates currently available to the Company for loans with similar terms,
the carrying value of its debt obligations approximates fair value.

 PROPERTY AND EQUIPMENT

           Property  and  equipment  are  stated  at cost and  depreciated  on a
straight-line  basis over the estimated useful lives of the assets,  generally 3
to 10 years, or the lease term of the respective  assets, if shorter.  Gains and
losses upon asset disposal are reflected in operations in the year of disposal.

 OTHER ASSETS

           Deferred  financing  costs relating to expenses  incurred to complete
the term loan financing are being amortized over the five-year life of the loan.

 LONG-LIVED ASSETS

           The Company  periodically  reviews the value of long-lived assets for
impairment  whenever events or changes in business  circumstances  indicate that
the  carrying  amount of the  assets  may not be fully  recoverable  or that the
useful lives of these assets are no longer appropriate.  Each impairment test is
based on a comparison  of the future  undiscounted  cash flows  arising from the
assets with the carrying value of the asset. If an impairment is indicated,  the
asset is written  down to its  estimated  fair value on a  discounted  cash flow
basis.

 REVENUE RECOGNITION

           The Company  recognizes  revenues as they are  earned.  Revenue  from
license fees and contract  services are recognized  over the initial  license or
contract service term as the related work is performed,  which generally is on a
straight-line basis. Nonrefundable and noncreditable milestone payments received
are recognized  upon the completion of specified  milestones as specified in the
related  collaboration  agreements.  Milestone  payments  received  which may be
credited to future royalties are not recognized as revenues until such time that
the  royalties are credited  against the milestone  payments and the amounts are
non-refundable.  Collaborative  research and development payments are recognized
as the related work is performed. Deferred revenue is comprised of cash received
in advance of the related  revenue being  recognized (see Note 12). All revenues
recognized  to  date  under  research  and  development  collaborations  are not
refundable if the relevant research effort is not successful.


                                      F-7
<PAGE>


 RESEARCH AND DEVELOPMENT

           Research and development costs are charged to operations as incurred.
Certain research and development projects are funded by research and development
contracts, and the expenses related to these activities are included in research
and development costs.

 BUSINESS SEGMENTS

           The  Company  operates  as a single  business  segment  in the United
States of America as defined in SFAS No. 131,  "Disclosures about Segments of an
Enterprise and Related Information."

 STOCK-BASED COMPENSATION

           The  Company  accounts  for  its  stock-based  employee  compensation
arrangements  in accordance with the provisions of Accounting  Principles  Board
Opinion  No. 25 ("APB  25"),  "Accounting  for Stock  Issued to  Employees"  and
complies with the disclosure  provisions of SFAS No. 123,  "Accounting for Stock
Based Compensation". Under APB 25, unearned compensation expense is based on the
difference,  if any,  on the  date of  grant,  between  the  fair  value  of the
Company's stock and the exercise price of the options.  Unearned compensation is
amortized and expensed in accordance with Financial  Accounting  Standards Board
Interpretation No. 28. The Company accounts for stock issued to non-employees in
accordance  with the  provisions of SFAS No. 123 and Emerging  Issues Task Force
No.  96-18,  "Accounting  for Equity  Instruments  that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services".

 INCOME TAXES

           The Company  recognizes  deferred tax  liabilities and assets for the
expected  future  tax  consequences  of events  that have been  included  in the
financial  statements or tax returns.  Deferred tax  liabilities  and assets are
determined based on the difference between the financial statement and tax basis
of assets  and  liabilities  using  enacted  tax rates in effect for the year in
which the differences are expected to reverse.


                                      F-8
<PAGE>


 NET LOSS PER SHARE

           Basic  net loss per share is  computed  using  the  weighted  average
number of shares of common  stock  outstanding.  Diluted net loss per share does
not  differ  from basic net loss per share  since  potential  common  shares are
antidilutive  for all periods  presented  and  therefore  are excluded  from the
calculation of diluted net loss per share.  The following  weighted  potentially
dilutive  common shares were excluded from the computation of net loss per share
because their effect was antidilutive (in thousands):

<TABLE>
<CAPTION>

                                    Years Ended December 31,
                                  ---------------------------
                                    2000     1999   1998
                                  ---------------------------
<S>                                 <C>     <C>     <C>
Convertible and redeemable
 convertible preferred stock         9,728  10,084  6,914
Stock options                        2,064   1,333  1,346
Warrants                               439     289    213
Common stock subject to repurchase      21      30     39

---------------------------------------------------------
                                    12,252  11,736  8,512
=========================================================
</TABLE>


           The  restricted  shares  subject to repurchase  are excluded from the
loss per share calculations until the restrictions lapse.

 RECENT ACCOUNTING PRONOUNCEMENTS

           In June 1998, The Financial  Accounting  Standards  Board issued SFAS
No. 133, "Accounting for Derivative  Instruments and Hedging  Activities".  SFAS
No. 133  establishes  new standards of accounting  and reporting for  derivative
instruments and hedging  activities.  SFAS No. 133 requires that all derivatives
be recognized at fair value in the statement of financial position, and that the
corresponding  gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of relationship
that exists.  The Company has not engaged in significant  hedging  activities or
invested in  derivative  instruments.  The  Company  will adopt SFAS No. 133, as
amended,  in the first  quarter of 2001.  We do not expect the  adoption of this
standard to have any material impact on our financial statements.



NOTE 2 - MARKETABLE SECURITIES

           At December 31, 2000, all investment  securities  were  classified as
available-for-sale and comprise United States Government Agency investments. All
investments are due in less than one year.




                                      F-9
<PAGE>


NOTE 3 - PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>

                                                           December 31,
                                                   ---------------------------
                                                       2000          1999

                                                   -----------   -------------
                                                         (in thousands)

<S>                                                 <C>           <C>
Leasehold improvements                               3,891           3,709
Laboratory equipment                                 2,593           2,530
Computers, software and office equipment               930             743
Fixtures and furniture                                 174             159

                                                   ------------   ------------

                                                     7,588           7,141

Less: accumulated depreciation and amortization     (3,204)         (2,324)

                                                   ------------   ------------

Property and equipment, net                         $  4384       $  4,817

                                                   ============   ============

</TABLE>


NOTE 4 - EMPLOYEE NOTES RECEIVALBE AND RELATED PARTY TRANSACTIONS

           In 1996,  1997 and 2000, the Company made an aggregate of $825,000 of
loans to certain key employees and officers. The loans all accrue interest at 5%
with the exception of two loans that are interest free and forgivable. The loans
are collateralized by the stock options of the employees and/or the deeds to the
employees'  residences.  During 2000,  one of the loans was repaid in full.  The
remaining loans become payable between April 2001 and April 2004 and at December
31, 2000 are carried at $545,000 including accrued interest.

           In January 1997, the Company entered into a consulting agreement with
a Director of the Company.  Under this agreement,  the Company pays the Director
an annual fee of $100,000.  The agreement  terminated in December  1997, but has
continued through mutual consent of the Company and the Director.

           In March 1998, the Company entered into a scientific agreement with a
Director.  Under this agreement,  the Company pays the Director an annual fee of
$50,000 plus an annual  laboratory gift of $50,000 in 1998 and $25,000  annually
thereafter.




                                      F-10
<PAGE>


NOTE 5 - ACCRUED LIABILITIES


<TABLE>
<CAPTION>

                                                December 31,
                                 --------------------------------------------
                                         2000                   1999

                                 ---------------------  ---------------------
                                               (in thousands)

<S>                                    <C>                  <C>
Research and development                $ 1,000             $        1,000
Employee compensation                     1,054                        508
Legal                                       219                        107
Other                                       952                        317

                                 ---------------------  ---------------------
                                       $  3,225             $        1,932

                                 =====================  =====================


</TABLE>

NOTE 6 - BORROWINGS

           In December  1997,  the Company and a commercial  bank entered into a
term  loan,  which is  evidenced  by two  term  notes in  principal  amounts  of
$2,000,000  and  $4,034,000.  The term  loan is  payable  quarterly  in  fifteen
installments,  with each  installment  equal to $216,000 plus accrued  interest,
commencing on March 31, 1999 with the final payment of the balance of $2,802,000
payable on December  31,  2002.  The term notes bear  interest at the prime rate
plus 0.50% (10% at December 31,  2000).  The term loan required that the Company
keep $4 million on deposit with the lender and maintain an additional $1 million
of cash and cash  equivalents.  These amounts were shown as  restricted  cash at
December 31, 1999.  Following the Company's  initial  public  offering in August
2000,  the  terms of the loan were  renegotiated  and the  Company  is no longer
required to maintain these  balances.  Starting with the fourth quarter of 2000,
the  Company is  required  to comply with  certain  financial  covenants.  As of
December 31, 2000,  the Company was in compliance  with these  covenants.  These
loans  are  collateralized  by  certain  assets of the  Company.  There was $4.3
million and $5.2  million  outstanding  under this loan at December 31, 2000 and
1999, respectively.

           Future principal payments on the term loan are as follows:

YEAR ENDING DECEMBER 31, (IN THOUSANDS)
<TABLE>
<CAPTION>
<S>                         <C>

2001                        $    862
2002                           3,448

                        ---------------------
                            $  4,310
                        =====================
</TABLE>


           Interest expense associated with the term loan was $482,000, $489,000
and $540,000 in the years ended December 31, 2000, 1999 and 1998, respectively.


                                      F-11
<PAGE>


NOTE 7 - COMMITMENTS

           Future  minimum  lease  payments  under all  noncancelable  operating
leases in effect at December 31, 2000 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, (IN THOUSANDS)
<S>     <C>                               <C>
        2001                              $     882
        2002                                    915
        2003                                    948
        2004                                    981
        2005                                  1,014
        Thereafter                            4,245
                                      ---------------------
                                           $  8,985
                                      =====================
</TABLE>


           Future minimum lease payments under operating leases primarily relate
to the Company's  principal  office and laboratory  space in California.  Rental
expense under these leases  amounted to $849,000,  $841,000 and $808,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.

NOTE 8 - STOCKHOLDERS' EQUITY (DEFICIT)

           In March  1999,  the  Company  sold  625,000  shares  of  Series  D-1
Preferred  Stock to a strategic  investor for  $3,750,000  and 625,000 shares of
Series E-1 Preferred Stock to another  strategic  investor for  $3,000,000.  The
issuance of the Series E-1 Preferred  Stock resulted in a beneficial  conversion
feature of $750,000,  calculated in accordance  with Emerging  Issues Task Force
Topic D-60, "Accounting for the Issuance of Convertible Preferred Stock and Debt
Securities with a Nondetachable  Conversion Feature".  The beneficial conversion
feature was reflected as a deemed  preferred  stock dividend in the Statement of
Operations for 1999.

           In June 1999,  the Company  entered into a Note and Warrant  Purchase
Agreement with a group of investors,  including  Sepracor.  Under the agreement,
the group of  investors  agreed to loan the Company $11  million,  of which $5.5
million was paid to Versicor in June 1999 at the first closing.  The outstanding
principal  amount of the notes was due and payable to the  investors by Versicor
in June 2000.  Interest on the notes accrued at 9.75% and was payable  annually.
In October 1999,  the Note holders  converted the notes and accrued  interest of
$181,000 into the Company's  Series F Preferred  Stock.  In connection  with the
financing,  the investors  were granted  warrants to purchase  226,236 shares of
Series F Preferred Stock at $4.00 per share (see Note 9). The issuance  resulted
in a beneficial conversion feature of $4,877,000 which was reflected as interest
expense in the Statement of Operations for 1999.

           In October 1999, the Company  completed a private equity financing of
approximately  $40  million.  The Company  converted  its $5.5 million of bridge
loans, plus accrued interest,  into 1,204,072 shares of Series F Preferred Stock
and issued  7,309,316 shares of Series F Preferred Stock at $4.72 per share, for
$35  million  in cash.  Issuance  costs  associated  with the  transaction  were
$137,000.  The  issuance  resulted in a beneficial  conversion  feature of $34.4
million which was reflected as a deemed preferred stock dividend in the
Statement of Operations for 1999.

                                      F-12
<PAGE>

           On August 8, 2000,  the Company sold  4,600,000  shares of its common
stock at $11 per share in an initial public offering.  On September 7, 2000, the
underwriters  executed  an  overallotment  option and  purchased  an  additional
690,000  shares of common  stock at $11 per  share.  The  Company  received  net
proceeds of approximately $52.7 million from the initial public offering and the
overallotment after payment of underwriting  discounts and commissions and other
expenses.  The proceeds have been invested in highly liquid,  interest  bearing,
investment grade securities.

           Immediately  prior to the initial public offering,  the Company split
its  common and  preferred  stock  5-for-4.  Upon the  closing of the  Company's
initial public offering on August 8, 2000, all of the Company's preferred stock,
par value $0.001 per share,  automatically  converted into 16,677,000  shares of
common stock.  Immediately  following the automatic  conversion of the preferred
stock, the Company filed an amended and restated  Certificate of  Incorporation.
Under the amended and  restated  Certificate  of  Incorporation,  the Company is
authorized to issue  100,000,000  shares of common stock and 5,000,000 shares of
preferred  stock.  All  preferred  stock and common stock data in the  financial
statements has been restated retroactively to reflect the split.

           At  December  31, 2000 and 1999,  16,500 and 25,500  shares of common
stock were subject to repurchase,  respectively.  The common stock is subject to
repurchase at the original issuance price of $0.001 per share.

NOTE 9 - STOCK OPTIONS AND WARRANTS

 STOCK OPTIONS

           The 1995 Stock Option Plan ("1995 Plan") permits the Company to grant
up to 315,000  shares of common stock as incentive  stock  options  ("ISOs") and
nonstatutory  stock  options  ("NSOs").  The 1995  Plan was  amended  in 1997 to
increase  the maximum  number of shares to be issued to  348,750.  The 1995 Plan
provides for the  granting of ISOs to officers and key  employees of the Company
and NSOs to officers,  key employees,  consultants and directors of the Company.
ISOs and NSOs granted  under the 1995 Plan have a maximum term of ten years from
the date of grant. Vesting provisions may vary but in each case will provide for
vesting  of at least 20% per year of the total  number of shares  subject to the
option and have an  exercise  price not less than the fair value of the stock at
the date of grant.

           The 1997 Equity  Incentive  Plan ("1997 Plan") permits the Company to
grant up to  1,401,250  shares of common  stock as ISOs,  NSOs,  stock  bonuses,
rights to purchase restricted stock, and stock appreciation rights. In 1999, the
1997 Plan was amended to  increase  the maximum  number of shares  available  to
2,638,030.  In 2000,  the 1997 Plan was amended  again to  increase  the maximum
number of  shares  available  to  4,038,030.  All  options  shall be  separately
designated  ISOs to  officers  and key  employees  and  NSOs  to  officers,  key
employees,  consultants  and directors.  ISOs granted under the 1997 Plan have a
maximum  term of ten years from the date of grant and have an exercise  price of
not less than fair value of the stock at the date of grant, as determined by the
Company's  Board of  Directors.  NSOs granted under the 1997 Plan have a maximum
term of ten years from the date of grant and have an exercise  price of not less
than  85% of fair  market  value  of the  stock  at the  date of the  grant,  as
determined by the Company's Board of Directors.  Vesting  provisions of ISOs and
NSOs may vary but in each case will provide for vesting of at least 20% per year
of the total number of shares subject to the option.


                                      F-13
<PAGE>


           Stock option  activity  under the plans for the years ended  December
31, 2000, 1999 and 1998 is as follows:

<TABLE>
<CAPTION>

                                              2000             1999                  1998
                                 --------------------- --------------------  ---------------------
                                   Number   Weighted     Number  Weighted     Number     Weighted
                                            Average              Average                 Average
                                            Exercise             Exercise                Exercise
                                            Price Per            Price Per               Price Per
                                              Share              Share                   Share
                                ----------------------- -------------------  ----------------------

<S>                              <C>          <C>      <C>         <C>      <C>            <C>
Balance at beginning of year     2,066,466    $0.43    1,282,013   $0.39    1,457,800      $0.38
Granted                            888,313     5.28      932,626    0.47      162,719       0.40
Exercised                        (391,782)     0.39     (47,425)    0.35     (86,711)       0.27
Canceled                          (94,685)     0.48    (100,748)    0.37    (251,795)       0.38

                               ------------          ------------          -----------
Balance at end of year           2,468,312     2.18    2,066,466    0.43    1,282,013       0.39

                               ============          ============          ===========

</TABLE>

           The  following  table  summarizes  information  about  stock  options
outstanding at December 31, 2000:


<TABLE>
<CAPTION>
                     Options outstanding                Options exercisable
              ----------------------------------  -----------------------------
 Exercise     Number       Remaining    Exercise   Number       Exercise
Price Per    Outstanding   Contractual   Price    Excercisable   Price
 Share                       Life
----------   -----------------------------------  -----------------------------
<S>         <C>               <C>        <C>       <C>          <C>
  $0.09        12,843         5.00       $0.09      11,493      $0.09
   0.40       742,548         7.14        0.40     466,544       0.40

   0.48       847,108         8.92        0.48     206,650       0.48

   4.72       411,563         9.34        4.72         --          --

   5.75       400,000         9.94        5.75         --          --

   7.56        48,000         9.94        7.56         --          --

  10.56         6,250         9.64       10.56         --          --

           ----------                             --------
            2,468,312                     2.18     684,687       0.42

           ==========                             ========
</TABLE>

           There were 652,675 and 328,595  options  exercisable  at December 31,
1999 and 1998, respectively.

           There were 261,045 and 1,079,920 options  available for future grant
under the 1995 Plan and 1997 Plan,  respectively,  as of December 31, 2000.  The
Company has reserved 4,229,873 shares of common stock for the exercise of stock
options and warrants.

 FAIR VALUE DISCLOSURES

           The  Company  applies  the  measurement   principles  of  APB  25  in
accounting for its employee stock options.  Had compensation expense for options
granted to employees been  determined  based on the fair value at the grant date
as  prescribed  by SFAS No. 123, the  Company's  net loss and net loss per share
would have been as indicated below:

                                      F-14
<PAGE>


<TABLE>
<CAPTION>

                                            Years Ended December 31,
                                 ----------------------------------------------
                                       2000            1999          1998
                                  ---------------------------------------------
                                       (in thousands except per share data)
Net loss available to
common stockholders:
<S>                               <C>              <C>            <C>
   As reported                    $    (18,789)    $   (67,394)    $  (15,112)
                                  ==============  ==============  =============
   Proforma                       $    (19,556)    $   (67,469)    $  (15,189)
                                  ==============  ==============  =============
Basic and diluted net
loss per share:
   As reported                    $       (1.95)   $   (127.28)    $    (47.11)
                                  ==============  ==============  =============
   Proforma                       $       (2.03)   $   (127.42)    $    (47.35)
                                  ==============  ==============  =============
</TABLE>

           The value of each  option  grant was  estimated  on the date of grant
using the minimum  value method until  August 8, 2000;  thereafter  options were
valued using the  Black-Scholes  option  pricing model.  The following  weighted
assumptions were used:


<TABLE>
<CAPTION>
                                       Years Ended December 31,
                              -----------------------------------------
                                2000        1999          1998

                              -----------------------------------------
<S>                           <C>          <C>           <C>
Risk-free interest rate          5.1%         6.3%          5.2%
Expected average life         4 years      6 years       8 years
Volatility                        60%            -             -
Expected dividends                  -            -             -
</TABLE>


           The  risk-free  interest rate was  calculated in accordance  with the
grant date and expected  average life. The weighted average per share fair value
of options  granted during the years ended December 31, 2000,  1999 and 1998 was
$12.89, $14.18 and $2.66, respectively.

 DEFERRED STOCK BASED COMPENSATION

           During the period from January 1997  through  December 31, 2000,  the
Company  recorded  $21.5  million  of  deferred  stock  based   compensation  in
accordance with APB 25, SFAS 123 and Emerging  Issues Task Force 96-18,  related
to stock options  granted to consultants  and employees.  For options granted to
consultants,  the Company  determined  the fair value of the  options  using the
Black-Scholes  option  pricing  model with the following  assumptions:  expected
lives of four years;  weighted average risk-free  interest rate between 5.4% and
6.2%;  expected dividend yield of zero percent;  volatility of 60% and values of
common stock between $0.40 and $18.91 per share. Stock  compensation  expense is
being  recognized  in  accordance  with FIN 28 over the  vesting  periods of the
related options, generally four years. The Company recognized

                                      F-15
<PAGE>

stock  compensation  expense of $7.7 million,  $4.4 million and $537,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.

 WARRANTS

           Warrants to purchase 45,000 shares of common stock at $4.45 per
share and 168,125 shares of Series C preferred stock (which converted into
warrants to purchase common stock upon the Company's initial public offering)
at $4.00 per share were outstanding at December 31, 2000. The fair value of
these warrants was estimated using the Black Scholes pricing model and was
not material. During 1999, warrants to purchase 226,236 shares of Series F
preferred stock (which converted into warrants to purchase common stock upon
the Company's initial public offering) at $4.72 per share were issued in
connection with a bridge loan financing. These warrants, which were still
outstanding as of December 31, 2000, were valued using the Black Scholes
pricing model. The allocated fair value of these warrants of $623,000 has
been reflected as interest expense in the accompanying statement of
operations. The warrants expire on March 10, 2002, December 9, 2002 and
August 8, 2005, respectively.

NOTE 10 - INCOME TAXES

           Deferred tax assets and  liabilities are recognized for the estimated
future  tax  consequences  attributable  to  tax  benefit  carryforwards  and to
differences  between the financial  statement  amounts of assets and liabilities
and their respective tax basis. Deferred tax assets and liabilities are measured
using  enacted tax rates.  A valuation  allowance is  established  if it is more
likely  than not that all or a portion  of the  deferred  tax asset  will not be
realized.  Accordingly,  a valuation allowance has been established for the full
amount of the deferred tax asset.

           The statutory and effective tax rates were 34% and 0%,  respectively,
for all periods  presented.  The  effective tax rate resulted from net operating
losses and  nonrecognition  of any deferred tax asset At December 31, 2000,  the
Company had federal and state tax net operating  loss ("NOL")  carryforwards  of
approximately  $22.0  million and $8.5 million,  respectively  which will expire
between 2003 and 2020.  Based upon the Internal  Revenue Code and changes in the
Company's  ownership,  utilization  of the NOL  will  be  subject  to an  annual
limitation. At December 31, 2000, the Company had federal and state research and
experimentation credit carryforwards of approximately $1.0 million and $612,000,
respectively, which will expire beginning in the year 2010.


                                      F-16
<PAGE>


           The components of net deferred taxes were as follows:


<TABLE>
<CAPTION>

                                                       December 31,
                                             ----------------------------------
                                                   2000                1999

                                             ---------------   ----------------
                                                      (in thousands)
ASSETS:
<S>                                             <C>               <C>
   NOL carryforwards                            $     7,983       $     4,835
   Capitalized research and development               7,244             7,568
   Tax credit carryforwards                           1,417             1,346
   Accrued expenses and other liabilities               250               170
   Deferred revenue                                     535               393
   Capitalized in-process
   research and development                           3,996             4,282
   Property and equipment                                 4                 -

LIABILITIES:
   Property and equipment                                 -             (355)

Less: valuation allowance                          (21,429)          (18,239)
                                             ---------------   ---------------
Net deferred taxes                                $       -         $       -

                                             ===============   ===============
</TABLE>


NOTE 11 - EMPLOYEE SAVINGS PLAN

           Up until  October 31,  2000,  the  Company's  employees  were able to
participate  in  Sepracor's  401(k)  savings plan.  From  November 1, 2000,  the
Company's  employees  were able to  participate  in the Versicor  401(k) savings
plan. Under the provisions of both plans,  employees may voluntarily  contribute
up to 15% of their  compensation  up to the statutory  limit.  In addition,  the
Company can make a matching contribution at its discretion.  The Company matches
50% of the first $3,000 up to a maximum of $1,500 per  employee.  The  Company's
contributions made during 2000, 1999 and 1998 were $47,000, $39,000 and $41,000,
respectively.

NOTE 12 -  AGREEMENTS

          In  February  1998,  the  Company  entered  into two  agreements  with
Biosearch  Italia  ("Biosearch");   a  license  agreement  and  a  collaborative
agreement.  Under the  licensing  agreement,  Biosearch  granted  the Company an
exclusive  license to develop  and  commercialize  V-Glycopeptide  (then  called
BI-397) in the United  States and Canada.  In exchange  for the license and upon
favorable results of preclinical studies, the Company paid $2 million and issued
250,000  shares of its common  stock to  Biosearch.  The $2 million  license fee
payment was expensed as research and  development in 1998. The fair value of the
common stock  issued to Biosearch  was $647,000 and was expensed to research and
development in 1998. Versicor has also agreed to make certain milestone payments
if the  milestones  are achieved of which $1 million was  recognized as research
and development  expense in 1998.  Versicor will also pay royalties to Biosearch
on a product-by-product and country-by-country basis relating to future sales of
products resulting from this agreement.  Under the collaborative  agreement, the
Company  established a target and lead  optimization  arrangement with Biosearch
entitled  BIOCOR.  Biosearch  contributes  leads and targets,  while the Company
contributes its combinatorial and medicinal chemistry expertise to optimize such
leads.   Biosearch  has  the  exclusive   license  in  Europe  to  commercialize
intravenous

                                      F-17
<PAGE>

drugs resulting from this  collaboration and will retain all income derived from
such  commercialization  in Europe.  The  Company has the  exclusive  license in
Canada and the United States for the  commercialization  of intravenous drugs in
these countries and will retain all income resulting from such commercialization
in the United  States  and  Canada.  Biosearch  and the  Company  will share all
revenue from the  commercialization  of intravenous drugs in all countries other
than the United  States  and  Canada  and  outside of Europe as well as any oral
drugs that are developed.  The Company will make certain  milestone  payments to
Biosearch  if the  milestones  are  reached.  In December  of 2000,  the Company
expanded  this  collaboration  by  sponsoring  additional  chemists in Italy and
increasing  assays put in BIOCOR.  Biosearch  Italia has increased the number of
natural products libraries that they are contributing.

           In March 1999, the Company and Pharmacia  Corporation  entered into a
collaboration agreement pursuant to which they agreed to collaborate to discover
second and third generation oxazolidinone product candidates. In connection with
the  collaboration,  Pharmacia  Corporation  has  made a  $3.75  million  equity
investment in the Company and has made research support and license fee payments
to the  Company.  Under the terms of the  agreement,  the Company is entitled to
receive  additional  research support  payments,  and if certain  milestones are
achieved,   milestones  payments  from  Pharmacia  Corporation,   which  may  be
creditable  against  future  royalty  payments.  The  Company  has  assigned  to
Pharmacia  Corporation an exclusive  worldwide  license to  commercialize  drugs
resulting from this  collaboration.  The development,  manufacture and worldwide
sale of drugs  resulting from the  collaboration  will be conducted by Pharmacia
Corporation,  and the  Company  will be  entitled  to receive  royalties  on the
worldwide  sales of any drug  developed  and  commercialized.  During 1999,  the
Company recognized $2.1 million of revenue relating to this agreement consisting
of  $325,000  of  contract   service  and  license  fees  and  $1.8  million  of
collaborative research and development fees. During 2000, the Company recognized
$3.1 million of revenue  relating to this  agreement  consisting  of $433,000 of
contract service and license fees and $2.6 million of collaborative research and
development  fees. At December 31, 2000 and 1999,  deferred  revenue consists of
$1.3  million and  $975,000,  respectively,  relating  to  contract  service and
license fees which are being recognized over a three year period.

           In March 1999,  the Company  entered into a  collaboration  agreement
with  Novartis  Pharma  AG  ("Novartis")   pursuant  to  which  the  Company  is
collaborating  to  discover  and  develop  novel  deformylase   inhibitors.   In
connection with the collaboration,  Novartis made a $3 million equity investment
in the Company and provides research support payments to the Company.  Under the
terms of this agreement,  the Company is entitled to receive additional research
support  payments and milestone  payments from  Novartis if the  milestones  are
achieved.  A portion of  certain  milestone  payments  received  are  creditable
towards  future  royalties.  The  Company  has  granted  Novartis  an  exclusive
worldwide  license to  commercialize  drugs  resulting from this  collaboration.
However,  the Company has the option to co-promote with Novartis in hospitals in
the United  States and Canada any drug that  contains a Versicor  compound as an
active  ingredient.  The  development,  manufacture  and worldwide sale of drugs
resulting from collaboration will be conducted by Novartis, and the Company will
be entitled to receive  royalties on the worldwide  sales of any drug  developed
and commercialized from this collaboration.  The Company will not be entitled to
royalties  from sales in the United States and Canada if the Company  chooses to
co-promote the drugs with Novartis. In addition to a $500,000 milestone payment,
the Company  recognized $1.7 million of  collaborative  research and development
fees as  revenue  in 1999.  In 2000,  the  Company  recognized  revenue  of $2.8
million, including milestone payments totaling $500,000. Subject to the approval
of certain of the Company's  stockholders,  the Company has a put option to sell
$2 million of additional equity  securities to Novartis.  This option expires on
March 31, 2001.

           In May 1999, Eli Lilly granted an exclusive worldwide license to
the Company for the development and commercialization of V-Echinocandin (then
called LY 303366). The Company paid $11 million for the license, and has
agreed to pay an additional $3 million for product inventory, which it has
received, over a three-year period. The Company recognized $14 million of
research and development costs related to these amounts in 1999. We are also
obligated to make $51 million in payments to Eli Lilly if specified
milestones are achieved on the  intravenous  formulations  of V-Echinocandin.
Of the $51 million payment for the intravenous formulation, $14 million is
contingent on developments in the United States and Canada, $16 million is
contingent on developments in Japan and Europe and $21 million is contingent
on cumulative sales of the intravenous formulation. We are obligated to make
$79 million in additional payments to Eli Lilly if specified milestones are
achieved on the oral formulations of V-Echinocandin. We are required to pay
to Eli Lilly royalties in respect of sales of any product resulting from the
compound. At December 31, 1999, the Company had $1 million and $2 million of
current and long-term liabilities, respectively, relating to amounts due to
Eli Lilly for the product inventory. At December 31, 2000, the Company had $1
million of both current and long-term liabilities. The Company has

                                      F-18
<PAGE>


granted  to Eli  Lilly an  option  to  license  the  exclusive  development  and
commercialization  rights  to oral  formulations  of  V-Echinocandin,  which  is
exercisable upon successful completion of Phase II clinical trials. If Eli Lilly
exercises  this  option,  the  Company  will have the right to  receive  royalty
payments and reimbursement of prior development expenses and milestone payments.
The Company will also have the right to co-promote the product with Eli Lilly.

           Sepracor  granted an exclusive  license to the Company for the rights
to certain  technology and  intellectual  property in July 1995. In exchange for
the  license,  Versicor  issued  45,000  shares of Series A  Preferred  Stock to
Sepracor.  Versicor  also agreed to allow third  parties to use its lead seeking
libraries  and  related  technology  upon the  request of  Sepracor.  In return,
Sepracor  agreed to pay a 5% royalty fee on all net sales of products  resulting
from  Versicor's  screening  process  plus  all  reasonable  costs  incurred  by
Versicor. This license terminated on July 18, 2000.


                                      F-19
<PAGE>


NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)

           The following is selected unaudited  quarterly financial data for the
years ended December 31, 2000 and 1999 (in thousands, except per share data). In
the opinion of the Company's  management,  this quarterly  information  has been
prepared  on the  same  basis  as the  financial  statements  and  included  all
adjustments  necessary  to  present  fairly  the  information  for  the  periods
presented.


<TABLE>
<CAPTION>

                                                                        Quarter Ended
                                         ------------------------------------------------------------------
                                             March 31,      June 30,     September 30,    December 31,
                                               2000           2000            2000            2000

                                         ------------------------------------------------------------------

<S>                                       <C>             <C>            <C>             <C>
Revenues                                  $    1,258      $    1,560     $   1,309       $   1,744

Net loss                                  $   (3,558)     $  (2,734)     $  (3,916)      $  (5,095)

Net loss available to common
   stockholders                           $   (4,993)     $  (4,170)     $  (4,531)      $  (5,095)

Net loss per share, basic and diluted     $    (7.09)     $   (4.57)     $   (0.33)      $   (0.22)

Shares used in computing net loss
  per share, basic and diluted                   705             913         13,690          23,021

</TABLE>


<TABLE>
<CAPTION>
                                            -------------------------------------------------------------
                                                                      Quarter Ended
                                            -------------------------------------------------------------
                                             March 31,       June 30,     September 30,   December 31,
                                               1999           1999           1999           1999
                                            -------------------------------------------------------------

<S>                                           <C>            <C>           <C>           <C>
Revenues                                      $      -       $   1,258     $  1,259      $   1,758

Net loss                                      $  (2,498)     $  (20,655)   $ (2,816)     $  (3,250)

Net loss available to common  stockholders    $  (3,779)     $  (21,388)   $ (3,447)     $  (38,780)

Net loss per share, basic and diluted         $   (8.72)     $   (40.28)   $  (6.38)     $  (63.43)

Shares used in computing net loss
  per share, basic and diluted                       433             531        540            611

</TABLE>