<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-K/A
                               (AMENDMENT NO. 2)

(Mark One)
  [ x ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
  Exchange Act of 1934
                  For the Fiscal Year Ended December 31, 1999
                                      or
  [   ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
  Exchange Act of 1934
                        Commission File Number: 0-19171

                               ICOS CORPORATION
            (Exact name of registrant as specified in its charter)

                   Delaware                        91-1463450
           (State of incorporation)              (I.R.S. Employer
                                                Identification No.)

                            22021- 20th Avenue S.E.
                           Bothell, Washington 98021
                                (425) 485-1900
  (Address, including zip code, and telephone number, including area code, of
                         principal executive offices)

       Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $.01 par value

  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. [ X ]

State the aggregate market value of voting and non-voting stock held by non-
affiliates of the registrant as of February 29, 2000.

                                $1,987,781,409

  Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock as of February 29, 2000.

<TABLE>
<CAPTION>
                Title of Class                                Number of Shares
                --------------                                ----------------
         <S>                                                  <C>
         Common Stock, $.01 par value                            45,277,767
</TABLE>

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for the annual meeting
of stockholders held on May 4, 2000, relating to "Election of Directors,"
"Continuing Class 2 Directors (until 2001)," "Continuing Class 3 Directors
(until 2002)," "Other Executive Officers," "Section 16(a) Beneficial Ownership
Reporting Compliance," "Compensation of Directors," "Executive Compensation,"
"1999 Option Grants," "1999 Option Exercises and Year-end Option Values,"
"Compensation Committee Interlocks and Insider Participation," "Employment
Contracts, Termination of Employment and Change of Control Arrangements,"
"Security Ownership of Certain Beneficial Owners and Management," and "Certain
Relationships and Related Transactions" are incorporated by reference in Part
III of this Form 10-K.

<PAGE>

Item 8. Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
     Consolidated Financial Statements                                         Page in Form 10-K
     ---------------------------------                                         -----------------
     <S>                                                                       <C>
     Independent Auditors' Report                                                             3

     Consolidated Balance Sheets at December 31, 1999 and 1998                                4

     Consolidated Statements of Operations for the Years Ended
      December 31, 1999, 1998, and 1997                                                       5

     Consolidated Statements of Stockholders' Equity for the Years Ended
      December 31, 1999, 1998, and 1997                                                       6

     Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1999, 1998, and 1997                                                       7

     Notes to Consolidated Financial Statements                                            8-18
</TABLE>

Balance sheets of Suncos Corporation as of December 31, 1999 and 1998, and the
related statements of operations, stockholders' equity, and cash flows for each
of the years in the two-year period ended December 31, 1999 and the periods from
February 6, 1997 (inception) through December 31, 1997 and 1999 are included
elsewhere in this report. All other consolidated financial statement schedules
have been omitted since the information is not required or because the
information required is included in the consolidated financial statements or the
notes thereto.

                                       2
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
ICOS Corporation:

We have audited the accompanying consolidated balance sheets of ICOS
Corporation and subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ICOS
Corporation and subsidiary as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1999 in conformity with generally accepted
accounting principles.

/s/ KPMG LLP

Seattle, Washington
January 21, 2000

                                       3
<PAGE>

                                ICOS CORPORATION
                          CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                         (in thousands)
                                                       -------------------
                                                          December 31,
                                                       -------------------
                                                         1999       1998
                                                       ---------  --------
<S>                                                    <C>        <C>
Current assets:
 Cash and cash equivalents                             $  12,885  $ 69,584
 Investment securities, at market value                   55,349     8,090
 Interest receivable                                       1,020       391
 Receivables from related parties under collaborative
  arrangements                                             9,780     7,524
 Loan receivable from related party                        7,341         -
 Other receivables                                           454       267
 Prepaid expenses                                          1,595       501
                                                       ---------  --------
 Total current assets                                     88,424    86,357
Net property and equipment, at cost                       21,042    19,576
Loan receivable from related party                             -     7,341
Investments in affiliates, at equity                       3,241        64
Other assets                                                  81         9
                                                       ---------  --------
                                                       $ 112,788  $113,347
                                                       =========  ========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                                      $   4,854  $  6,080
 Accrued payroll and benefits                              3,565     1,005
 Accrued clinical expenses                                 3,409     5,686
 Other accrued expenses                                    1,561     1,195
 Federal income taxes payable                                  -       648
                                                       ---------  --------
 Total current liabilities                                13,389    14,614
Stockholders' equity:
 Preferred Stock, $.01 par value. Authorized 2,000,000
  shares; none issued                                          -         -
 Common Stock, $.01 par value. Authorized 100,000,000
  shares; issued and outstanding 44,759,052 at
  December 31, 1999 and 41,482,043 at December 31,
  1998                                                       448       415
 Additional paid-in capital                              223,477   189,436
 Accumulated other comprehensive loss                       (216)       (3)
 Accumulated deficit                                    (124,310)  (91,115)
                                                       ---------  --------
 Total stockholders' equity                               99,399    98,733
                                                       ---------  --------
                                                       $ 112,788  $113,347
                                                       =========  ========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                                ICOS CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                              (in thousands, except per
                                                     share data)
                                              ---------------------------
                                               Year Ended December 31,
                                              ---------------------------
                                                1999     1998      1997
                                              --------  -------  --------
<S>                                           <C>       <C>      <C>
Revenue:
 Collaborative research and development from
  related parties                             $ 64,100  $33,758  $ 21,076
 License of technology to related parties       15,000   75,000     8,500
 Other                                             500    2,010     2,000
                                              --------  -------  --------
 Total revenue                                  79,600  110,768    31,576
Operating expenses:
 Research and development                      100,541   76,978    42,783
 General and administrative                      5,259    4,031     2,737
                                              --------  -------  --------
 Total operating expenses                      105,800   81,009    45,520
                                              --------  -------  --------
 Operating income (loss)                       (26,200)  29,759   (13,944)
                                              --------  -------  --------
Other income (expense):
 Equity in losses of affiliates                (12,042)    (191)     (226)
 Investment income                               4,292    2,369     2,164
 Other, net                                        755       21        (9)
                                              --------  -------  --------
 Net other income (expense)                     (6,995)   2,199     1,929
                                              --------  -------  --------
 Net income (loss) before income taxes         (33,195)  31,958   (12,015)
Income taxes - current                               -      648         -
                                              --------  -------  --------
 Net income (loss)                            $(33,195) $31,310  $(12,015)
                                              ========  =======  ========
Net income (loss) per common share - basic    $  (0.76) $  0.78  $  (0.30)
                                              ========  =======  ========
Net income (loss) per common share - diluted  $  (0.76) $  0.67  $  (0.30)
                                              ========  =======  ========
Weighted average common shares outstanding -
  basic                                         43,449   40,139    39,595
                                              ========  =======  ========
Weighted average common shares outstanding -
  diluted                                       43,449   46,849    39,595
                                              ========  =======  ========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                                ICOS CORPORATION
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                               (in thousands)
                          ---------------------------------------------------------
                                             Accumulated
                                 Additional     other                     Total
                          Common  paid-in   comprehensive Accumulated stockholders'
                          Stock   capital   income (loss)   deficit      equity
                          ------ ---------- ------------- ----------- -------------
<S>                       <C>    <C>        <C>           <C>         <C>
 Balances at December
  31, 1996                 $394   $165,273      $  10      $(110,410)    $55,267
 Comprehensive income
  (loss):
  Net loss                    -          -          -        (12,015)    (12,015)
  Unrealized gains on
   investment
   securities:
  Unrealized holding
   gains arising during
   the year                                        13              -          13
  Less: reclassification
   adjustment for gains
   included in net loss                            (4)             -          (4)
                                                -----      ---------     -------
  Total comprehensive
   income (loss)                                    9        (12,015)    (12,006)
 Issuance of 467,661
  shares of Common Stock
  from exercise of
  options                     5      2,525          -              -       2,530
 Value of warrants
  issued to ICOS
  Clinical Partners,
  L.P.                        -      4,081          -              -       4,081
-----------------------------------------------------------------------------------
 Balances at December
  31, 1997                  399    171,879         19       (122,425)     49,872
 Comprehensive income
  (loss):
  Net income                  -          -          -         31,310      31,310
  Unrealized gains on
   investment
   securities:
  Unrealized holding
   gains arising during
   the year                                         6              -           6
  Less: reclassification
   adjustment for gains
   included in net
   income                                         (28)             -         (28)
                                                -----      ---------     -------
  Total comprehensive
   income (loss)                                  (22)        31,310      31,288
 Issuance of 292,429
  shares of Common Stock
  from exercise of
  options                     3      1,950          -              -       1,953
 Issuance of 1,304,200
  shares of Common Stock
  from exercise of
  warrants                   13     12,260          -              -      12,273
 Value of warrants
  issued to ICOS
  Clinical Partners,
  L.P.                        -      3,347          -              -       3,347
-----------------------------------------------------------------------------------
 Balances at December
  31, 1998                  415    189,436         (3)       (91,115)     98,733
 Comprehensive loss:
  Net loss                    -          -          -        (33,195)    (33,195)
  Unrealized losses on
   investment
   securities:
  Unrealized holding
   losses arising during
   the year                                      (216)             -        (216)
  Less: reclassification
   adjustment for losses
   included in net loss                             3              -           3
                                                -----      ---------     -------
  Total comprehensive
   loss                                          (213)       (33,195)    (33,408)
 Issuance of 860,909
  shares of Common Stock
  from exercise of
  options                     9      6,953          -              -       6,962
 Issuance of 2,416,100
  shares of Common Stock
  from exercise of
  warrants                   24     22,839          -              -      22,863
 Value of warrants
  issued to ICOS
  Clinical Partners,
  L.P.                        -      4,249          -              -       4,249
-----------------------------------------------------------------------------------
 Balances at December
  31, 1999                 $448   $223,477      $(216)     $(124,310)    $99,399
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>



          See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                                ICOS CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                        (in thousands)
                                                  ----------------------------
                                                   Year Ended December 31,
                                                  ----------------------------
   <S>                                            <C>       <C>       <C>
                                                    1999      1998      1997
                                                  --------  --------  --------
   Cash flows from operating activities:
    Net income (loss)                             $(33,195) $ 31,310  $(12,015)
    Adjustments to reconcile net income (loss)
     to net cash provided by (used in) operating
     activities:
     Depreciation and amortization                   4,539     3,459     3,678
     Amortization of investment
      premiums/discounts                              (516)     (320)     (570)
     (Gain) loss on sale of investment
      securities                                        14       (28)       (4)
     Equity in losses of affiliates                 12,042       191       226
     Change in operating assets and liabilities:
      Interest receivable                             (629)      133      (375)
      Receivables from related parties under
       collaborative arrangements                   (1,855)   (5,435)   (2,089)
      Other receivables                               (187)      (90)      (84)
      Prepaid expenses                              (1,094)        8        91
      Accounts payable                              (1,226)    3,888     1,008
      Accrued payroll, benefits and other
       accrued expenses                               (647)    7,352        76
      Federal income taxes payable                     648      (648)        -
     Other                                             (66)        -         -
                                                  --------  --------  --------
       Net cash provided by (used in) operating
        activities                                 (22,172)   39,820   (10,058)
                                                  --------  --------  --------
   Cash flows from investing activities:
    Purchases of investment securities             (80,844)  (17,421)  (41,644)
    Maturities of investment securities             24,908     7,000    31,978
    Sales of investment securities                   8,966    26,502    25,916
    Acquisitions of property and equipment          (6,011)   (5,256)   (5,830)
    Loan receivable from related party                   -         -    (7,341)
    Equity investments in affiliates               (15,219)     (218)     (197)
    Other                                                -        (1)       (9)
                                                  --------  --------  --------
       Net cash provided by (used in) investing
        activities                                 (68,200)   10,606     2,873
                                                  --------  --------  --------
   Cash flows from financing activities:
    Proceeds from exercise of stock options and
     warrants                                       29,825    14,226     2,530
    Proceeds from issuance of warrants               3,848     3,528     3,900
                                                  --------  --------  --------
       Net cash provided by financing activities    33,673    17,754     6,430
                                                  --------  --------  --------
       Net increase (decrease) in cash and cash
        equivalents                                (56,699)   68,180      (755)
   Cash and cash equivalents at beginning of
    year                                            69,584     1,404     2,159
                                                  --------  --------  --------
   Cash and cash equivalents at end of year       $ 12,885  $ 69,584  $  1,404
                                                  ========  ========  ========
   Supplemental disclosure concerning cash flow
    information:
    Acquisition of property and equipment
     financed through accounts payable            $      -  $      -  $    171
    Receivable for issuance of warrants                401         -       181
    Cash paid during the year for income taxes         648         -         -
                                                  ========  ========  ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       7
<PAGE>

                               ICOS CORPORATION
                  Notes to Consolidated Financial Statements

                          December 31, 1999 and 1998
      (dollars in thousands, except per share data or as otherwise noted)

(1) Summary of Significant Accounting Policies

     (a)  Nature of Operations

          ICOS Corporation and subsidiary (the "Company") is discovering and
          developing new pharmaceutical candidates by seeking points of
          intervention in the inflammatory process that may lead to more
          specific and efficacious drugs. The Company's research and drug
          development programs involve both chronic and acute conditions.

     (b)  Principles of Consolidation

          The consolidated financial statements include the accounts of the
          Company and its wholly owned subsidiary, ICOS Development Corporation.
          All significant intercompany transactions and balances have been
          eliminated in consolidation.

     (c)  Use of Estimates in the Preparation of Financial Statements

          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.

     (d)  Financial Instruments

          The Company's financial instruments consist of cash and cash
          equivalents, short-term investments, accounts payable and a note
          receivable from a related party. The Company's cash and cash
          equivalents and short-term investments are diversified among security
          types and issuers, and approximate fair value. The Company's other
          financial instruments are short-term and/or have little or no risk and
          therefore are considered to have fair value equal to book value. The
          Company does not have derivative financial instruments in its
          investment portfolio.

     (e)  Cash and Cash Equivalents

          All highly liquid short-term investments purchased with a maturity of
          three months or less are considered to be cash equivalents.
          Investments in cash and cash equivalents consist primarily of
          investments in money market accounts and corporate debt securities.

     (f)  Investment Securities

          The Company's investment securities are classified as available-for-
          sale and carried at market value, based on quoted market prices, with
          unrealized gains and losses excluded from results of operations and
          reported as a component of total comprehensive income (loss) in the
          Consolidated Statements of Stockholders' Equity. Gross realized gains
          and losses on sales of investment securities are determined on the
          specific identification method and included in investment income.

     (g)  Property and Equipment

          Property and equipment are stated at cost. Significant additions and
          improvements to property and equipment are capitalized. Maintenance
          and repair costs are expensed as incurred. Depreciation of furniture
          and equipment is provided on the straight-line method over the
          assets' estimated useful lives of three to five years. The Company
          owns one building which is being depreciated over its estimated
          remaining economic life of ten years. Leasehold improvements are
          amortized over the shorter of their useful lives or the term of the
          lease. Building improvements are amortized over the shorter of their
          useful lives or the remaining economic life of the building.

     (h)  Investments in Affiliates

          Investments in ICOS Clinical Partners, L.P. ("the Partnership"),
          Suncos Corporation ("Suncos") and Lilly ICOS LLC ("Lilly ICOS") are
          accounted for using the equity method. Accordingly, the investments
          are recorded at cost, adjusted for the Company's share of income or
          losses of the entities.

                                       8
<PAGE>

     (i)  Revenue Recognition

          All of the Company's revenue to date has been derived from technology
          license fees, milestone payments, cost reimbursement revenue from
          related parties and services to third parties for performing research
          and development on their behalf. Technology license fees have been for
          the transfer of technology rights for which the Company received
          nonrefundable cash payments and has not been subject to continuing
          performance obligations. Milestone payments have been for the
          achievement of specified levels of progress related to research and
          development under collaborative agreements such as the initiation of a
          Phase 3 clinical trial.

          Cost reimbursement revenue is recognized based on costs incurred as
          services are provided. Revenue for services to third parties is
          recognized when the services are provided. Milestone payments are
          recognized as revenue upon attainment of a specified event or outcome.
          Nonrefundable payments for technology or other licensing fees are
          recognized as revenue when payment is received and the Company has no
          continuing performance obligations.

          For all revenue reported, the revenue is recognized when the work has
          been performed, the Company has no continuing performance obligations,
          and the contracting party is obligated to pay the Company. If any of
          these conditions are not present, revenue is deferred until the
          underlying services are performed based on the criteria set forth
          above. No revenue is refundable if the related research effort is
          unsuccessful.

     (j)  Research and Development Costs

          Research and development costs are charged to expense as incurred.

     (k)  Income Taxes

          Income taxes are accounted for using the asset and liability method
          whereby deferred tax assets and liabilities are recognized for the
          future tax consequences attributed to differences between the
          financial statement carrying amounts of existing assets and
          liabilities and their respective tax bases and loss carryforwards and
          tax credits. Deferred tax assets and liabilities are measured using
          enacted tax rates expected to apply to taxable income in the years in
          which those temporary differences are expected to be recovered or
          settled. The effect on deferred tax assets and liabilities of a change
          in tax rates is recognized in income in the period that includes the
          enactment date. A valuation allowance is established when necessary to
          reduce deferred tax assets to the amounts expected to be realized.

     (l)  Net Income (Loss) Per Common Share

          Basic net income (loss) per common share is based on the weighted-
          average number of common shares outstanding during the period. Diluted
          net income (loss) per common share is based on the potential dilution
          that would occur on exercise or conversion of securities into common
          stock using the treasury stock method. Common shares that are
          considered to be antidilutive are excluded from the computation of
          diluted net income (loss) per common share. Securities included in the
          Company's calculation of diluted net income (loss) per common share
          include outstanding stock options, stock warrants and contingently
          issuable stock warrants.

     (m)  Stock Based Compensation

          The Company applies the provisions of Accounting Principles Board
          ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
          related interpretations in accounting for its employee stock option
          grants. Accordingly, the Company does not recognize compensation
          expense for fixed options granted to employees with an exercise price
          equal to or in excess of the fair value of common shares at the date
          of grant. The Company has provided pro forma net income (loss) and pro
          forma net income (loss) per share disclosures as if compensation cost
          had been determined based on the method defined in Statement of
          Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock
          Based Compensation.

     (n)  Operating Segments

          The Company's operations are confined to one operating segment, the
          discovery and development of proprietary pharmaceuticals for the
          treatment of inflammatory diseases and other serious medical
          conditions.

     (o)  New Accounting Bulletin

          The United States Securities and Exchange Commission recently issued
          Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
          Financial Statements, which the Company intends to adopt in its first
          fiscal quarter in 2000. The interpretation of SAB No. 101 is currently
          uncertain as it relates to biotechnology companies and consequently,
          the impact on the Company's financial statements is unknown. The
          Company is in the process of determining the potential impact on its
          financial statements.

     (p)  Reclassifications

          Certain amounts reported in previous years have been reclassified to
          conform to the 1999 presentation.

(2) Financing

    The Company anticipates that its existing cash, along with interest income
    from cash investments, anticipated payments from Suncos, Lilly ICOS and the
    Partnership, and cash flow from other operating activities, will be
    sufficient to fund its cash requirements through 2000. However, the amounts
    and timing of expenditures will depend on the progress of ongoing research
    and development, the rate at which operating losses are incurred, the
    execution of development and

                                       9
<PAGE>

  licensing agreements with potential corporate partners, the Company's
  development of products, the Food and Drug Administration regulatory
  process, and other factors, many of which are beyond the Company's control.
  The Company's existing capital resources and collaborative arrangements
  will not be sufficient to fund the Company's operations through
  commercialization of its first product. Accordingly, the Company will need
  to raise substantial additional funds for its programs. The Company is
  currently evaluating several financing alternatives, some of which may
  involve the sale of additional equity, commencement of additional corporate
  partnerships and other methods of raising capital from public, private, and
  corporate sources. The Company anticipates completion of one or more of
  these financing events during 2000.

(3) Investment Securities

  The following table summarizes the Company's investment securities at
  December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                             Gross      Gross
                                           unrealized unrealized
                              Market value   gains      losses   Amortized cost
                              ------------ ---------- ---------- --------------
   <S>                        <C>          <C>        <C>        <C>
   December 31, 1999:
   Corporate debt securities    $47,929       $11        $145       $48,063
   U.S. government agency
    mortgage-backed
    securities                    7,420         -          82         7,502
                                -------       ---        ----       -------
     Total                      $55,349       $11        $227       $55,565
                                =======       ===        ====       =======

   December 31, 1998:
   Corporate debt securities    $ 8,090       $ -        $  3       $ 8,093
                                =======       ===        ====       =======
</TABLE>

  Amortized cost and estimated market value of debt securities at December
  31, 1999, by contractual maturity, are shown below:

<TABLE>
<CAPTION>
                         Market value Amortized cost
                         ------------ --------------
       <S>               <C>          <C>
       Maturing within:
       ---------------
       1 year              $44,786       $44,874
       2 years             $10,563       $10,691
</TABLE>

  Actual maturities may be different from the contractual maturities because
  borrowers may have the right to call or prepay obligations with or without
  call or prepayment penalties.

  Investment income includes interest of $4.3 million, $2.3 million and $2.2
  million earned on investments for 1999, 1998 and 1997, respectively, and
  capital gains (losses) of $(14), $28 and $4 for 1999, 1998 and 1997,
  respectively.

(4)  Receivables from Related Parties Under Collaborative Arrangements

<TABLE>
<CAPTION>
                               December 31,
                               -------------

                                1999   1998
     <S>                       <C>    <C>
                               -------------
     Due from Suncos           $1,894 $3,522
     Due from the Partnership   2,215      -
     Due from Lilly ICOS        5,649  3,795
     Other                         22    207
                               ------ ------
                               $9,780 $7,524
                               ====== ======
</TABLE>

                                      10
<PAGE>

(5) Net Property and Equipment, at Cost

<TABLE>
<CAPTION>
                                                      December 31,
                                                     ----------------

                                                      1999     1998
     <S>                                             <C>      <C>
                                                     ----------------
     Land                                            $ 2,310  $ 2,310
     Buildings and improvements                       10,057    9,461
     Leasehold improvements                            9,820    9,805
     Furniture and equipment                          23,641   18,865
                                                     -------  -------
                                                      45,828   40,441
     Less accumulated depreciation and amortization  (24,889) (21,135)
                                                     -------  -------
                                                      20,939   19,306
     Construction in progress                            103      270
                                                     -------  -------
                                                     $21,042  $19,576
                                                     =======  =======
</TABLE>

(6) Accrued Payroll and Benefits

<TABLE>
<CAPTION>
                                              December 31,
                                              -------------

                                               1999   1998
     <S>                                      <C>    <C>
                                              -------------
     Accrued vacation and other compensation  $1,214 $  901
     Accrued payroll taxes                     2,014     16
     Other                                       337     88
                                              ------ ------
                                              $3,565 $1,005
                                              ====== ======
</TABLE>

(7) Leases

  The Company leases certain property and equipment under noncancellable
  operating leases that expire through 2004. Many of the Company's leases
  contain renewal options and clauses for escalations of rent and payment of
  real estate taxes, maintenance, insurance and certain other operating
  expenses of the properties.

  Total rent expense was $3.4 million, $1.6 million and $1.6 million for
  1999, 1998 and 1997, respectively.

  Future minimum lease payments under noncancellable operating leases,
  excluding provision for annual increases tied to the consumer price index,
  are as follows:

<TABLE>
             <S>                           <C>
             2000                          $ 3,095
             2001                            3,154
             2002                            2,822
             2003                            2,265
             2004                              189
                                           -------
             Total minimum lease payments  $11,525
                                           =======
</TABLE>

  During 1999, the Company began subleasing certain property to others under
  short-term operating leases expiring in 2001 and 2002, with options to
  extend the leases through 2003 and 2004. Total rent expense presented above
  has not been reduced by sublease income totaling $682 in 1999. Similarly,
  minimum lease payments indicated above do not reflect minimum rentals of
  $1,348 due in the future under noncancellable subleases.

                                      11
<PAGE>

(8) Federal Income Taxes

  Income tax expense (benefit) on income (loss) before income taxes differs
  from the amount of income tax expense (benefit) as computed by applying the
  U.S. federal income tax rate to pre-tax income (loss) as a result of the
  following:

<TABLE>
<CAPTION>
                                                      1999     1998     1997
                                                      ----     ----     ----
     <S>                                          <C>       <C>      <C>
     Estimated federal income tax expense
      (benefit)                                   $(11,286) $10,866  $(4,085)
     Value of warrants issued to the Partnership     1,445    1,139    1,345
     Research and experimentation tax credit
      carryforwards                                   (843)  (1,271)    (710)
     Change in valuation allowance excluding
      intraperiod items                             10,646  (10,182)   3,297
     Other                                              38       96      153
                                                  --------  -------  -------
                                                  $      -  $   648  $     -
                                                  ========  =======  =======
</TABLE>

  Temporary differences and carryforwards which give rise to deferred tax
  assets are comprised of the following:

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------

                                                              1999      1998
     <S>                                                    <C>       <C>
                                                            ------------------
     Depreciation                                           $  4,272  $  3,488
     Net operating loss carryforwards                         42,262    26,888
     Research and experimentation tax credit carryforwards     6,364     5,194
     Alternative minimum tax credit carryforward                 612       648
     Other                                                       185     1,142
                                                            --------  --------
     Gross deferred tax assets                                53,695    37,360
     Valuation allowance                                     (52,589)  (37,360)
                                                            --------  --------
     Net deferred tax assets                                   1,106         -
     Deferred tax liability - Investment in Lilly ICOS        (1,106)        -
                                                            --------  --------
                                                            $      -  $      -
                                                            ========  ========
</TABLE>

  The (decrease) and increases in the valuation allowance for deferred tax
  assets of $15.2 million, $(9.2) million and $4.2 million, in 1999, 1998 and
  1997, respectively, are attributable primarily to the ability or inability
  to utilize net operating loss carryforwards.

  At December 31, 1999, the Company has net operating loss carryforwards
  available to offset future taxable income as follows:

<TABLE>
<CAPTION>
            Year of
           Expiration
           ----------

           <S>          <C>
              2009      $  5,060
              2010        21,507
              2011        21,039
              2012        26,774
              2013         7,688
              2018           359
              2019        41,873
                        --------
                        $124,300
                        ========
</TABLE>

  Approximately $21.7 million of the net operating loss carryforwards as of
  December 31, 1999, results from stock option deductions, the realization of
  which would result in a credit to stockholders' equity. At December 31,
  1999, the Company also had available approximately $6.4 million of research
  and experimentation tax credit carryforwards to offset future tax
  liabilities. These credits expire from 2009 to 2019.

  Under provisions of the Internal Revenue Code of 1986, as amended,
  utilization of the Company's net operating loss carryforwards may be
  subject to limitation if it should be determined that a greater than 50%
  ownership change were to occur in the future.

                                      12
<PAGE>

(9)  Preferred Stock

     The Company has the authority to issue up to 2.0 million shares of
     preferred stock in one or more series. The Company's Board of Directors has
     the authority to fix the powers, designations, preferences, and relative
     participating, optional, or other rights thereof, including dividend
     rights, conversion rights, voting rights, redemption terms, liquidation
     preferences, and the number of shares constituting any series, without any
     further vote or action by the Company's stockholders. The issuance of
     preferred stock in certain circumstances may have the effect of delaying or
     preventing a change in control of the Company. Such issuance with voting
     and conversion rights may adversely affect the voting power of the common
     stock holders. The Company has no shares of preferred stock outstanding. In
     the future, the Company may issue preferred stock as part of its overall
     financing strategy.

(10) Common Stock Transactions

  (a) Stock Option Plan

      Effective May 6, 1999 (the "Effective Date"), the Company adopted the 1999
      Stock Option Plan (the "Plan"), under which 5.0 million shares of common
      stock have been reserved for grant to various executive, scientific, and
      administrative personnel of the Company as well as nonemployee directors.
      The Plan replaces the Company's 1989 Stock Option Plan and its 1991 Stock
      Option Plan for Nonemployee Directors (the "Prior Plans"). Any options
      that are authorized but not issued or outstanding on the Effective Date
      under the Prior Plans, and any options that are outstanding on the
      Effective Date under the Prior Plans that are later cancelled or
      forfeited, will no longer be available for issuance under the Prior Plans.
      However, such options will become available for issuance under the Plan up
      to an aggregate of 7,412,048 additional shares.

      All incentive stock options are granted with an exercise price not less
      than 100% of the fair market value of the common stock on the grant date.
      Nonqualified stock options are generally granted with an exercise price
      equal to 100% of the fair market value of the common stock on the grant
      date; however, in no case are they granted with an exercise price of less
      than 85% of the fair market value of the common stock on the grant date.
      The options generally vest over a four-year period commencing on the grant
      date and have a term of ten years from the grant date.

      For nonemployee directors, the Plan provides for an initial grant and
      automatic annual grants thereafter to each nonemployee director of a
      number of nonqualified stock options determined by dividing $170,000 by
      the market price of the common stock on the grant date. The exercise
      price of the options will be the closing market price of the common stock
      on the grant date. Initial options granted to nonemployee directors under
      the Plan become exercisable 50% after the director has served for one
      year from the date of initial election to the Board and 100% after two
      years. Automatic annual grants are fully vested on the grant date. The
      options have a term of ten years but cannot be exercised later than two
      years after termination of service as a director.

A summary of stock options under the Plan is presented below (shares stated in
thousands). Plan activities prior to the Effective Date include the activities
of Prior Plans.

<TABLE>
<CAPTION>
                                        Stock options
                                         outstanding
                                   ------------------------
                                               Weighted-
                                                average
                                   Number of exercise price
                                    shares     per share
                                   --------- --------------
     <S>                           <C>       <C>
     Balance at December 31, 1996    4,689       $ 6.63
     Options granted                 1,331         9.06
     Cancellations                    (156)        8.23
     Options exercised                (418)        5.78
                                     -----       ------
     Balance at December 31, 1997    5,446         7.25
     Options granted                 1,377        17.19
     Cancellations                     (81)       12.77
     Options exercised                (292)        6.58
                                     -----       ------
     Balance at December 31, 1998    6,450         9.33
     Options granted                 2,514        37.60
     Cancellations                     (90)       19.50
     Options exercised                (861)        8.07
                                     -----       ------
     Balance at December 31, 1999    8,013       $18.22
                                     =====       ======
</TABLE>

                                      13
<PAGE>

At December 31, 1999, 3.5 million shares remained reserved and available for
grant under the Plan.

The following table summarizes information about stock options outstanding
under the Plan at December 31, 1999 (shares stated in thousands):

<TABLE>
<CAPTION>
                                  Options outstanding                   Options exercisable
                                  -------------------                --------------------------
                                   Weighted-average     Weighted-                  Weighted-
        Range of                       remaining         average                    average
        exercise        Number      contractual life  exercise price   Number    exercise price
         prices       outstanding      (in years)       per share    exercisable   per share
        --------      ----------- ------------------- -------------- ----------- --------------
     <S>              <C>         <C>                 <C>            <C>         <C>
     $ 3.00 - $ 5.00       843           4.68             $ 4.27          843        $ 4.27
       5.13 -   6.00       821           3.92               5.82          821          5.82
       6.13 -   8.25     1,542           5.60               7.56        1,410          7.54
       8.38 -  13.94     1,075           6.22              10.14          800         10.09
      14.25 -  19.00     1,123           7.81              16.83          594         16.61
      19.25 -  40.75     1,116           9.15              28.78          316         28.77
      42.88 -  44.50     1,493           9.46              42.88          149         42.88
    -------------------------------------------------------------------------------------------

     $ 3.00 - $44.50     8,013           6.94             $18.22        4,933        $10.62
</TABLE>

    The Company applies APB Opinion No. 25 in accounting for its plans
    resulting in no compensation cost being recognized related to its stock
    options. Had the Company determined compensation cost based on the fair
    value at the grant date for its stock options under SFAS No. 123, the
    Company's net income (loss) would have been adjusted to the pro forma
    amounts indicated below:

<TABLE>
<CAPTION>
                                              1999     1998     1997
                                            --------  ------- --------
     <S>                                    <C>       <C>     <C>
     Net income (loss)
       As reported                          $(33,195) $31,310 $(12,015)
       Pro forma                             (47,705)  24,735  (15,305)
     Net income (loss) per share - basic
       As reported                          $  (0.76) $  0.78 $  (0.30)
       Pro forma                               (1.10)    0.62    (0.39)
     Net income (loss) per share - diluted
       As reported                          $  (0.76) $  0.67 $  (0.30)
       Pro forma                               (1.10)    0.53    (0.39)
</TABLE>

    The per share weighted-average fair value of stock options granted
    during 1999, 1998 and 1997, was $22.29, $10.23 and $4.52, respectively,
    on the grant date using the Black-Scholes option pricing model with the
    following weighted-average assumptions:

<TABLE>
<CAPTION>
                              1999  1998  1997
                              ----  ----  ----
     <S>                      <C>   <C>   <C>
     Expected dividend yield   0.0%  0.0%  0.0%
     Risk-free interest rate   5.8%  5.4%  6.3%
     Expected volatility      66.0% 70.5% 42.0%
     Expected life in years    6.5   4.4   6.0
</TABLE>

  (b) Other Stock Options

      Outside of the Plan, the Company granted stock options to one investor
      in June 1990 to purchase 50,000 shares of common stock at $3.00 per
      share. During 1997, all of these options were exercised.

  (c) Warrants Outstanding

      In connection with the Partnership's sale of limited partnership units,
      the Company issued, on June 5, 1997, and August 15, 1997, Series A
      warrants to purchase an aggregate of 5.6 million and 2.0 million shares,
      respectively, of the Company's common stock at exercise prices of $9.13
      and $10.35 per share, respectively. The Series A warrants are exercisable
      from October 1, 1998 through May 31, 2002. The Company also issued, on
      June 30, 1999, Series B warrants to purchase an aggregate of 7.6 million
      shares of the Company's common stock at an exercise price of $52.49 per
      share. The Series B warrants are exercisable from July 31, 1999 through
      June 30, 2004.

      The warrants were issued in conjunction with a research and development
      agreement between the Company and the Partnership. Accordingly, under
      generally accepted accounting principles, amounts to be received from the
      Partnership are allocated between the estimated fair value of the warrants
      and the research and development funding to be received. The amount
      attributable to the value of the warrants is recorded as additional paid-
      in capital as payments are received with the remainder recorded as
      collaborative research and development revenue from related parties.

      The warrants were valued using the Black-Scholes option pricing model,
      with the following assumptions:

      .  Expected dividend yield:   0.0%

      .  Risk-free interest rate:   6.095% to 6.470%

      .  Expected volatility:       45%

      .  Expected life in years:    4.8 to 7.1 years

      The resulting valuation under Black-Scholes was discounted by 50% to 60%
      to take into account severe restrictions on the marketability of the
      warrants, including the lack of an existing market for the warrants,
      nontransferability of the warrants without the Company's written consent,
      and certain limitations on the aggregate number of warrants that can be
      transferred in a single year.

      During 1999, warrants to purchase 2.4 million shares were exercised at a
      weighted-average exercise price of $9.51 per share. At December 31, 1999,
      warrants to purchase 11.4 million shares were outstanding at a weighted-
      average

                                      14
<PAGE>

    exercise price of $38.00 per share. During 1998, warrants to purchase
    1.3 million shares were exercised at a weighted-average exercise price
    of $9.41 per share. At December 31, 1998, warrants to purchase 6.2
    million shares were outstanding at a weighted-average exercise price of
    $9.46 per share.

(11) Net Income (Loss) per Common Share

<TABLE>
<CAPTION>
                                                    For the year ended
                                                       December 31,
                                                 --------------------------

                                                   1999     1998     1997
     <S>                                         <C>       <C>     <C>
                                                 --------------------------
     Basic net income (loss) per share
      computations:
     Numerator:
       Net income (loss)                         $(33,195) $31,310 $(12,015)
     Denominator:
       Weighted-average common shares              43,449   40,139   39,595
                                                 --------  ------- --------
       Basic net income (loss) per share         $  (0.76) $  0.78 $  (0.30)
                                                 ========  ======= ========
     Diluted net income (loss) per share
      computations:
     Numerator:
       Net income (loss)                         $(33,195) $31,310 $(12,015)
     Denominator:
       Weighted-average common shares              43,449   40,139   39,595
       Effect of dilutive securities:
         Stock options                                 -     3,285       -
         Stock warrants                                -     3,425       -
                                                 --------  ------- --------
     Denominator for dilutive net income (loss)
      per share                                    43,449   46,849   39,595
                                                 --------  ------- --------
     Diluted net income (loss) per share         $  (0.76) $  0.67 $  (0.30)
                                                 ========  ======= ========
</TABLE>

  For the year ended December 31, 1999, options to purchase 8.0 million
  shares of common stock and stock warrants to acquire 11.4 million shares of
  common stock have been excluded from the computation of diluted net loss
  per common share as their impact would be antidilutive.

  For the year ended December 31, 1998, options to acquire 40,000 shares of
  common stock with a weighted-average exercise price of $21.72 per share and
  contingently issuable stock warrants to acquire 7.6 million shares of
  common stock have been excluded from the computation of diluted net income
  per common share as their exercise prices were greater than the average
  market price of common shares and their impact would be antidilutive.

  For the year ended December 31, 1997, options to purchase 5.4 million
  shares of common stock, warrants to acquire 7.6 million shares of common
  stock and contingently issuable stock warrants to acquire 7.6 million
  shares of common stock have been excluded from the computation of diluted
  net loss per common share as their impact would be antidilutive.

(12) Related Party Transactions

  In June 1996, the Company entered into an agreement with Charybdis
  Corporation, a start-up biotechnology company now known as Ceptyr, Inc.
  ("Ceptyr"). Under the agreement, the Company licensed and released to
  Ceptyr certain technology that the Company had independently determined
  would not be part of the Company's development programs, agreed to provide
  incubation services to Ceptyr, including laboratory space and certain
  small-molecule screening services and know-how, and received stock of
  Ceptyr. This agreement was extended and expanded in March 1997 to provide
  the Company with an option to acquire rights to certain technologies
  developed by Ceptyr or to convert the value of the Company's services
  provided to Ceptyr into additional stock of Ceptyr. In December 1998, the
  Company exercised the option to become a co-owner of the two compounds
  being developed by Ceptyr.

  In 1999, the Company and Ceptyr entered into a new services agreement (in
  addition to the agreement outlined above) in which the Company agreed to
  provide certain administrative, research and support services to Ceptyr
  associated with Ceptyr conducting its business and a sublease for certain
  portions of ICOS properties. The Company recognized income

                                      15
<PAGE>

  of approximately $278 under the agreements in 1999. At December 31, 1999
  and 1998, the Company had a receivable from Ceptyr for expenses incurred
  but not yet paid of $22 and $207, respectively.

  For a cash investment in June 1996, Ceptyr issued stock to Falcon
  Technology Partners II, L.P., a venture capital limited partnership, all of
  whose interests (general partner and limited partner interests) are
  directly or indirectly held by the five adult children of the Company's
  former Chairman, Dr. George B. Rathmann. The Company does not have a
  controlling interest in Ceptyr. However, in accordance with the rights of
  the Company to designate a director to the Ceptyr board of directors, Dr.
  Wilcox, the Company's Executive Vice President, Operations, became a
  director of Ceptyr.

  During 1999, the Company chartered an airplane from AMI Jet Charter, Inc.
  d.b.a. TAG Aviation ("TAG") and recognized approximately $282 in expenses
  for services rendered. The aircraft subject to the charter arrangement was
  under the control of Peregrine Aviation, LLC ("Peregrine"), a company
  wholly owned by George B. Rathmann, who concurrently served as the
  Company's Chairman of the Board of Directors. Peregrine subleased the plane
  to TAG, who used it as part of its charter fleet. Management believes that
  the rates charged by TAG were below the standard rates for commercial
  charter services.

(13) Scientific Collaboration Agreements

  Abbott Laboratories

  In April 1995, the Company entered into a collaborative agreement with
  Abbott Laboratories ("Abbott"), a worldwide manufacturer of health care
  products. The collaboration focused on the development of small molecules
  that modulate, by an intracellular interaction, the activity of certain
  cell adhesion molecules. The research program under which ICOS received
  research funding from Abbott ended April 1, 1999. Under the terms of the
  agreement, each company will have exclusive rights to drugs against
  specific molecular targets with royalties and milestone obligations to the
  other party. Each party will be responsible for the development,
  registration and commercialization of its own products. In addition, the
  collaboration provided the Company with a library of chemical compounds for
  use in its own discovery programs.

  Suncos

  In February 1997, the Company and Suntory Limited of Japan ("Suntory")
  formed Suncos, a corporate joint venture company, for the purpose of
  developing and commercializing Pafase(TM). In forming Suncos, the Company
  granted a license for the Pafase(TM) technology to Suncos, and Suntory made
  an initial capital contribution of $30.0 million. Both parties committed to
  jointly fund all development activities and expenses of Suncos once the
  initial capital contribution of $30.0 million from Suntory was used. Suncos
  is managed jointly by Suntory and the Company. The Company has rights to
  market Pafase(TM) in the United States and Suntory has market rights in
  Japan. Each company will pay royalties to Suncos for its territorial
  marketing rights. Suncos will retain all rights to market the potential
  product in territories outside the United States and Japan.

  The Company recognized research and development revenue of $25.1 million,
  $14.9 million and $11.2 million from Suncos in 1999, 1998 and 1997,
  respectively, of which $1.9 million, $3.5 million, and $1.2 million was
  receivable at December 31, 1999, 1998 and 1997, respectively.

  The technology contributed to Suncos by the Company had a zero basis for
  financial reporting purposes and, accordingly, the Company recorded its
  initial investment in Suncos as zero. The Company did not begin to report
  its share of Suncos' losses until such time that Suncos' accumulated losses
  were equal to Suntory's investment and the Company made capital
  contributions to Suncos. During 1999, the Company and Suntory each made
  equity investments in Suncos of $15.0 million. Accordingly, the Company
  recognized $11.8 million of expense in 1999, equal to its share of Suncos'
  net loss subsequent to the Company's initial 1999 equity investment.

                                      16
<PAGE>

  Summarized unaudited financial information for Suncos is as follows:

<TABLE>
<CAPTION>
   Financial position -- December 31,               1999      1998
   ----------------------------------               ----      ----
   <S>                                          <C>       <C>       <C>
   Total assets - all current                   $  8,364  $  5,828
                                                ========  ========

   Total liabilities - all current, payable to
    related parties                             $  1,930  $  3,781
   Stockholders' equity                            6,434     2,047
                                                --------  --------
                                                $  8,364  $  5,828
                                                ========  ========

<CAPTION>
   Operating results -- For the year ended
   December 31,                                     1999      1998      1997
   ---------------------------------------          ----      ----      ----
   <S>                                          <C>       <C>       <C>
   Operating expenses, related parties          $(26,044) $(16,594) $(13,290)
   Interest income                                   430       699     1,233
                                                --------  --------  --------
   Net loss                                     $(25,614) $(15,895) $(12,057)
                                                ========  ========  ========
</TABLE>

  ICOS Clinical Partners, L.P.

  On August 15, 1997, the Partnership completed the sale to private investors
  of limited partnership interests in the Partnership. Net proceeds from the
  sale are being used by the Partnership to fund continued development of
  product candidates by the Company pursuant to the terms of the Product
  Development Agreement based on three compounds: LeukArrest(TM), Pafase(TM)
  and ICM3.

  The sale will result in net proceeds to the Partnership of approximately
  $79.8 million. Approximately $25.9 million, before payment of offering
  costs, was paid to the Partnership at closing of the sale of the
  Partnership units. The Partnership received $21.9 million in both 1998 and
  1999 with the balance of approximately $10.1 million to be received on May
  31, 2000.

  The Company recognized revenue of $19.1 million and $15.1 million from the
  Partnership in 1999 and 1998, respectively. In 1997, the Company recognized
  revenue of $18.4 million from the Partnership, including a one-time payment
  for an exclusive license to certain technology. At December 31, 1999, the
  Company had a receivable from the Partnership for development expenses
  incurred but not paid of $2.2 million.

  The Company loaned the Partnership an aggregate of $7.3 million to fund
  certain initial expenditures of the Partnership that consisted primarily of
  organizational expenses, selling commissions, financial advisory fees and
  other fees. The loan is full recourse to the Partnership, bears interest at
  the prime rate plus 0.25% which is paid annually on June 1 and matures on
  June 1, 2000. At December 31, 1999, 1998 and 1997, interest income on the
  loan was $0.6 million, $0.6 million and $0.3 million, respectively.
  Interest accrued on the loan at December 31, 1999 and 1998 was $0.4
  million.

  The Company has a 1% interest in the Partnership and is the only general
  partner of the Partnership. The Company accounts for its interest in the
  Partnership using the equity method since it exercises significant influence
  over, but does not control, the Partnership. Under the terms of the
  partnership agreement, the limited partners have the ability to replace the
  Company as the general partner, to approve the sale or refinancing of all of
  the assets of the Partnership and to terminate the Partnership.

  The Company's share of losses of the Partnership was $0.2 million for each
  of the years ended December 31, 1999, 1998 and 1997 and is included in
  equity in losses of affiliates. The investment balance of $43 and $64 at
  December 31, 1999 and 1998, respectively, is included in investment in
  affiliates, at equity.

  Summarized unaudited financial information for the Partnership is as
  follows:

<TABLE>
<CAPTION>
   Financial position -- December 31,              1999      1998
   ----------------------------------              ----      ----
   <S>                                         <C>       <C>       <C>
   Total assets - all current                  $  6,574  $  6,350
                                               ========  ========

   Current liabilities payable to ICOS
    Corporation                                $  9,915  $    364
   Note payable to ICOS Corporation                   -     7,341
   Partners' deficit                             (3,341)   (1,355)
                                               --------  --------
                                               $  6,574  $  6,350
                                               ========  ========

<CAPTION>
   Operating results -- For the year ended
   December 31,                                    1999      1998      1997
   ---------------------------------------         ----      ----      ----
   <S>                                         <C>       <C>       <C>
   Investment income                           $    324  $    328  $    291
   Research and development expenses, related
    party                                       (23,292)  (18,520)  (22,448)
   Interest expense, related party                 (604)     (624)     (345)
   General and administrative expenses             (283)     (309)      (71)
                                               --------  --------  --------
   Net loss                                    $(23,855) $(19,125) $(22,573)
                                               ========  ========  ========
</TABLE>

                                      17
<PAGE>

  Lilly ICOS LLC

  In October 1998, the Company and Eli Lilly and Company ("Lilly") formed
  Lilly ICOS, a 50/50 owned limited liability company, to jointly develop and
  globally commercialize phosphodiesterase type 5 inhibitors (PDE5) as oral
  therapeutic agents for the treatment of both male and female sexual
  dysfunction. Under the terms of the joint venture agreement, the Company
  received a license fee payment of $75.0 million upon formation of the joint
  venture and could receive future license fees based on the progression of
  IC351 through development. The joint venture is being capitalized by Lilly
  through cash infusions and the contribution by the Company of intellectual
  property associated with IC351 and its research platform. The joint venture
  will market products resulting from this collaborative effort in North
  America and Europe. For countries outside North America and Europe,
  products will be licensed exclusively to Lilly for commercialization with a
  royalty paid to the joint venture.

  In 1999, the Company recognized revenue of $34.9 million from Lilly ICOS
  including $15.0 million in licensing fees as a result of the initiation of
  a global Phase 3 clinical trial. In 1998, the Company recognized revenue of
  $78.8 million from Lilly ICOS including a license fee of $75.0 million. At
  December 31, 1999 and 1998, the Company had a receivable from Lilly ICOS of
  $5.6 million and $3.8 million, respectively, for reimbursement of certain
  development expenses.

  The technology contributed to Lilly ICOS by the Company had a zero basis
  for financial reporting purposes and, accordingly, the Company has recorded
  its investment in Lilly ICOS as zero at the date of contribution through
  December 31, 1999. The Company will not report its share of Lilly ICOS'
  results of operations until such time that the Company makes capital
  contributions to Lilly ICOS, if ever.

  Summarized unaudited financial information for Lilly ICOS is as follows:

<TABLE>
<CAPTION>
   Financial position -- December 31,                        1999       1998
   ----------------------------------                        ----       ----
   <S>                                                  <C>        <C>
   Total assets - all current                           $  18,226  $  25,317
                                                        =========  =========

   Total liabilities - all current, payable to related
    parties                                             $  17,992  $   6,822
   Members' equity                                            234     18,495
                                                        ---------  ---------
                                                        $  18,226  $  25,317
                                                        =========  =========

<CAPTION>
   Operating results -- For the year ended December
   31,                                                       1999       1998
   ------------------------------------------------          ----       ----
   <S>                                                  <C>        <C>
   Research and development expenses, related parties   $ (59,073) $  (6,538)
   Contribution of technology, related party              (70,000)  (175,000)
   Administrative expense                                    (104)      (284)
   Interest income                                            926        318
                                                        ---------  ---------
     Net loss                                           $(128,251) $(181,504)
                                                        =========  =========
</TABLE>

  Other Collaborative Arrangements

  The Company has also entered into other collaborative arrangements under
  which the Company may be obligated to pay royalties or milestone payments
  if product development is successful. It is not anticipated that the
  aggregate of any royalty or milestone obligations under these arrangements
  will be material to the Company's operations.

                                      18
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Bothell,
State of Washington, on the 6th day of December, 2000.

                                      ICOS CORPORATION
                                      (Registrant)

                                         /s/ PAUL N. CLARK
                                      By: _____________________________________
                                         Paul N. Clark
                                         Chairman of the Board of Directors,
                                         Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
        /s/ PAUL N. CLARK              Chairman of the Board of    December 6, 2000
______________________________________ Directors, Chief Executive
            Paul N. Clark              Officer and President
                                       (Principal Executive
                                       Officer)

        /s/ GARY L. WILCOX             Director and Executive      December 6, 2000
______________________________________ Vice President, Operations
            Gary L. Wilcox

        * THOMAS N. SWALLOW            Corporate Controller        December 6, 2000
______________________________________ (Principal Accounting
          Thomas N. Swallow            Officer)

          * FRANK T. CARY              Director                    December 6, 2000
______________________________________
            Frank T. Cary

         * ROBERT W. PANGIA            Director                    December 6, 2000
______________________________________
           Robert W. Pangia

     * ALEXANDER B. TROWBRIDGE         Director                    December 6, 2000
______________________________________
       Alexander B. Trowbridge

        * WALTER B. WRISTON            Director                    December 6, 2000
______________________________________
          Walter B. Wriston

* By:    /s/ GARY L. WILCOX                                        December 6, 2000
      ________________________________
             Gary L. Wilcox
            Attorney-in-Fact
</TABLE>

                                      19