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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|   |  |                                                                                           
|-- |  | ------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the fiscal year ended December 31,
	2001                                              
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934
|   |  | For the transition period
	from                to                .                        

Commission file number 0-19222

Genelabs Technologies, Inc.

(Exact Name of Registrant as Specified in Its
Charter)


|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|California                                                      |  | 94-3010150                           
|(State or Other Jurisdiction of
	Incorporation or Organization) |  | (IRS Employer
	Identification Number)

505 Penobscot Drive

Redwood City, California 94063


(Address of Principal Executive Offices,
Including Zip Code)


(650) 369-9500

(Registrants Telephone Number, Including
Area Code)


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock


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
þ          No
o

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.     þ

|                                                                                      |  |                      |            | 
|------------------------------------------------------------------------------------- |  | -------------------- | ---------- | 
|                                                                                      |  | As of March 21, 2002
|                                                                                      |  |                     
|Aggregate market value of the voting stock held
	by non-affiliates of the Registrant: |  | $                    | 82,080,000 | 
|Number of shares of Common Stock outstanding:                                         |  |                      | 49,847,934 | 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants definitive
Proxy Statement for its 2002 Annual Meeting of Shareholders are
incorporated by reference into Part III (Items 10, 11, 12
and 13) hereof.



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TABLE OF CONTENTS



|                           |                                                                                                |                                                   |  |  |  |  |  | 
|-------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------- |  |  |  |  |  | 
|FORWARD-LOOKING STATEMENTS
|PART I                    
|                           | Item 1. Business.                                                                             
|                           | Item 2. Properties.                                                                           
|                           | Item 3. Legal Proceedings.                                                                    
|                           | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|                           | Item 4A. Executive Officers of the Registrant.                                                
|PART II                   
|                           | Item 5. Market for Registrants Common Equity and Related Shareholder Matters.                
|                           | Item 6. Selected Financial Data.                                                              
|                           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                           | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                           
|                           | Item 8. Consolidated Financial Statements and Supplementary Data.                             
|                           | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 
|PART III                  
|                           | Item 10. Directors and Executive Officers of Registrant.                                      
|                           | Item 11. Executive Compensation.                                                              
|                           | Item 12. Security Ownership of Certain Beneficial Owners and Management.                      
|                           | Item 13. Certain Relationships and Related Transactions.                                      
|PART IV                   
|                           | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                    
|SIGNATURES                
|                           |                                                                                                | REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
|                           |                                                                                                | CONSOLIDATED BALANCE SHEETS                      
|                           |                                                                                                | CONSOLIDATED STATEMENTS OF OPERATIONS            
|                           |                                                                                                | CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY   
|                           |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS            
|                           |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       
|EXHIBIT INDEX             
|EXHIBIT 10.07             
|EXHIBIT 10.08             
|EXHIBIT 10.17             
|EXHIBIT 10.18             
|EXHIBIT 23.01             



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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains or
incorporates by reference certain forward-looking statements
within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, referred to as the Exchange
Act, including those identified by the words may,
will, anticipates, intends,
believes, expects, plans,
potential and similar expressions. These
forward-looking statements include, among others, statements
regarding:



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | potential FDA actions with respect to our NDA for
	Aslera, including whether or not the Aslera NDA ultimately will
	receive marketing approval;
|
| |  | if the NDA for Aslera is ultimately approved, our
	plans and ability to successfully commercialize Aslera for
	systemic lupus erythematosus;   
|
| |  | our ability to obtain additional funding for our
	business plans;                                                                              
|
| |  | our ability to secure and defend intellectual
	property rights important to our business; and                                                  
|
| |  | the potential success of our research efforts,
	including our ability to identify compounds for preclinical
	development.                      

All statements in this Annual Report on
Form 10-K that are not historical are forward-looking
statements and are subject to risks and uncertainties, including
those set forth in the Risk Factors section at the end of
Item 1, and actual results could differ materially from
those expressed or implied in these statements. All
forward-looking statements included in this Annual Report on
Form 10-K are made as of the date hereof. We assume no
obligation to update any such forward-looking statement for
subsequent events or any reason why actual results might differ
except as required by the Exchange Act.




PART I




Item 1.     Business.

Genelabs Technologies, Inc., referred to as
Genelabs or the Company, is a biopharmaceutical company focused
on discovering and developing pharmaceutical products. We have
an investigational drug, AsleraTM, for which the U.S.
Food and Drug Administration, referred to as the FDA, is
reviewing our New Drug Application, or NDA. Aslera is a
potential new treatment for systemic lupus erythematosus,
referred to as SLE or lupus, a disease for which current
therapies are not adequate. Genelabs licensed the rights to
Aslera from Stanford University in 1993. To develop this drug
candidate, we have built internal clinical development
capabilities including clinical trial design and monitoring,
data management and analysis, regulatory affairs and quality
control and assurance, all of which may be used to support the
development of additional indications for Aslera and for new
drug candidates. Genelabs acquired and developed this late-stage
investigational drug to provide opportunities to fund and
support our core business: the discovery and development of
novel drug candidates.

After licensing Aslera from Stanford, Genelabs
designed and conducted two large, well-controlled Phase III
clinical trials of Aslera in women with SLE and a third
Phase III clinical trial in men with SLE, begun in 1997, is
ongoing. Upon completion of the second Phase III trial in
1999, Genelabs prepared an NDA for Aslera to treat women with
lupus, which was submitted to the FDA on a rolling basis under
fast-track designation in 2000. We subsequently received
priority review designation from the FDA and licensed North
American marketing rights to Watson Pharmaceuticals, Inc.,
referred to as Watson. The FDA Arthritis Advisory Committee
reviewed the NDA on April 19, 2001, and on June 26,
2001, the FDA sent us a letter stating that the Aslera NDA was
not approvable, listing deficiencies that must be addressed
before the NDA can be approved.

The NDA review process has actively continued
since our receipt of the FDAs June not-approvable letter
as we work within the FDAs regulatory framework toward
resolution of the issues raised in the letter. We believe there
is a range of possible outcomes from our current discussions
with the FDA, from the FDA

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approving our NDA to the FDA stating that the NDA
could only be approved with an additional large, well-controlled
Phase III clinical trial with positive results or other
potentially costly and time-consuming contingencies. The
decisions regarding whether deficiencies are sufficiently
resolved to support approval of Aslera rest with the FDA and
cannot be reasonably estimated before they are made. Our
near-term drug development goal is to reach agreement with the
FDA on the steps necessary for approval.


In the event that we cannot reach agreement with
the FDA on the steps necessary for approval of Aslera, we will
evaluate the feasibility of any additional requirements
requested by the FDA in order to determine how to proceed with
the development of Aslera. Factors in our evaluation would
include the potential complexity and expense of a particular
clinical trial design requested by the FDA, our ability to
accrue sufficient patients in a timely manner in a clinical
trial, if required, and our financial position, including
whether it would be possible to secure sufficient funding
through financings or collaborations to satisfy any such
requirements. If we determine that it is not feasible for us to
satisfy one or more requirements requested by the FDA, we
currently plan to continue to work with the FDA to find an
acceptable alternative or seek assistance from collaborators
with resources greater than ours. Even if we reach agreement
with the FDA, we anticipate that there will still be issues that
must be resolved before the FDA can approve Aslera for
marketing. We cannot predict what these requirements will be,
whether we will be successful in resolving any of the issues or
whether there will be additional substantial obstacles to, or
delays in, our development of Aslera for lupus.

Our near-term drug discovery research goals are
to continue to synthesize novel DNA-targeted compounds and to
screen, test and optimize our lead compounds, including the
antibacterial and antifungal lead compounds identified in 2001,
with the goal of selecting one or more for preclinical
development. As we advance our DNA-targeted research program, we
also intend to explore potential new targets that complement
both our current drug discovery capabilities and our DNA-binding
program to build a balanced pipeline of pharmaceutical
candidates. The ultimate objective of our drug discovery
research is to discover novel chemical compounds that can be
developed into drugs to treat human disease.

Since 1995, Genelabs strategy has been to
build drug discovery and clinical development capabilities that
can support various research and development projects while
focusing our resources and efforts on two potentially
groundbreaking programs: developing Aslera for lupus and
pursuing small molecule drug discovery research targeting DNA.
If approved by the FDA, Aslera will be the first new drug
approved in the United States for this debilitating disease in
more than 40 years. Genelabs utilizes established medicinal
chemistry principles in its small molecule synthesis to target
DNA, which is not a customary pharmaceutical target such as
enzymes, proteins and receptors. Because DNA is not a common
target, there are currently fewer scientific publications and
established processes to guide our research efforts but also
fewer potential competitors currently focus their research
efforts in this area. We believe that these high-risk,
potentially high reward programs focus our research and
development expertise in areas where we have the opportunity to
be scientific pioneers and, if successful, we believe that these
programs will yield products that will address diseases for
which current therapies are inadequate. At the same time, our
established capabilities can be utilized as we diversify our
research and development programs.

Drug Discovery Research

Genelabs current drug discovery research is
based upon our belief that DNA is an advantageous and
under-explored target for drug discovery because proper DNA
functioning is fundamental to proper functioning of all cells
and organisms. We believe targeting DNA, where many diseases
originate, presents an entirely new approach to disease
intervention. This concept became the foundation for the efforts
of our molecular biologists in the mid-1990s, culminating in the
invention of several novel technologies enabling the discovery
and characterization of nucleic acid (DNA and RNA)-binding
chemistries. From February 1998 to February 2001, Genelabs
received $14 million in total funding under a research
grant from the U.S. Defense Advanced Research Projects Agency
(DARPA) to use our technologies to pursue the discovery of
drugs that could be used as countermeasures to agents of
biological warfare. This grant provided funding for our nucleic
acid-binding research and contributed to our ability to build
our own medicinal chemistry and biological screening
capabilities, instead of relying on outside vendors or
collaborators. Our research team has proven the concept that
DNA-binding compounds can selectively target infectious
organisms and has conducted many

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experiments to expand upon our specialized
knowledge of nucleic acid-binding compounds. We began to
synthesize DNA-binding compounds at Genelabs in the first half
of 1999. By the end of 2000, we had synthesized over 1,000
DNA-binding compounds, including our first lead compounds.
Throughout 2000 and 2001 we continued to synthesize compounds,
screened for antifungal and antibacterial activity among others,
and optimized our leads. As we continue to advance our
DNA-targeted research program, we also intend to explore
potential new targets that complement both our current drug
discovery capabilities and our DNA-binding program to diversify
our efforts and further leverage the research capabilities we
have established to achieve our goal of building a balanced
pipeline of pharmaceutical candidates.




| |                  
| | -----------------
| | Research Progress

Since the establishment of our chemistry
capabilities, Genelabs has achieved several important research
goals. We have:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | synthesized a large library of DNA-binding
	compounds;                                                       
|
| |  | developed and expanded screening capability for
	biological activity in cell-based assays;                   
|
| |  | identified DNA-binding small molecule lead
	compounds showing activity against pathogenic fungi and bacteria;
|
| |  | initiated preliminary toxicological and
	pharmacokinetic evaluations of these lead compounds;                
|
| |  | selected the most promising lead compounds for
	optimization;                                                
|
| |  | utilized information from optimization to design,
	synthesize and test derivations of lead compounds; and    
|
| |  | completed initial in vivotesting of lead
	antifungal and antibacterial compounds.                            

In 2001, as part of the optimization process, we
demonstrated the effectiveness of selected antifungal and
antibacterial compounds from our DNA-binding program in animal
models of disease. Our scientists presented three posters at the
41st Interscience Conference on Antimicrobial Agents and
Chemotherapy (ICAAC) in December 2001 summarizing some of the
data from the optimization process. At ICAAC, Genelabs presented
in vitro(experiments in cells) data on a new family of
DNA-binding compounds. These compounds, cationic
poly-heterocyclic small molecules, were found to be fungicidal.
Fungicidal compounds kill the fungi, unlike fungistatic
compounds which inhibit their growth. Genelabs compounds
represent a new family of antifungal agents with potentially
novel mechanisms that are fungicidal for a large number of
pathogenic yeasts and molds. For example, one of our initial
lead compounds, GL047296, exhibited fungicidal activity against
Candidaspecies, Candida neoformanssubtypes A-D,
some Aspergillusspecies and Fusarium, and certain
species causing endemic fungal infections such as
coccidioidomycosis, commonly known as Valley Fever.

One presentation at ICAAC reported on the
synthesis of our initial lead compound, GL047296, and subsequent
optimization of its fungicidal activity. Genelabs
scientists sought to improve the antifungal activity of GL047296
against both Candida albicansand Aspergillus
fumigatusspecies, to produce activity results comparable to
amphotericin B, the most potent antifungal currently in use. Our
scientists systematically modified each individual building
block of GL047296, producing several hundred analogues. Our
optimization efforts led to an improvement in antifungal
activity for the most clinically relevant Candidaand
Aspergillusspecies. Currently, one of the more potent
derivatives demonstrates activity with a minimum inhibitory
concentration (MIC) range of 0.7 to 2.7 mg/mL against
seven common Candidaspecies and an MIC90 (the lowest
concentrations at which the growth of 90% of different fungal
strains are inhibited) of 3.0 mg/mL against Aspergillus
fumigatus.

A second presentation at ICAAC described a series
of DNA-targeting compounds with broadened activity against
common fungal pathogens and improved pharmacokinetic profiles.
In the companys initial in vivo(experiments in
animals) efficacy study, a Genelabs compound showed a trend
toward prolonging

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survival of mice with systemic candidosis. This
compound also demonstrated potent synergy with fluconazole, a
current first-line treatment for systemic fungal infection,
against fluconazole-resistant Candida albicans.


Invasive fungal infections are increasing in
prevalence and severity, causing significant morbidity and
mortality in patients whose immune systems have been compromised
by disease or medical treatment. Nearly all of these infections
are caused by Candidaand Aspergillusspecies.
According to industry sources, Candidaspecies are now
the fourth most common cause of hospital-acquired blood stream
infection with associated mortality rates as high as 40%.
Current therapeutic options are limited by toxic side effects or
have a relatively narrow spectrum of activity.

Examples of the antibacterial activity of certain
Genelabs compounds were provided in the third poster presented
at ICAAC. A number of the compounds tested demonstrated activity
against a wide panel of gram positive bacterial species. Several
compounds with potent in vitro antibacterial activity
against vancomycin resistant enterococci (VRE) and
methicillin resistant Staphylococcus aureus(MRSA) have been identified where the minimal
inhibitory concentration (MIC) values are as low as
0.5 mg/ml. A representative compound, GL521997, was tested
in vivo and found to be dose-dependently effective
against both methicillin resistant and methicillin sensitive
(MSSA) strains of Staphylococcus aureus. This
compound is bacteriocidal, meaning it kills the bacteria,
against MRSA and MSSA. In a widely used mouse model of
infection, at equivalent doses (10 mg/kg), the Genelabs
compound showed potency greater than 30 times that of
vancomycin, a current antibiotic of last resort, in reducing
bacterial colony formation.

The rapid emergence of bacterial infections
resistant to treatment with standard antibiotics constitutes a
serious public health threat. Antibiotics are generally
considered to be one of the most significant discoveries of the
20th century, but many infectious pathogens have become
resistant to current antibiotics. There is a significant need
for novel antibacterials directed toward new biological targets
that are less prone to bacterial resistance. We believe that
targeting DNA is a promising approach to discovering new
antibacterials, as it would involve early steps in cell
proliferation and may be less likely to lead to bacterial
resistance than other targets.



| |                       
| | ----------------------
| | Drug Discovery Process

Genelabs goal for its research processes is
to develop systems using our employees and resources to move
compounds quickly from synthesis and discovery to preclinical
selection. We have established most of the capabilities
necessary to achieve this goal and are in the process of
building our pharmacokinetic and pharmacology expertise. We will
continue to explore and utilize technologies to enhance and
streamline this process. We believe that the establishment of
these systems, combined with our drug development capabilities,
enables our employees to complete substantially all of the steps
necessary to discover and develop pharmaceutical products. We
currently intend to contract with third parties to conduct
current Good Laboratory Practices (GLP) toxicology studies
and for manufacturing. Our business objective is to advance our
lead compounds to preclinical development, at which stage we
will determine whether to undertake development of a compound or
to seek a collaborator.

Genelabs drug discovery process includes:



| |   |                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------
| |  | design and synthesis of novel compounds;                                                                                                     
|
| |  | screening for biological activity, including
	screens of pathogenic fungi, bacteria, parasites, viruses and
	cancers;                        
|
| |  | toxicity testing of compounds in cell cultures
	and in animals;                                                                              
|
| |  | analysis of pharmacokinetics and metabolism;                                                                                                 
|
| |  | determination of efficacy in animal models of
	diseases;                                                                                     
|
| |  | analysis of structure-activity relationship and
	optimization of lead structures based on efficacy, safety and
	pharmacokinetic profiles; and

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| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | selection of drug candidates for preclinical
	studies to enable the filing of Investigational New Drug
	applications (INDs) with the FDA prior to human clinical trials.

Genelabs creates a database of information
gathered during the drug discovery process and uses this
information to select lead compounds for further optimization.
Compounds are selected as leads if they demonstrate certain
drug-like properties desirable in early-stage pharmaceutical
research. The desired outcome of this process is to select the
compounds having the best pharmaceutical product profiles,
taking into consideration activity against disease, potency,
toxicity, and pharmacokinetics. Information obtained from
optimization is used to determine how changes in compound
structures affect their activity, known as the
structure-activity relationship, or SAR, allowing for further
refinement of the lead compounds by medicinal chemists. Our
strategy is to pursue the optimization and development of
promising compounds that demonstrate strong biological activity
with acceptable toxicity and pharmacokinetic profiles. We focus
our research in areas that address clinically unmet medical
needs that are also commercially attractive. Once we identify a
preclinical candidate, we can begin IND-enabling work, including
process chemistry, formulation, GLP animal studies, and
pharmacokinetic studies.

Part of the drug discovery process includes
exploring the specific mechanism by which compounds act to
impact pathogens or cell functions. An ultimate goal of our
DNA-binding drug discovery program is to design and develop
compounds that selectively target genes in pathogens necessary
for their survival. Our ongoing exploration of the mechanisms of
action of the current lead compounds will provide us with
valuable insight into our progress toward that goal.

Currently our research is focused on the
discovery of DNA-targeted compounds as a novel approach to new
antiinfective agents. As our DNA-targeted compounds advance, we
are expanding our research effort to include additional targets
to complement our DNA-binding program. Our core research
strength is our expertise in designing, synthesizing, screening
and testing of novel antibacterial, antifungal and antiviral
agents.



| |                            
| | ---------------------------
| | Research Program Next Steps

Genelabs strategy for realizing value from
our research program and DNA-binding drug discovery technologies
is to aggressively pursue optimization of our current lead
compounds with the goal of identifying potential drug candidates
and ultimately filing INDs, allowing the initiation of clinical
development. We are actively engaged in seeking additional lead
compounds in the antifungal and antibacterial areas, in addition
to seeking lead compounds active against viruses, parasites and
cancers.

Our research efforts in 2002 will be focused on
further optimization of our current lead compounds, the
generation of additional novel lead compounds and the
diversification of our small molecule compound library. To
maximize the utilization of our expertise and resources, and our
opportunities for success, we will continue to screen our
growing library of compounds against many different targets and
explore the mechanism of action of these compounds. Our business
strategy for research, and the objective of these efforts, is to
advance our lead compounds toward the selection of preclinical
candidates and to continue to build a pipeline of lead compounds
and potential lead compounds.



| |                          
| | -------------------------
| | Scientific Advisory Board

To provide guidance and insight for our drug
discovery research programs, we assembled a multi-disciplinary
Scientific Advisory Board of distinguished scientists in 2000.
These advisors have extensive

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expertise in chemistry, virology, molecular
biology, microbiology and gene expression  all areas
of critical importance in Genelabs drug discovery process.
Our Scientific Advisory Board members are:


|                           |  |                                                                                                                                                                                                                                     
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| Charles Cantor, Ph.D.    |  | Chief Scientific Officer of Sequenom, Inc.;
	Professor, Department of Biomedical Engineering and Biophysics
	and Director, Center for Advanced Biotechnology, Boston
	University; and Member of the National Academy of Sciences    
| Gary Felsenfeld, Ph.D.   |  | Fellow of the American Association for the
	Advancement of Science; Fellow of the American Academy of Arts
	and Sciences; Associate Member, European Molecular Biology
	Organization; and Member of the National Academy of Sciences
| John Fried, Ph.D.        |  | President, Fried and Company, Inc.; formerly Vice
	Chairman of the Board of Directors of Syntex Corporation and
	President of Syntex Research                                                                                       
| David A. Stevens, M.D.   |  | Professor and Associate Chief of the Division of
	Infectious Diseases and Geographic Medicine at Stanford
	University                                                                                                               
| David E. Wemmer, Ph.D.   |  | Professor of Chemistry at the University of
	California, Berkeley                                                                                                                                                                   
| Richard J. Whitley, M.D. |  | Professor of Pediatrics, Microbiology and
	Medicine at the University of Alabama at Birmingham                                                                                                                                      

Drug Development

Genelabs licensed its investigational drug for
systemic lupus erythematosus, referred to as SLE or lupus,
AsleraTM, or its development name, GL701, from
Stanford University in 1993. Through this project, we have
designed and completed two large, well-controlled clinical
studies of Aslera in women with SLE and a third trial in men
with SLE is ongoing. In addition, we have built the capabilities
necessary for the clinical development of an investigational
drug including clinical trial design and monitoring, data
management and analysis, regulatory affairs and quality control
and assurance. After the successful completion of two
well-controlled Phase III clinical trials of Aslera in women
with SLE, Genelabs submitted a New Drug Application, or NDA, to
the U.S. Food and Drug Administration, referred to as the FDA,
seeking approval of Aslera to treat women with SLE. In June 2001
we received a letter from the FDA stating that the Aslera NDA
was not approvable, listing deficiencies that must be addressed
before the NDA can be approved. The NDA review process has
actively continued since our receipt of the FDAs June
not-approvable letter as we seek clarification from the FDA
regarding the requirements that must be satisfied before the FDA
will approve Aslera.



| |                                         
| | ----------------------------------------
| | AsleraTMfor Systemic Lupus Erythematosus

Aslera is a potential new treatment for SLE, a
disease for which current therapies are not adequate. Lupus is a
life-long autoimmune disease that causes the immune system to
attack the bodys own tissues and organs. If approved by
the FDA, Aslera will be the first new drug approved in the U.S.
for this debilitating disease in more than 40 years.

Aslera is a pharmaceutical formulation for oral
administration that contains highly purified prasterone, the
synthetic equivalent of dehydroepiandrosterone, or DHEA, a
naturally occurring hormone, as the active ingredient. Genelabs
has exclusive rights under U.S. patents granted to Stanford for
the use of DHEA to treat SLE. Currently products containing DHEA
are available as dietary supplements in the United States.

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Genelabs has consistently maintained that a
governmental entity should regulate DHEA as a drug and submitted
a petition and supporting documentation to the FDA seeking
DHEAs removal from the market as a dietary supplement. In
addition, we believe that DHEA has the potential to be
classified as anabolic steroid by the U.S. Drug Enforcement
Administration, or DEA, and submitted a petition and supporting
documentation to the DEA supporting this classification. Neither
the FDA nor the DEA has taken any action to date to limit or
regulate the manufacture or sale of DHEA.


The FDA granted orphan drug status to Aslera for
women with SLE in 1994, which, if Aslera is approved for
marketing, provides for up to seven years of U.S. marketing
exclusivity. In addition, the NDA received priority review
designation under fast track in 2000. The FDA Arthritis Advisory
Committee reviewed the NDA on April 19, 2001. The FDA often
seeks expert advice from Advisory Committees as part of its
review of NDAs. Though the Advisory Committee was convened to
discuss the Aslera NDA, the Committee was not asked by the FDA
to vote on whether to recommend Aslera for approval. However,
Genelabs was encouraged by the comments and analysis provided by
Advisory Committee members at the meeting.

On June 26, 2001, the FDA sent Genelabs a
letter stating that the Aslera NDA was not approvable, listing
deficiencies that must be addressed before the NDA can be
approved. The NDA review process has actively continued since
our receipt of the FDAs June not-approvable letter as we
work within the FDAs regulatory framework toward
resolution of the issues raised in the letter. Our near-term
drug development goal is to reach agreement with the FDA on the
steps necessary for approval. Genelabs is currently committed to
continuing to work with the FDA toward the goal of approval
because Genelabs believes that Aslera has demonstrated its
usefulness in the management of this disease.

In the event that we cannot reach agreement with
the FDA on the steps necessary for approval of Aslera, we will
evaluate the feasibility of any additional requirements
requested by the FDA in order to determine how to proceed with
the development of Aslera. Factors in our evaluation would
include the potential complexity and expense of a particular
clinical trial design requested by the FDA, our ability to
accrue sufficient patients in a timely manner in a clinical
trial, if required, and our financial position, including
whether it would be possible to secure sufficient funding
through financings or collaborations to satisfy any such
requirements. If we determine that it is not feasible for us to
satisfy one or more requirements requested by the FDA, we
currently plan to continue to work with the FDA to find an
acceptable alternative or seek assistance from collaborators
with resources greater than ours. Even if we reach agreement
with the FDA, we anticipate that there will still be issues that
must be resolved before the FDA can approve Aslera for
marketing. We cannot predict what these requirements will be,
whether we will be successful in resolving any of the issues or
whether there will be additional substantial obstacles to, or
delays in, our development of Aslera for lupus.



| |                                                            
| | -----------------------------------------------------------
| | Marketing Rights and International
	Regulatory Applications

Genelabs has licensed North American marketing
rights for Aslera to Watson. The collaboration and license
agreement with Watson provides Genelabs with milestone payments
of up to $45 million if the FDA approves the marketing of
Aslera for SLE and significant royalties on product sales.
Through the collaboration, Genelabs and Watson make certain
decisions about the product, including decisions regarding the
future development of Aslera for the pursuit of new formulations
and new indications and the conduct of marketing studies.

Genelabs currently plans to commercialize Aslera
outside of North America through licensing arrangements with
established pharmaceutical companies. We are actively seeking
collaborators to license European and Japanese rights to Aslera.
Genelabs previously licensed marketing rights for Asia
(excluding Japan), Australia and New Zealand to Genovate
Biotechnology Co., Ltd., referred to as Genovate, formerly
Genelabs Biotechnology Co., Ltd., in exchange for an equity
position in Genovate. Genelabs also has licensed rights to Teva
Pharmaceutical Industries Ltd. to market Aslera in Israel, Gaza
and the West Bank and, if Aslera is approved in the U.S. and
Israel, Genelabs will receive milestone payments and royalties.

Independent of the United States regulatory
process, Genelabs plans to pursue approval of Aslera for the
treatment of SLE in Europe and Japan either independently, or,
if applicable, with a collaborator. We have

7



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initiated discussions with foreign regulatory
agencies in preparation for seeking European marketing approval
of Aslera.




| |                                                  
| | -------------------------------------------------
| | Lupus and the Clinical Rationale Behind
	AsleraTM

According to various industry sources, lupus
affects approximately 200,000 patients in the U.S., and Genelabs
believes that there are at least one million patients worldwide.
Lupus is a severe, chronic, and frequently debilitating
autoimmune disease that can affect the lungs, heart, kidneys,
skin, joints and musculoskeletal and nervous systems. For
example, scientific publications have reported that the most
common form of organ damage among lupus patients,
musculoskeletal damage, occurs in 22% of patients, followed by
neuropsychiatric disorders in 20% of lupus patients and renal
disease in 15%. In the U.S., there have been no new drugs
approved by the FDA for the treatment of lupus in more than
40 years. The current treatments for lupus are often
inadequate, due to limited benefits and severe adverse side
effects.

Aslera provides an external source of DHEA, which
is the most abundant adrenal hormone in humans. Lupus patients
generally have abnormally low levels of DHEA, approximately 50%
of normal, and it is believed that hormonal influences may play
a role in the development and progression of the disease. Early
studies at Stanford indicated that oral use of DHEA could be
effective and safe for the treatment of SLE. A Phase II
clinical study conducted at Stanford in 1993 and published in
Arthritis and Rheumatismin December 1995, indicated that
DHEA-treated patients showed improvement on the basis of the
patients own assessments, the physicians clinical
assessments and a commonly accepted disease activity index,
while placebo-treated patients did not. In addition, mean
prednisone dose was decreased in patients treated with DHEA.
Prednisone, a commonly used corticosteroid drug treatment for
lupus, has many serious side effects including osteoporosis,
atherosclerosis, diabetes and infection, and is a leading cause
of long-term morbidity and mortality in lupus patients.



| |                                  
| | ---------------------------------
| | Genelabs Clinical Trial
	Results

Genelabs has successfully completed two
Phase III double-blind randomized placebo controlled
clinical trials of Aslera for lupus in women. The first of these
Phase III trials, completed in 1997, evaluated
Asleras ability to reduce the corticosteroid dose in
steroid dependent women with mild to moderate lupus. All
191 women with SLE in this trial previously required
prednisone or other steroids for their treatment. Patients in
the trial received daily doses of 200 mg of Aslera,
100 mg of Aslera or placebo for seven to nine months. Data
presented to the American College of Rheumatology on behalf of
Genelabs showed that patients who received 200 mg daily
doses of Aslera had a higher response rate than patients who
received placebo. The primary endpoint of this study was a
sustained reduction in corticosteroid dose to 7.5 mg per
day or less, which are levels approximately equivalent to those
normally produced by the adrenal glands. The beneficial effect
was most evident in the 137 lupus patients with active disease,
defined as those patients with a Systemic Lupus Erythematosus
Disease Activity Index (SLEDAI) score greater than 2 at
study entry. Among these patients, 51% of those who received
daily doses of 200 mg of Aslera achieved the primary
endpoint compared to 29% of those who received placebo (p=0.03).

The second Phase III study, completed in
1999, evaluated Asleras ability to improve or stabilize
clinical outcome and disease symptoms in women with mild to
moderate lupus. The 381 women with SLE enrolled in this trial
were randomized to receive either an oral dose of 200 mg of
Aslera or placebo once a day for 12 months. In this trial,
treatment with Aslera demonstrated a consistent pattern of
efficacy across a number of primary and secondary variables.
Aslera-treated patients with active disease, defined as a
baseline SLEDAI score greater than 2, who met the protocol
requirements showed a 35% greater rate of response than the
placebo group: 66% of Aslera patients responded to treatment
compared to 49% of placebo patients. All placebo and Aslera
patients were allowed to continue taking their existing
medications for the full course of this trial. This increased
rate of response, defined as improvement or stabilization in all
four scoring instruments measured, with no clinical
deterioration, was statistically significant (p=0.005 for the
defined per-protocol population). The scoring instruments were
SLEDAI, Systemic Lupus Activity Measure, Krupp Fatigue Severity
Score, and Patient Global Assessment. Because of the inherent
variability in these scoring instruments, the classification of
a patient as a responder allowed for a slight deterioration in
any of the four

8



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scores from baseline. In an intent-to-treat
analysis of these data, presented at the April 19, 2001 FDA
Arthritis Advisory Committee meeting, Aslera-treated patients
showed a 31% greater rate of response than the placebo group:
59% of Aslera patients responded to treatment compared to 45% of
placebo patients. This improvement in response was statistically
significant (p=0.017).


Because the most common organ damage in patients
with lupus is musculoskeletal, nested within the second
Phase III study was a study conducted at eight of the
investigator sites assessing bone mineral density for patients
who had been taking steroids for at least six months prior to
entering the trial. These patients had bone density measurements
taken by Dual X-ray Absorptiometry at the beginning and end of
the trial. These measurements showed that the group of patients
receiving Aslera had increased bone density, compared to a
decrease in bone density for the group of patients on placebo
(p=0.004 at the lumbar spine and p=0.08 at the hip, comparison
between treatment groups). Lupus patients are at risk for the
long-term complication of osteoporosis both because loss of bone
density is a common manifestation of the disease and because a
significant side effect of one of the primary therapies for the
disease, corticosteroids, is decreased bone density.

In addition to showing efficacy in the primary
efficacy variables, the advantage of Aslera over placebo was
consistent among secondary efficacy variables in the second
Phase III study. Lupus flares, which are periods of
increased disease severity, occurred among 24% fewer patients
who received Aslera than those who received placebo. Certain
specific symptoms associated with SLE occurred less frequently
among Aslera recipients, including muscle pain, nasal and mouth
ulcers and hair loss. As expected, adverse events related to
taking this hormone were generally mild and androgenic in
nature, and included acne, facial hair growth, hormonal changes
and a reduction in HDL cholesterol. Both clinical trials showed
Aslera to be well tolerated by patients.

DNA Amplification Technology

United States patents were issued to Genelabs in
2000 covering fundamental nucleic acid amplification techniques
first developed at the Company. We have begun implementing our
plan to offer licenses to practice these technologies. One of
these technologies is a method of amplifying nucleic acids by
attaching oligonucleotide linkers to the ends of target DNA
sequences (Linker-Aided DNA Amplification or LADA). In LADA,
researchers add linkers of known sequences to the ends of target
DNA sequences, thereby providing a known primer sequence that is
complementary to the attached linkers. The primers are then used
to amplify the target DNA sequences. The DNA amplification can
be accomplished by PCR (polymerase chain reaction)-dependent or
non-PCR dependent methods. Another technology is commonly known
as RACE (Rapid Amplification of cDNA Ends). In the RACE
technique, a mixture of different sequence DNA fragments is
first treated with terminal deoxynucleotide transferase to form
a homopolymer tail on the DNA fragments. Complementary
homopolymer primers are then used to amplify the DNA fragments.
As with LADA, the DNA amplification can be accomplished by
PCR-dependent or non-PCR dependent methods.

Novel Viruses Discovered by Genelabs



| |                  
| | -----------------
| | Hepatitis G Virus

On September 6, 2001, the New England
Journal of Medicinepublished two reports showing patients
infected with both the human immunodeficiency virus, HIV, and GB
virus C, also known as hepatitis G virus, or HGV, had
a reduced mortality rate compared to those only infected with
HIV. The studies confirmed previous reports suggesting delayed
progression of HIV in patients coinfected with HGV. Genelabs
scientists first discovered HGV, which is transmitted by blood
and other bodily fluids, while seeking to identify what was then
an unknown hepatitis virus. Patents covering the HGV genome,
peptides and their uses have issued to Genelabs. We have granted
Boehringer Mannheim (now Roche Diagnostics), Chiron Corporation
and Ortho Diagnostic Systems royalty-bearing license agreements
for diagnostic applications of HGV and Genelabs retains all
other commercial rights to its discovery of HGV, such as vaccine
or therapeutic applications of the virus. To date, royalties
received under these HGV agreements have not been significant
and we do not foresee receiving significant royalties in the
near future. Although the presence of HGV has been detected in
blood

9



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samples contained in the U.S., Europe, Japan and
elsewhere, to date there are no known diseases specifically
caused by HGV and no assays developed for screening the blood
bank supply.




| |                  
| | -----------------
| | Hepatitis E Virus

In connection with its discovery of the
hepatitis E virus, or HEV, Genelabs granted GlaxoSmithKline
an exclusive worldwide royalty-bearing license to make, use and
sell an HEV vaccine. GlaxoSmithKline is developing this vaccine
and has successfully completed two Phase I clinical trials,
showing the vaccine to be safe and immunogenic. In 2001, the
Walter Reed Army Institute of Research initiated a Phase II
clinical trial of this vaccine candidate in collaboration with
the Medical Department of the Royal Nepal Army, the
U.S. National Institutes of Health and GlaxoSmithKline. The
trial has enrolled approximately 2,000 adult volunteers in Nepal
that have received three doses of either HEV vaccine or placebo
over a six month period. The anticipated duration of follow-up
is 18 months after the last dose, therefore results of the
trial are currently expected in late 2003. In addition to
GlaxoSmithKlines vaccine license, Genelabs has granted
Abbott Laboratories a royalty-bearing, non-exclusive worldwide
license to develop and commercialize diagnostic products for
HEV. To date, royalties received under these HEV agreements have
not been significant and we do not foresee receiving significant
royalties in the near future.



| |                  
| | -----------------
| | Hepatitis C Virus

After its discovery of certain polypeptide
regions of the hepatitis C virus, or HCV, Genelabs entered
into a royalty-bearing license agreement with Pasteur Sanofi
Diagnostics, which was acquired by Bio-Rad Laboratories, Inc. in
1999. We have also granted certain rights to our HCV patents to
Chiron Corporation and Ortho Diagnostic Systems. The agreements
with Chiron and Ortho do not provide for royalties for HCV and
we receive royalties from Bio-Rad pursuant to the terms of the
Pasteur Sanofi license.

Investments



| |                                                               
| | --------------------------------------------------------------
| | Minority Investment in Taiwan-based
	Biopharmaceutical Company

Genelabs holds an 11% equity interest in a
Taiwan-based company, Genovate Biotechnology Co., Ltd., referred
to as Genovate, which was formerly called Genelabs Biotechnology
Co., Ltd. Genovate develops, manufactures and distributes
pharmaceutical products in Asia and holds the rights to market
Aslera in Asia (except Japan), Australia and New Zealand.
Genovate has conducted a 119-patient Phase III clinical
trial of Aslera in Taiwan in accordance with U.S. Good Clinical
Practices and data from this trial were included in the NDA for
Aslera submitted by Genelabs as supportive data from a foreign
source.



| |                                      
| | -------------------------------------
| | Genelabs Diagnostics Pte. Ltd.
	(GLD)

Genelabs owns 100%, through a series of separate
domestic and foreign corporations, of this Singapore-based
company that develops, manufactures and markets diagnostic
products primarily in Europe and Asia. We plan to divest our
interest in GLD and accordingly account for GLD as a
discontinued operation in the consolidated financial statements.

Patents and Licenses

Genelabs seeks patent protection for its
proprietary technologies and potential products in the U.S. and
internationally. We own over 40 issued U.S. patents; these
patents cover our novel drug discovery technologies, Aslera, our
HEV and HGV discoveries, immunomodulatory genes, and other
proprietary technologies. We also own international patents in
numerous countries that cover similar claims to our
U.S. patents. In addition, we possess many pending patent
applications covering our novel chemistries and drug discovery
technologies and other proprietary technologies, but cannot
estimate how many of these pending patent applications, if any,
will be granted as patents. Genelabs also has exclusive and
non-exclusive licenses under a number of patents and patent
applications owned by third parties.

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Genelabs® and the Genelabs logo are
registered trademarks, and AsleraTM is a trademark of
Genelabs Technologies, Inc. This Annual Report on Form 10-K
also includes trade names and trademarks of companies other than
Genelabs.

Government Regulation

The research and development, manufacture,
distribution and marketing of human pharmaceutical and medical
device products are subject to regulation by the FDA in the U.S.
and by comparable authorities in other countries. These national
agencies and other federal, state and local entities regulate,
among other things, research and development activities and the
testing, manufacture, safety, effectiveness, labeling, storage,
record keeping, approval, advertising and promotion of the
products that we are developing. In the U.S., prior to the
testing of a new drug in human subjects, the FDA requires the
submission of an Investigational New Drug application, or IND,
which consists of, among other things, results of preclinical
laboratory and animal tests, information on the chemical
compositions, manufacturing and controls of the products, a
protocol, an investigators brochure and a proposed
clinical program. Preclinical tests include laboratory
evaluation of the product and animal studies to assess the
potential safety and efficacy of the product and its
formulation. Unless the FDA objects, the IND becomes effective
30 days after receipt by the FDA. FDA objection to the
initiation of clinical trials is not uncommon, and the FDA may
request additional data, clarification or validation of data
submitted, or modification of a proposed clinical trial design.

Clinical trials are conducted in accordance with
protocols that detail the objectives and designs of the study,
the parameters to be used to monitor safety and the efficacy
criteria to be evaluated. Each protocol is submitted to the FDA
as part of the IND. Each clinical study is conducted under the
auspices of an Institutional Review Board, or IRB. The IRB will
consider, among other things, ethical factors, the informed
consent and the safety of human subjects and the possible
liability of the institution. Clinical trials are typically
conducted in three sequential phases, although the phases may
overlap. In Phase I, the initial introduction of the drug
into human subjects, the product is tested for safety, dosage
tolerance, absorption, metabolism, distribution and excretion.
Phase II involves studies in a limited patient population
to (i) determine the efficacy of the product for specific,
targeted indications, (ii) determine dosage tolerance and
optimal dosage and (iii) identify the common short-term
adverse effects and safety risks. When Phase II evaluations
indicate that a product is effective and has an acceptable
safety profile, two Phase III trials are normally required
to further test for safety and efficacy within an expanded
patient population at multiple clinical sites.

The results of product development, preclinical
studies and clinical studies are submitted to the FDA as part of
the NDA for approval of the marketing and commercial shipment of
a new drug. The FDA may deny approval if applicable regulatory
criteria are not satisfied or may require additional clinical or
other testing. Even if additional testing data are submitted,
the FDA may ultimately decide that the NDA does not satisfy the
criteria for approval or it may limit the scope of any approval
it does grant. Product approvals may be withdrawn if compliance
with regulatory standards is not maintained or if problems occur
or are first discovered after the product reaches the market.
The FDA may also require post-approval testing and surveillance
programs to monitor the effect of products that have been
commercialized and has the power to prevent or limit further
marketing of the product based on the results of these
post-marketing programs.

Each manufacturing establishment must be
determined to be adequate by the FDA before approval of product
manufacturing. Manufacturing establishments are subject to
inspections by the FDA for compliance with current Good
Manufacturing Practices and licensing specifications before and
after an NDA has been approved, and foreign manufacturing
facilities are subject to periodic FDA inspections or
inspections by the foreign regulatory authorities.

Sales of our products outside the U.S. are
subject to regulatory requirements governing human clinical
trials and marketing for drugs and biological products. The
requirements vary widely from country to country. The process of
obtaining government approval for a new human drug or biological
product usually takes a number of years and involves the
expenditure of substantial resources.

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Our research and development programs involve the
use of hazardous, chemical, radiological and biological
materials, such as infectious disease agents. Accordingly, our
present and future business is subject to regulations under
state and federal laws regarding work force safety,
environmental protection and hazardous substance control and to
other present and possible future local, state and federal
regulations.

Employees

As of December 31, 2001, Genelabs had 90
full-time employees, of whom 68 were involved in research and
development and 22 were in administration. Our employees are not
represented by any collective bargaining agreements, and we have
never experienced a work stoppage.

RISK FACTORS

There are a number of risk factors that should be
considered by Genelabs shareholders and prospective
investors. It is not possible to comprehensively address all
risks that exist, but the following risks in particular should
be considered, in addition to other information in this Annual
Report on Form 10-K.

Risks Related to Genelabs



| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the FDA does not approve
	AsleraTM,
	Genelabs drug candidate for systemic lupus erythematosus,
	for marketing in the United States, our business prospects will
	suffer because we have no other near-term source of potential
	revenue.

Genelabs has focused its development efforts to
date on conducting clinical trials for an investigational new
drug, Aslera, also referred to as GL701, for the treatment of
women with systemic lupus erythematosus, or lupus. Lupus is a
severe, chronic and debilitating autoimmune disease that can
affect the lungs, heart, kidneys, skin, joints and
musculoskeletal and nervous systems. Aslera is a pharmaceutical
formulation containing highly purified prasterone, the synthetic
equivalent of dehydroepiandrosterone or DHEA, a naturally
occurring hormone.

Before our North American partner Watson
Pharmaceuticals can market Aslera in the United States, the FDA
must review and approve a New Drug Application, or NDA,
submitted by Genelabs. Genelabs submitted an NDA for Aslera to
the FDA in 2000 and received a not-approvable letter in June
2001. Genelabs business plans depend on FDA approval of
Aslera in the United States. If the FDA does not approve the new
drug application in a timely manner, our business would suffer
because we have no other near-term source of potential revenue.

In the event that we cannot reach agreement with
the FDA on the steps necessary for approval of Aslera, we will
evaluate the feasibility of any additional requirements
requested by the FDA in order to determine how to proceed with
the development of Aslera. Factors in our evaluation would
include the potential complexity and expense of a particular
clinical trial design requested by the FDA, our ability to
accrue sufficient patients in a timely manner in a clinical
trial, if required, and our financial position, including
whether it would be possible to secure sufficient funding
through financings or collaborations to satisfy any such
requirements. If we determine that it is not feasible for us to
satisfy one or more requirements requested by the FDA, we
currently plan to continue to work with the FDA to find an
acceptable alternative or seek assistance from collaborators
with resources greater than ours. However, if we fail to find an
acceptable alternative or assistance should these circumstances
arise, we could be forced to abandon the development of Aslera
for SLE. Even if we reach agreement with the FDA, we anticipate
that there will still be issues that must be resolved before the
FDA can approve Aslera for marketing. We cannot predict what
these requirements will be, whether we will be successful in
resolving and of the issues or whether there will be additional
substantial obstacles to, or delays in, our development of
Aslera for lupus.

Other countries have similar regulatory
requirements. Genelabs has not conducted any clinical trials for
Aslera for lupus in other countries. We plan to enter into
collaborations or licensing agreements regarding marketing
Aslera in other countries with pharmaceutical companies with
resources greater than Genelabs. If

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we do not enter into these agreements, we may not
be able to sell, or might face delays related to commercial
introduction of, Aslera in other countries, because we lack the
necessary resources.




| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If Aslera is approved by the FDA but does
	not gain sufficient market acceptance, our business will suffer
	because we would not receive anticipated royalties to fund
	future operations.

A number of factors may affect the market
acceptance of Aslera for lupus, if approved by the FDA,
including:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | availability and level of reimbursement by
	insurance companies or government programs such as Medicaid;                                                     
|
| |  | the price of Aslera relative to other drugs for
	lupus treatment;                                                                                            
|
| |  | the perception by patients, physicians and other
	members of the health care community of the effectiveness and
	safety of Aslera for the treatment of lupus;
|
| |  | the effectiveness of Watsons sales and
	marketing efforts;                                                                                                  
|
| |  | side effects; and                                                                                                                                            
|
| |  | unfavorable publicity concerning Aslera or other
	drugs on the market.                                                                                       

In addition, if regulatory authorities fail to
restrict the sale of DHEA without a prescription, the market may
not accept Aslera. Dietary supplement manufacturers market
products containing DHEA as dietary supplements, available
without a prescription where vitamins and herbal supplements are
sold. Aslera contains highly purified prasterone, the synthetic
equivalent of DHEA, as the active ingredient. The body produces
DHEA, an androgenic hormone or steroid hormone that develops and
maintains masculine characteristics, which is not a component of
the diet. While we have consistently maintained that a
governmental entity should regulate DHEA as a drug and as a
controlled substance, neither the FDA nor the Drug Enforcement
Agency, or DEA, has taken any action to date to limit or
regulate the sale of DHEA. The FDA and DEA may not wish to, or
may be unable to, regulate DHEA in the future. We have submitted
documentation to the FDA requesting clarification of DHEAs
status as a drug and removal from the market as a dietary
supplement. We have also submitted documentation to the DEA
requesting clarification of DHEAs status as an anabolic
steroid, a steroid that promotes the storage of protein and
growth of tissue. If the FDA restricts the marketing of DHEA as
a dietary supplement or the DEA agrees that DHEA is an anabolic
steroid, DHEA may no longer be publicly available as a dietary
supplement. In the event that Aslera receives FDA approval, the
concurrent sale of these dietary supplement products could
significantly adversely affect or significantly limit the market
for or the selling price of Aslera.



| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our outside suppliers and manufacturers for
	Aslera are subject to regulation, including by the FDA, and if
	they do not meet their commitments, we would have to find
	substitute suppliers or manufacturers which could delay supply
	of product to the market.

Regulatory requirements applicable to
pharmaceutical products tend to make the substitution of
suppliers and manufacturers costly and time consuming. We rely
on suppliers of prasterone, the active ingredient in Aslera, for
production of Aslera. The disqualification of these suppliers
through their failure to comply with regulatory requirements
could negatively impact our business because of delays and costs
in obtaining and qualifying alternate suppliers. We have no
internal manufacturing capabilities for pharmaceutical products
and are entirely dependent on contract manufacturers and
suppliers for the manufacture of Aslera as a finished product
and for its active ingredient.

To date, Genelabs has relied on a single
manufacturer, Schering Plough, to manufacture Aslera as a
finished product for clinical trials and had intended to rely on
Schering Plough for commercial sales of Aslera; however,
Genelabs and Schering Plough plan to work together to transition
the manufacturing of the finished product to other manufacturers
because Schering Plough has notified Genelabs of its desire to
limit the resources it wishes to devote to our product and
ultimately terminate our relationship. We must establish
relationships with other manufacturers for Aslera and these
manufacturers must be qualified as suppliers in

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accordance with FDA regulations. The FDA requires
the existence of at least one qualified manufacturer before it
will approve a drug for commercialization. If we fail to enter
into a manufacturing relationship that can meet FDA requirements
in a timely manner, the timeline for FDA approval would be
negatively impacted and commercial launch could be delayed.
Though we are planning to enter into manufacturing relationships
with other manufacturers, our failure to do so would negatively
impact our business because the NDA could not be approved by the
FDA. Even if we enter into an appropriate manufacturing
relationship for Aslera, should that manufacturer fail to
satisfy FDA regulatory requirements or fail to meet its
commitments to Genelabs, our business would suffer because our
supply of Aslera would be delayed or interrupted. If suppliers
or manufacturers do not meet FDA requirements or fail to
manufacture Aslera capsules and packaging as required for our
needs, we may not be able to ship product in a timely manner, if
at all. This failure could negatively impact our relationships
with customers and would harm sales of Aslera. The following
could harm our ability to manufacture and market Aslera:




| |   |                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our failure to select and qualify a new
	manufacturer for Aslera;                                                                                                                  
|
| |  | the unavailability of adequate quantities of the
	active ingredient for commercial sale;                                                                                           
|
| |  | the loss of a suppliers or
	manufacturers regulatory approval;                                                                                                                   
|
| |  | the inability to develop alternative sources in a
	timely manner or at all and our failure to select and qualify an
	alternate manufacturer to ensure supply of Aslera;            
|
| |  | an interruption in supply of finished product; and                                                                                                                                 
|
| |  | competing demands on the contract
	manufacturers capacity, for example, shifting
	manufacturing priorities to their own products or more
	profitable products for other customers.



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on Watson Pharmaceuticals
	to market Aslera in North America and if Aslera is approved by
	the FDA and they fail to meet expected levels of sales our
	business will suffer.

We must rely on Watson to market Aslera in North
America. Because royalties from sales of Aslera would be our
primary near-term source of revenue, successful marketing,
promotion and distribution of this product are critical to our
success. We have limited internal sales, marketing and
distribution capabilities and are entirely dependent on Watson
to promote Aslera. If Aslera is approved by the FDA and Watson
fails to promote Aslera, our business will suffer because we
will not receive anticipated revenue from product sales.



| |                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------
| | If we are unable to obtain patents or
	protect our intellectual property rights, we would lose
	competitive advantage.

Agency or court proceedings could invalidate our
current patents, or patents that issue on pending applications.
Our business would suffer if we do not successfully defend or
enforce our patents, which would result in loss of proprietary
protection for our technologies and products. Patent litigation
may be necessary to enforce patents to determine the scope and
validity of our proprietary rights or the proprietary rights of
another.

The active ingredient in Aslera is prasterone,
more commonly known as dehydroepiandrosterone or DHEA. DHEA is a
compound that has been in the public domain for many years. It
is not possible to obtain patent protection for the chemical
compound anywhere in the world. Genelabs licensed two United
States patents covering uses of DHEA in treating lupus from
Stanford University in 1993. The Stanford patents expire in 2015
and the license expires when the patents expire. In addition, we
have filed patent applications covering additional uses for
Aslera and various pharmaceutical formulations and intend to
file additional applications as appropriate. We have filed
patent applications covering compounds from our drug discovery
programs, however, no patents are currently issued. Nine patents
have issued covering Genelabs drug discovery technologies
and methods related to selective regulation of gene expression
and the control of viral infections, and have expiration dates
ranging from 2011 to 2015. A number of patent applications are
pending.

If another company successfully brings legal
action against us claiming our activities violate, or infringe,
their patents, a court may require us to pay significant damages
and prevent us from using or selling products

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or technologies covered by those patents. Others
could independently develop the same or similar discoveries and
may have priority over any patent applications Genelabs has
filed on these discoveries. Prosecuting patent priority
proceedings and defending litigation claims can be very
expensive and time-consuming for management. In addition,
intellectual property that is important for advancing our drug
discovery efforts or for uses for the active ingredient in
Aslera owned by others might exist that we do not currently know
about now or in the future. We might not obtain licenses to a
necessary product or technology on commercially reasonable
terms, or at all, and therefore, we may not pursue research,
development or commercialization of promising products.




| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Our research programs are in an early stage
	and may not successfully produce commercial
	products.

Pharmaceutical discovery research is inherently
high-risk because of the high failure rate of projects. To date,
our research has been focused on a single mechanism,
DNA-binding, which is unproven as a drug target. Our drug
discovery research programs have not produced a compound that
has progressed into preclinical development. Genelabs
product candidates, other than Aslera, are in an early stage of
research. The goal of our DNA-binding research program is to
discover novel chemical compounds that bind directly to DNA and
develop them into drugs. Genelabs, or others working in this
area, may never achieve this goal. We intend to explore
potential new drug targets in addition to DNA. If we are
successful in identifying new targets for our research, our
efforts in these new areas will reduce the resources available
for our DNA-binding research. Even if we initiate research on
new targets, these projects may fail.

If Genelabs discovers compounds that have the
potential to be drugs, public information about this research
breakthrough may lead other companies with greater resources to
focus more efforts on these types of compounds. Genelabs has
limited human and financial resources. Creation of the type of
compounds we seek to discover requires sophisticated and
expensive lab equipment and facilities, a team of scientists
with advanced scientific knowledge in many disciplines such as
chemistry, biochemistry and biology, and time and effort. Large
pharmaceutical companies have access to the latest equipment and
have many more personnel available to focus on solving
particular research problems, including those that Genelabs is
investigating. Therefore, even if our research programs are
successful, we have a competitive disadvantage.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We have incurred losses each year since our
	inception and may not be profitable in the near future or at
	all.

We have incurred losses each year since our
inception and have accumulated approximately $168.6 million
in net losses through December 31, 2001, including a net
loss of $13.0 million in 2001. If the FDA approves Aslera,
we anticipate realizing a net loss at least until Aslera is
sufficiently accepted by the market, and we may never achieve
profitability. If the FDA does not approve Aslera, we may never
be profitable and our revenues may never be sufficient to fund
operations.

If we cannot
obtain additional funds, we will not be able to carry out our
business plans.

Genelabs had cash, cash equivalents and
short-term investment balances totaling $19.0 million at
December 31, 2001, and approximately $14.2 million at
March 29, 2002. In order to have the necessary resources to
execute our business plans for our drug discovery research and
the development of Aslera for lupus, it will be necessary for us
to secure additional funding for our operations. If we are not
successful in securing any new sources of funding and we do not
alter our plans to spend at the currently planned rate, Genelabs
expects its cash to decrease an average of approximately
$3.5 million for each remaining quarter of 2002. Since
Genelabs inception, the Company has operated at a loss and
has funded operations primarily through public and private
offerings of equity securities and, to a lesser extent, contract
revenues. We expect to incur substantial additional costs,
including research costs for our drug discovery and development
costs for Aslera. The amount of additional costs in our business
plans will depend on numerous factors including any FDA actions,
progress of our research and development programs and the status
of corporate partnership agreements.

15



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##### Table of Contents



Though we plan to seek additional funds, which
may include the sale of equity, sale of long-term investments,
establishment of corporate partnerships, funding under
government grants, licensing of our clinical data or
intellectual property, royalty-sharing and/or other
arrangements, it is possible that none of these efforts to seek
additional funds will be successful. The sale of additional
equity would dilute existing shareholders. If we do not sell
equity, we may have to seek other sources of capital, such as
strategic alliances, which may require us to grant third parties
rights to our intellectual property assets. We may also need to
change our operating plans. Longer-term, we plan to fund our
operations principally from royalties on sales of Aslera by
marketing partners. However, Aslera may never receive FDA
approval, and, if it does, we may never generate revenue from
sales of Aslera. Although we are currently seeking to enter into
licensing agreements for the marketing rights to Aslera in
Europe and Japan, we may fail to enter into such license
agreements on acceptable terms, if at all. We also may be unable
to find buyers willing to purchase our equity or to license our
products or technology on commercially favorable terms, if at
all. The unavailability of additional funds would harm our
business by delaying or preventing the development, testing,
regulatory approval, manufacturing or marketing of our products
and technologies.

The following are illustrations of potential
impediments to our ability to successfully secure additional
funds:



| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our research programs are in an early stage,
	therefore there are fewer opportunities to enter into
	collaborations with other companies and up-front payments for
	early-stage pharmaceutical research collaborations are generally
	smaller for projects that are further from potential
	marketability;
|
| |  | our receipt of the not-approvable letter from the
	FDA for the Aslera NDA has had a negative impact on our ability
	to attract potential collaborators in Europe and Japan;                                                                                                                               
|
| |  | our ability to successfully complete an equity
	financing would be negatively impacted if we should become
	unable to meet Nasdaqs listing requirements; and                                                                                                                                             
|
| |  | we believe that securing funding from sales of
	equity would be more difficult in the event that the FDA
	requires significant additional studies before it will approve
	Aslera than if the NDA for Aslera is deemed approvable by the
	FDA without such requirements.                                   

FDA actions with respect to our NDA for Aslera,
for which we received a not-approvable letter in June 2001, will
have a material impact on our ability to secure funding and we
expect that the details of any FDA requirements will have an
impact on the range of possible funding sources, the amount and
terms of funding available and our ability to successfully
secure such funding. If Aslera is ultimately approved for
marketing in the U.S., Genelabs may receive a milestone payment
of up to $45 million and significant royalties on
Watsons net sales of Aslera. In addition, we believe that
any decision by the FDA that would enable us to move forward
with marketing plans for Aslera will materially improve our
ability to secure funding, while continued uncertainty about the
regulatory status of Aslera would have a material negative
impact on our ability to secure funding.

Additional funds for our research and development
activities may not be available on acceptable terms, if at all.
The unavailability of additional funds could delay or prevent
the development, approval or marketing of some or all of our
products and technologies, which would have a material adverse
effect on our business, financial condition and results of
operations.

Industry Risks



| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our activities involve hazardous materials
	and improper handling of these materials by our employees or
	agents could expose us to significant legal and financial
	penalties.

Our research and development activities involve
the controlled use of hazardous materials, including infectious
agents, chemicals and various radioactive compounds. Our organic
chemists use solvents, such as chloroform, isopropyl alcohol and
ethanol, corrosives such as hydrochloric acid and other highly
flammable materials, some of which are pressurized, such as
hydrogen. We use the following radioactive compounds in small
quantities under license from the State of California, including
Carbon(14), Cesium(137), Chro-

16



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##### Table of Contents



mium(51), Hydrogen(3), Iodine(125),
Phosphorus(32), Phosphorus(33) and Sulfur(35). Our biologists
use biohazardous materials, such as bacteria, fungi, parasites,
viruses and blood and tissue products. We also handle chemical,
medical and radioactive waste, byproducts of our research,
through licensed contractors. As a consequence, we are subject
to numerous environmental and safety laws and regulations,
including those governing laboratory procedures, exposure to
blood-borne pathogens and the handling of biohazardous
materials. Federal, state and local governments may adopt
additional laws and regulations affecting us in the future. We
may incur substantial costs to comply with, and substantial
fines or penalties if we violate, current or future laws or
regulations.


Although we believe that our safety procedures
for using, handling, storing and disposing of hazardous
materials comply with the standards prescribed by state and
federal regulations, we cannot eliminate the risk of accidental
contamination or injury from these materials. In the event of an
accident, state or federal authorities may curtail our use of
these materials and we could be liable for any civil damages
that result, the cost of which could be substantial. Further,
any failure by us to control the use, disposal, removal or
storage of, or to adequately restrict the discharge of, or
assist in the cleanup of, hazardous chemicals or hazardous,
infectious or toxic substances could subject us to significant
liabilities, including joint and several liability under state
or federal statutes. While we believe that the amount of
insurance we carry is sufficient for typical risks regarding our
handling of these materials, it may not be sufficient to cover
extraordinary or unanticipated events. Additionally, an accident
could damage, or force us to shut down, our research facilities
and operations.



| |                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may not be able to obtain or maintain
	sufficient insurance on commercially reasonable terms or with
	adequate coverage against potential liabilities in order to
	protect ourselves against product liability
	claims.

Our business exposes us to potential product
liability risks that are inherent in the testing, manufacturing
and marketing of human therapeutic products. We may become
subject to product liability claims if someone alleges that the
use of our products, such as Aslera for lupus, if approved,
injured subjects or patients. This risk exists for products
tested in human clinical trials as well as products that are
sold commercially. Although we currently have clinical trial
liability insurance, we may not be able to maintain this type of
insurance for any of our clinical trials or in a sufficient
amount. In addition, product liability insurance is becoming
increasingly expensive. As a result, we may not be able to
obtain or maintain product liability insurance in the future on
acceptable terms or with adequate coverage against potential
liabilities which could harm our business by requiring us to use
our resources to pay potential claims.

Market Risks



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| | Because our stock is volatile, the value of
	your investment in Genelabs may substantially
	decrease.

The market price of our common stock, like the
stock prices of many publicly traded biopharmaceutical
companies, has been and will probably continue to be highly
volatile. Between January 1, 2001 and December 31,
2001, the closing price of our common stock fluctuated between
$1.26 and $8.84 per share. Between January 1, 2002 and
March 22, 2001 the closing price of our common stock
fluctuated between $1.79 and $2.54 per share. In addition to the
factors discussed in this Risk Factors section, a variety of
events can impact the stock price, including the low percentage
of institutional ownership of our stock, which contributes to
lack of stability for the stock price.

In addition, numerous events occurring outside of
our control may also impact the price of our common stock,
including market conditions related to the biopharmaceutical
industry. Other companies have defended themselves against
securities class action lawsuits following periods of volatility
in the market price of their common stock. If a party brings
this type of lawsuit against us, it could result in substantial
costs and diversion of managements time.

17



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##### Table of Contents






Item 2.     Properties.

We lease our principal research, clinical
development and office facilities under an operating lease
expiring in November 2002. We are seeking an extension of this
lease, the final terms of which are not presently known, and
anticipate staying in the same location. This location
encompasses approximately 50,000 square feet located in Redwood
City, California, with an annual base rent of $855,000. Genelabs
believes that this facility is adequate for its current needs
and that suitable additional or substitute space will be
available as needed to accommodate its operations.




Item 3.     Legal
Proceedings.

Not applicable.




Item 4.     Submission
of Matters to a Vote of Security Holders.

Not applicable.




Item 4A.     Executive
Officers of the Registrant.

The executive officers of Genelabs are as follows:

|                          |  |     |    |          |  |                                                        
|------------------------- |  | --- | -- | -------- |  | -------------------------------------------------------
|Name                      |  | Age |    | Position
|                          |  |     |    |         
|Irene A. Chow, Ph.D.      |  |     | 63 |          |  | Chairman and Chief Executive Officer                   
|James A. D. Smith         |  |     | 43 |          |  | President                                              
|Ronald C. Griffith, Ph.D. |  |     | 54 |          |  | Vice President, Research                               
|Lynn M. Hughes            |  |     | 46 |          |  | Vice President, Human Resources and Corporate
	Services
|Heather Criss Keller      |  |     | 36 |          |  | Vice President, General Counsel and Secretary          
|Matthew M. Loar           |  |     | 39 |          |  | Chief Financial Officer                                
|Kenneth E. Schwartz, M.D. |  |     | 54 |          |  | Vice President, Medical Affairs                        
|Roy J. Wu                 |  |     | 47 |          |  | Vice President, Business Development                   

Irene A. Chow, Ph.D.has been Chairman since April 1999 and
has been Chief Executive Officer since January 2001. From 1995
through March 1999 she was President and Chief Executive
Officer. Dr. Chow joined Genelabs as an officer and
director in 1993. In addition to her duties at the Company,
Dr. Chow is also the chairman of the board of Genovate
Biotechnology Co., Ltd. (formerly Genelabs Biotechnology
Co., Ltd.). Prior to joining Genelabs, Dr. Chow held
several positions at Ciba-Geigy Corporation, most recently as
Senior Vice President of Drug Development for the
pharmaceuticals division. Prior to joining Ciba-Geigy,
Dr. Chow served as an associate professor and assistant
dean of Health Related Professions at Downstate Medical School,
State University of New York. Dr. Chow holds a B.A.
degree in Literature from National Taiwan University, and both
an M.A. and a Ph.D. in Biostatistics from the University of
California, Berkeley.

James A. D. Smithhas been President since April 1999.
From January 2000 to January 2001 he also served as Chief
Executive Officer. From October 1996 through March 1999 he was
Chief Operating Officer and previously served the Company as
Vice President, Marketing and Business Development and as
Director of Marketing. Prior to joining Genelabs, Mr. Smith
was with ICN Pharmaceuticals for more than ten years in various
marketing and business development positions, most recently as
Director of Worldwide Business Development. Mr. Smith has a
B.S. in Molecular and Cellular Biology from the University of
California, San Diego.

Ronald C. Griffith, Ph.D.has been Vice President, Research
since December 2001. Prior to joining Genelabs,
Dr. Griffith was Vice President of Medicinal Chemistry with
Isis Pharmaceuticals Corp. From February 2000 through May 2001
he was Vice President of Chemistry at X -Ceptor
Therapeutics. Prior to that, Dr. Griffith was Director of
Chemical Sciences at Tanabe Research Laboratories, USA from 1997
through 2000 and, from 1995 until he joined Tanabe,
Dr. Griffith was Director of Chemistry with Astra

18



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##### Table of Contents



Pharmaceuticals (acquired by AstraZeneca).
Dr. Griffith was also Director of Chemistry at Fison
Pharmaceuticals from 1988 to 1995 and Director of Medicinal
Chemistry at Pennwalt Corporation from 1986 to 1988, joining
Pennwalt in 1974. Dr. Griffith received his B.S. degree
from Alfred University and his Ph.D. in Organic Chemistry from
Syracuse University and was a post-doctoral fellow at California
Institute of Technology.


Lynn M. Hugheshas
been Vice President, Human Resources and Corporate Services
since February 2000. From 1996 until joining Genelabs,
Ms. Hughes was Director, Human Resources at COR
Therapeutics, Inc. Prior to joining COR, she held Human
Resources positions with Navigation Technologies, Sony
Electronics and Silicon Graphics. Ms. Hughes holds P.H.R.
and C.C.P. Human Resources certifications and received her B.A.
from the University of North Florida.

Heather Criss Kellerhas been Vice President, General
Counsel and Secretary since January 2001. From January 2000
until January 2001 she was Vice President, Legal Affairs and
Secretary. From October 1998 through January 2000 she was
Director of Legal Affairs, appointed Secretary in August 1999.
From September 1996 until July 1998 Ms. Keller was Senior
Corporate Counsel at Heartport, Inc. Prior to joining Heartport,
Ms. Keller was an associate with the law firm of Brobeck,
Phleger & Harrison LLP. Ms. Keller received a J.D.
from Vanderbilt University School of Law and a B.A. from Duke
University.

Matthew M. Loarhas
been Chief Financial Officer since September 2001. From January
1999 to September 2001 he was Vice President, Finance, and for
approximately three years previously was Director of Finance and
Controller. Mr. Loar held various positions in finance and
accounting for ten years prior to joining the Company, including
five years in public accounting at Coopers & Lybrand.
Mr. Loar is a Certified Public Accountant and has a B.A. in
Legal Studies from the University of California, Berkeley.

Kenneth E. Schwartz, M.D.has been Vice President, Medical
Affairs since February 2002, prior to which he served as Senior
Medical Director. Prior to joining Genelabs, Dr. Schwartz
held several positions with Syntex Research and was an Assistant
Clinical Professor in Internal Medicine 
Endocrinology and Metabolism at the University of California,
San Francisco. Dr. Schwartz has also had a private medical
practice at Alta Bates Hospital in Berkeley, California.
Dr. Schwartz received his B.S. in Chemistry from University
of California, Los Angeles and his M.D. from Stanford University.

Roy J. Wuhas been
Vice President of Business Development since October 2001. From
October 1997 to October 2001, he served as Vice President,
Corporate Secretary and member of the board of directors of
Kissei Pharma, USA. Prior to joining Kissei, Mr. Wu was
Director of Business Development with Quintiles  BRI
Inc. for approximately three years and was previously with
Syntex for 16 years, in research and development and in
business development. He received his B.S. in Biology from
University of San Francisco and his M.B.A. in International
Finance from University of San Francisco.

19



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##### Table of Contents






PART II




Item 5.     Market
for Registrants Common Equity and Related Shareholder
Matters.

The Common Stock of the Company began trading
publicly on the Nasdaq Stock Market on June 13, 1991 under
the symbol GNLB. The following table sets forth for
the periods indicated the high and low sale prices of the
Companys common stock as reported by the Nasdaq Stock
Market.

|            |  |      |       |     |  |  |      | 
|----------- |  | ---- | ----- | --- |  |  | ---- | 
|            |  | High |       | Low
|            |  |      |       |    
|2001        |  |      |       |     |  |  |      | 
|1st Quarter |  |      | 8.84  |     |  |  | 4.00 | 
|2nd Quarter |  |      | 5.09  |     |  |  | 1.70 | 
|3rd Quarter |  |      | 2.68  |     |  |  | 1.26 | 
|4th Quarter |  |      | 2.48  |     |  |  | 1.65 | 
|2000        |  |      |       |     |  |  |      | 
|1st Quarter |  |      | 16.50 |     |  |  | 4.69 | 
|2nd Quarter |  |      | 7.38  |     |  |  | 2.72 | 
|3rd Quarter |  |      | 6.44  |     |  |  | 3.28 | 
|4th Quarter |  |      | 6.25  |     |  |  | 3.56 | 

As of February 28, 2002, there were
approximately 633 holders of record of Genelabs Common Stock.

Genelabs has never declared or paid any cash
dividends on its capital stock. We currently intend to retain
any earnings for use in the operation and expansion of our
business and do not anticipate paying any cash dividends in the
foreseeable future.




Item 6.     Selected
Financial Data.

The following selected consolidated financial
information has been derived from the audited consolidated
financial statements. The information below is not necessarily
indicative of results of future operations, and should be read
in conjunction with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and
related notes thereto included in Item 8 of this Annual
Report on Form 10-K in order to fully understand factors
that may affect the comparability of the information presented
below.

The following table summarizes quarterly
financial data (unaudited).

|                    |                                           |                                          |   |              |   |         |   |          |   |  |   |        |   |  |   |        |  
|------------------- | ----------------------------------------- | ---------------------------------------- | - | ------------ | - | ------- | - | -------- | - |  | - | ------ | - |  | - | ------ | -
|                    |                                           | December 31                              |   | September 30 |   | June 30 |   | March 31
|                    |                                           |                                          |   |              |   |         |   |         
|                    |                                           |                                         
|                    |                                           | (in thousands, except per share amounts)
|2001 Quarter Ended: |                                           |                                          |   |              |   |         |   |          |   |  |   |        |   |  |   |       
|                    | Contract revenue                          |                                          | $ | 1,062        |   |         | $ | 1,127    |   |  | $ | 1,076  |   |  | $ | 1,504  |  
|                    | Research and development expenses         |                                          |   | 3,319        |   |         |   | 3,019    |   |  |   | 3,489  |   |  |   | 3,411  |  
|                    | General and administrative expenses       |                                          |   | 1,660        |   |         |   | 1,537    |   |  |   | 1,733  |   |  |   | 1,534  |  
|                    | Loss from continuing operations           |                                          |   | (3,695       | ) |         |   | (3,044   | ) |  |   | (3,687 | ) |  |   | (2,861 | )
|                    | Net loss                                  |                                          |   | (3,408       | ) |         |   | (3,044   | ) |  |   | (3,687 | ) |  |   | (2,861 | )
|                    | Loss per share from continuing operations |                                          |   | (0.07        | ) |         |   | (0.06    | ) |  |   | (0.07  | ) |  |   | (0.06  | )
|                    | Net loss per share                        |                                          |   | (0.07        | ) |         |   | (0.06    | ) |  |   | (0.07  | ) |  |   | (0.06  | )

20



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##### Table of Contents



|                    |                                           |                                          |   |              |   |         |   |          |   |  |   |        |   |  |   |        |  
|------------------- | ----------------------------------------- | ---------------------------------------- | - | ------------ | - | ------- | - | -------- | - |  | - | ------ | - |  | - | ------ | -
|                    |                                           | December 31                              |   | September 30 |   | June 30 |   | March 31
|                    |                                           |                                          |   |              |   |         |   |         
|                    |                                           |                                         
|                    |                                           | (in thousands, except per share amounts)
|2000 Quarter Ended: |                                           |                                          |   |              |   |         |   |          |   |  |   |        |   |  |   |       
|                    | Contract revenue                          |                                          | $ | 1,870        |   |         | $ | 1,588    |   |  | $ | 1,635  |   |  | $ | 1,982  |  
|                    | Research and development expenses         |                                          |   | 3,701        |   |         |   | 3,496    |   |  |   | 3,787  |   |  |   | 3,687  |  
|                    | General and administrative expenses       |                                          |   | 1,837        |   |         |   | 1,158    |   |  |   | 1,432  |   |  |   | 1,199  |  
|                    | Loss from continuing operations           |                                          |   | (3,216       | ) |         |   | (2,696   | ) |  |   | (3,538 | ) |  |   | (2,832 | )
|                    | Net loss                                  |                                          |   | (3,216       | ) |         |   | (2,696   | ) |  |   | (3,538 | ) |  |   | (2,832 | )
|                    | Loss per share from continuing operations |                                          |   | (0.07        | ) |         |   | (0.06    | ) |  |   | (0.09  | ) |  |   | (0.07  | )
|                    | Net loss per share                        |                                          |   | (0.07        | ) |         |   | (0.06    | ) |  |   | (0.09  | ) |  |   | (0.07  | )

The selected financial data presented below
summarizes certain financial information from the consolidated
financial statements.

|                              |                                           |                                          |   |         |   |      |   |         |   |      |   |         |   |  |   |        |   |  |   |         |  
|----------------------------- | ----------------------------------------- | ---------------------------------------- | - | ------- | - | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                              |                                           |                                         
|                              |                                           | Years Ended December 31,                
|                              |                                           |                                         
|                              |                                           | 2001                                     |   | 2000    |   | 1999 |   | 1998    |   | 1997
|                              |                                           |                                          |   |         |   |      |   |         |   |     
|                              |                                           |                                         
|                              |                                           | (in thousands, except per share amounts)
|Statement of Operations Data: |                                           |                                          |   |         |   |      |   |         |   |      |   |         |   |  |   |        |   |  |   |        
|                              | Contract revenue                          |                                          | $ | 4,769   |   |      | $ | 7,075   |   |      | $ | 8,017   |   |  | $ | 7,800  |   |  | $ | 3,115   |  
|                              | Research and development expenses         |                                          |   | 13,238  |   |      |   | 14,671  |   |      |   | 13,953  |   |  |   | 12,615 |   |  |   | 12,022  |  
|                              | General and administrative expenses       |                                          |   | 6,464   |   |      |   | 5,626   |   |      |   | 4,704   |   |  |   | 4,349  |   |  |   | 4,508   |  
|                              | Loss from continuing operations           |                                          |   | (13,287 | ) |      |   | (12,282 | ) |      |   | (10,139 | ) |  |   | (6,717 | ) |  |   | (12,038 | )
|                              | Net loss                                  |                                          |   | (13,000 | ) |      |   | (12,282 | ) |      |   | (12,821 | ) |  |   | (6,605 | ) |  |   | (12,897 | )
|                             
|                              | Loss per share from continuing operations |                                          |   | (0.27   | ) |      |   | (0.28   | ) |      |   | (0.25   | ) |  |   | (0.17  | ) |  |   | (0.31   | )
|                              | Net loss per share                        |                                          |   | (0.26   | ) |      |   | (0.28   | ) |      |   | (0.32   | ) |  |   | (0.17  | ) |  |   | (0.33   | )

|                    |                                                   |                |   |        |  |      |   |        |  |      |   |        |  |  |   |        |  |  |   |        | 
|------------------- | ------------------------------------------------- | -------------- | - | ------ |  | ---- | - | ------ |  | ---- | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                    |                                                   |               
|                    |                                                   | December 31,  
|                    |                                                   |               
|                    |                                                   | 2001           |   | 2000   |  | 1999 |   | 1998   |  | 1997
|                    |                                                   |                |   |        |  |      |   |        |  |     
|                    |                                                   |               
|                    |                                                   | (in thousands)
|Balance Sheet Data: |                                                   |                |   |        |  |      |   |        |  |      |   |        |  |  |   |        |  |  |   |       
|                    | Cash, cash equivalents and short-term investments |                | $ | 19,000 |  |      | $ | 34,671 |  |      | $ | 8,099  |  |  | $ | 20,301 |  |  | $ | 21,099 | 
|                    | Working capital                                   |                |   | 13,359 |  |      |   | 28,758 |  |      |   | 3,010  |  |  |   | 12,310 |  |  |   | 15,793 | 
|                    | Total assets                                      |                |   | 22,100 |  |      |   | 37,594 |  |      |   | 11,689 |  |  |   | 26,807 |  |  |   | 29,925 | 
|                    | Shareholders equity                              |                |   | 11,900 |  |      |   | 24,000 |  |      |   | 5,571  |  |  |   | 17,786 |  |  |   | 23,210 | 

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Item 7.     Managements
Discussion and Analysis of Financial Condition and Results of
Operations.

All statements in Managements Discussion
and Analysis of Financial Condition and Results of Operations
that are not historical are forward-looking statements. Actual
results may differ from the forward-looking statements due to a
number of risks and uncertainties that are discussed under
Risk Factors in Item 1 and elsewhere on this
Annual Report on Form 10-K. Shareholders and prospective
investors in the Company should carefully consider these risk
factors. We disclaim any obligation to update these statements
for subsequent events.

Genelabs Technologies, Inc., referred to as
Genelabs or the Company, is a biopharmaceutical company focused
on discovering and developing pharmaceutical products. We have
an investigational drug, AsleraTM, for which the
U.S. Food and Drug Administration, referred to as the FDA,
is reviewing our New Drug Application, or NDA. Aslera is a
potential new treatment for systemic lupus erythematosus,
referred to as SLE or lupus, a disease for which current
therapies are not adequate. After licensing Aslera from
Stanford, Genelabs designed and conducted two large,
well-controlled Phase III clinical trials of Aslera in
women with SLE and a third Phase III clinical trial in men
with SLE, begun in 1997, is ongoing. Upon completion of the
second Phase III trial in 1999, Genelabs prepared an NDA
for Aslera to treat women with lupus, which was submitted to the
FDA on a rolling basis under fast-track designation in 2000. We
subsequently received priority review designation from the FDA
and licensed North American marketing rights to Watson
Pharmaceuticals, Inc., referred to as Watson. The FDA Arthritis
Advisory Committee reviewed the NDA on April 19, 2001, and
on June 26, 2001, the FDA sent us a letter stating that the
Aslera NDA was not approvable, listing deficiencies that
must be addressed before the NDA can be approved.

The NDA review process has actively continued
since our receipt of the FDAs June not-approvable letter
as we work within the FDAs regulatory framework toward
resolution of the issues raised in the letter. We believe there
is a range of possible outcomes from our current discussions
with the FDA, from the FDA approving our NDA to the FDA stating
that the NDA could only be approved with an additional large,
well-controlled Phase III clinical trial with positive
results or other potentially costly and time-consuming
contingencies. The decisions regarding whether deficiencies are
sufficiently resolved to support approval of Aslera rest with
the FDA and cannot be reasonably estimated before they are made.
Our near-term drug development goal is to reach agreement with
the FDA on the steps necessary for approval.

In the event that we cannot reach agreement with
the FDA on the steps necessary for approval of Aslera, we will
evaluate the feasibility of any additional requirements
requested by the FDA in order to determine how to proceed with
the development of Aslera. Factors in our evaluation would
include the potential complexity and expense of a particular
clinical trial design requested by the FDA, our ability to
accrue sufficient patients in a timely manner in a clinical
trial, if required, and our financial position, including
whether it would be possible to secure sufficient funding
through financings or collaborations to satisfy any such
requirements. If we determine that it is not feasible for us to
satisfy one or more requirements requested by the FDA, we
currently plan to continue to work with the FDA to find an
acceptable alternative or seek assistance from collaborators
with resources greater than ours. Even if we reach agreement
with the FDA, we anticipate that there will still be issues that
must be resolved before the FDA can approve Aslera for
marketing. We cannot predict what these requirements will be,
whether we will be successful in resolving any of the issues or
whether there will be additional substantial obstacles to, or
delays in, our development of Aslera for lupus.

Our near-term drug discovery research goals are
to continue to synthesize novel DNA-targeted compounds and to
screen, test and optimize our lead compounds, including the
antibacterial and antifungal lead compounds identified in 2001,
with the goal of selecting one or more for preclinical
development.

Results of Operations



| |                                        
| | ---------------------------------------
| | Years Ended December 31, 2001 and
	2000



| |             
| | ------------
| | Introduction

Genelabs net loss was $13.0 million in
2001, an increase of $0.7 million from the
$12.3 million net loss in 2000. This increase is primarily
the result of lower contract revenue in 2001 and higher general
and

22



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##### Table of Contents



administrative costs related to our continued
preparation for the potential commercial introduction of Aslera,
partially offset by higher interest income and lower Aslera
development costs. A more detailed discussion of the changes in
Genelabs statement of operations follows.


Contract
Revenue

Contract revenues were $4.8 million in 2001,
a decrease of $2.3 million from $7.1 million in
contract revenues in 2000. In 2001, approximately 63% of
revenue, or $3.0 million, was the recognition into income
of a previously received up-front license payment from Watson.
In 2001, this source of revenue increased by $2.6 million
over the $0.4 million recorded as revenue from Watson in
2000, because the agreements with Watson were signed in late
2000 and a full year of the up-front payment amortization was
recognized in 2001 but not in 2000. This up-front license fee
from Watson is being deferred and recognized as revenue over the
term Genelabs management estimates that it has significant
obligations to Watson. Our current estimate of the term Genelabs
has significant obligations to Watson is over the longer of the
periods incorporating FDA consideration of approval of Aslera,
Genelabs transfer of technology to Watson, and
Genelabs fulfillment of supply obligations to Watson, the
longest of which is currently estimated to be approximately
three and one-half years from the signing of the agreements with
Watson in November 2000.

Genelabs management considers the
amortization period for the up-front payment from Watson a
critical accounting estimate, which is based on our current
estimate of the period we have significant obligations to
Watson. The estimated period of amortization has a noteworthy
impact on the revenue recognized, and, in turn, the net loss
reported in Genelabs financial statements. For example, if
a five-year term were estimated instead of the current three and
one-half years, Genelabs revenue for 2001 would be lower
by $1.0 million, and the net loss would be higher by
$1.0 million. Conversely, if a shorter amortization term
were estimated, Genelabs revenue for 2001 would be
greater. We have assessed the remaining term over which the
up-front payment from Watson is being recognized into the income
statement, and believe it is the most appropriate term based on
the facts known to us as of the date of the filing of this
Annual Report on Form 10-K. However, actions taken by the
FDA, or other changes in circumstances, after the filing of this
Annual Report on Form 10-K may either reduce or lengthen
the remaining period over which Genelabs records the up-front
revenue from Watson.

Aside from the revenue recognized from Watson,
none of our other sources of revenue for 2001 exceeded
$1.0 million. Other sources of revenue include data
analysis services performed for larger pharmaceutical companies,
royalties and grants. Revenues in 2001 from Genelabs
Defense Advanced Research Projects Agency (DARPA) grant
were $0.4 million, compared to $5.0 million in 2000, a
decrease of $4.6 million in 2001 due to the grants
scheduled expiration in early 2001. None of the other revenue
changes for 2001 compared to 2000 were material.



| |                   
| | ------------------
| | Operating Expenses

Operating expenses were $19.7 million in
2001, a decrease of $0.6 million from the
$20.3 million in operating expenses in 2000. All operating
expenses are related to Genelabs business of discovering
and developing pharmaceutical products. In 2001,
$13.2 million of operating expenses were in research and
development, compared to $14.7 million in 2000, a decrease
of $1.5 million for 2001 as compared to 2000. Costs related
to Aslera were approximately $1.2 million lower in 2001 due
to completion in 2000 of certain externally conducted toxicology
studies and our purchase in 2000 of bulk drug supply in
preparation for manufacturing validation of commercial product
lots. Partially offsetting these 2001 decreases in Aslera costs
were higher costs incurred in 2001 for external medical
consultants as we prepared for and participated in various
meetings with the FDA. Costs for Genelabs drug discovery
efforts decreased $0.2 million in 2001 compared to 2000, as
marginal cost reductions related to the scheduled expiration of
Genelabs grant from DARPA in early 2001 were largely
offset with increased expenditures related to Genelabs own
drug discovery efforts.

The Aslera and drug discovery projects are both
ongoing, and the future of these projects, and the additional
costs that will be incurred, depends on future events. In the
near-term for Aslera, a higher level of

23



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##### Table of Contents



future costs will be incurred if the FDA
determines the product is approvable, in which case we
anticipate conducting at least one large post-marketing study,
and likely additional studies for other potential uses of the
drug. We believe that costs for drug discovery efforts will be
ongoing as long as the Company is in the pharmaceutical
business. Costs for the year 2002 and thereafter will depend on
many factors, including the outcome of scientific experiments
and funding available to the Company.


In 2001, $6.5 million in operating expenses
were general and administrative expenses, compared to
$5.6 million in 2000, an increase of $0.9 million.
Higher general and administrative costs were incurred in 2001
compared to 2000 as we continued to prepare for the potential
commercial introduction of Aslera and resolved a legal matter.
Future general and administrative expenses will vary depending
upon our execution of our business plans.



| |                      
| | ---------------------
| | Nonoperating Expenses

Interest income was $1.6 million in 2001, an
increase of $1.0 million from 2000. The increase in
interest income was due to higher average cash and short-term
investment balances during 2001 than during 2000.

In 2001, we recorded $0.3 million in income
from the discontinued operations of Genelabs Diagnostics Pte.
Ltd., referred to as GLD. This amount reflects the net income of
this subsidiary after it settled an HIV-2 patent infringement
suit that was brought in Singapore. Genelabs management is
pursuing the sale of GLD, and expects to complete its divestment
in 2002.



| |                                        
| | ---------------------------------------
| | Years Ended December 31, 2000 and
	1999

Genelabs net loss was $12.3 million in
2000, a decrease of $0.5 million from the
$12.8 million net loss in 1999. This decrease is primarily
the result of significantly lower losses from the Companys
discontinued diagnostics operations, offset by an increased loss
from continuing operations of drug development and discovery. A
more detailed discussion of the changes in Genelabs
statement of operations follows.

Contract revenues were $7.1 million in 2000,
a decrease of $0.9 million from the $8.0 million in
contract revenues in 1999. In 2000 approximately 70% of revenue,
or $5.0 million, was from the DARPA grant, compared to
$5.2 million from DARPA in 1999, a decrease of
$0.2 million in 2000. Our research collaboration with
DuPont Pharmaceuticals was terminated as of December 31,
1999, resulting in $1.1 million less revenue in 2000
compared to 1999. The decreases in revenue in 2000 as compared
to 1999 from DARPA and DuPont, which totaled $1.3 million,
were partially offset by an increase of $0.4 million
related to our collaboration with Watson. In 2000, we received a
$10 million non-refundable up-front license fee from
Watson, of which $0.4 million was recognized as revenue in
2000. The remainder of this fee was deferred for recognition as
revenue over the longer of the estimated periods incorporating
FDA consideration of approval of Aslera, Genelabs transfer
of technology to Watson, or Genelabs fulfillment of supply
obligations to Watson; the longest of which is currently
estimated to be approximately three and one-half years from the
signing of the agreements with Watson in November 2000.

Operating expenses were $20.3 million in
2000, an increase of $1.6 million from the
$18.7 million in operating expenses in 1999. In 2000,
$14.7 million of operating expenses were in research and
development, compared to $14.0 million in 1999, an increase
of $0.7 million. The increase in research and development
expenses was primarily the result of costs for our preparation
and submission of a New Drug Application for Aslera to the FDA.
General and administrative expenses increased to
$5.6 million in 2000 compared to $4.7 million in 1999,
as we began preparations for the potential commercial
introduction of Aslera.

In 2000, interest income increased slightly to
$0.6 million from $0.5 million in 1999 due to our
increased cash and short-term investment balance at the end of
the year, after entering into the agreements with Watson. Also
in 2000, we recorded a gain of $0.4 million on the sale of
a portion of our equity investment in a Taiwan-based
biopharmaceutical company.

In 2000, there was no income or loss recorded
from GLD, the Companys discontinued diagnostics operation
in Singapore. This operation was written-off in 1999 after it
lost an HIV-2 patent infringement suit for which the damage
estimates exceeded GLDs net assets. The charges related to
the diagnostics operation

24



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##### Table of Contents



and the write-off aggregated $2.8 million in
1999, and there were no charges or income for this business
reported in 2000, since as of December 31, 2000 the damage
estimates still exceeded GLDs net assets.


Liquidity and Capital Resources

Genelabs had cash, cash equivalents and
short-term investment balances totaling $19.0 million at
December 31, 2001. During 2001, our cash and short-term
investments balance decreased by $15.7 million, from
$34.7 million at December 31, 2000, largely due to
cash used in operations. The cash used in operations funded our
development of Aslera as a new treatment for lupus and the
continued work on antimicrobial compounds discovered in our
DNA-targeted drug discovery program.

Genelabs liquidity and capital resources
will potentially be materially impacted by FDA actions with
respect to our NDA for Aslera, for which we received a
not-approvable letter in June 2001. If Aslera is ultimately
approved for marketing in the U.S., Genelabs believes that the
most important impact of the Watson collaboration for
Genelabs liquidity and capital resources is the
significant royalties Genelabs is entitled to receive on net
sales of Aslera. During the first three quarters after product
launch, a separate royalty schedule applies to support the
product launch. In addition to royalties, Genelabs may receive a
milestone payment of up to $45 million in the event of FDA
approval of Aslera. Any decision by the FDA that would enable
Genelabs to move forward with marketing plans for Aslera will
materially improve Genelabs liquidity and capital
resources. This improvement may occur through receipt of a
milestone payment from Watson, revenue from product royalties,
increased interest from potential collaborators in Europe and
Japan and/or improved access to capital markets. Genelabs
estimates that if Aslera is approved by the FDA, its resources
will be sufficient to fund operations for more than two years
prior to consideration of royalties on net sales of Aslera.

If Aslera is not approved by the FDA in 2002,
Genelabs estimates that its cash, short-term investments and
committed funding sources will be sufficient to fund its
operations into the second quarter of 2003. Prior to this time,
we plan to seek additional funds which may include the sale of
equity, sale of long-term investments, establishment of
corporate partnerships, funding under government grants,
licensing of our clinical data or intellectual property,
royalty-sharing and/or other arrangements. It is possible that
none of these efforts to seek additional funds will be
successful. The following are illustrations of potential
impediments to our ability to successfully secure additional
funds. Our research programs are in an early stage, therefore
there are fewer opportunities to enter into collaborations with
other companies and up-front payments for early-stage
pharmaceutical research collaborations are generally smaller for
projects that are further from potential marketability. Our
ability to successfully complete an equity financing would be
negatively impacted if we should become unable to meet
Nasdaqs listing requirements. We believe that securing
funding from sales of equity would be more difficult in the
event that the FDA requires significant additional studies
before it will approve Aslera than if the NDA for Aslera is
deemed approvable by the FDA without such requirements. We plan
to evaluate the feasibility of any additional requirements
requested by FDA and expect that the details of any such
requirements will have an impact on the range of possible
funding sources, the amount and terms of funding available and
our ability to successfully secure such funding.

As of March 29, 2002, Genelabs had cash and
short-term investments of approximately $14.2 million.
Consistent with prior years, cash use during the first quarter
is generally higher than the second, third and fourth quarters.
If we are not successful in securing any new sources of funding
and we do not alter our plans to spend at the currently planned
rate, we expect our cash to decrease an average of approximately
$3.5 million for each remaining quarter of 2002. Since
Genelabs inception, the Company has operated at a loss and
has funded operations primarily through public and private
offerings of equity securities and, to a lesser extent, contract
revenues. We expect to incur substantial additional costs,
including research costs for drug discovery and development
costs for Aslera. The amount of additional costs in our business
plans will depend on numerous factors including any FDA actions,
progress of our research and development programs and the status
of corporate partnership agreements.

Additional funds for our research and development
activities may not be available on acceptable terms, if at all.
The unavailability of additional funds could delay or prevent
the development, approval or marketing of

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##### Table of Contents



some or all of our products and technologies,
which would have a material adverse effect on our business,
financial condition and results of operations.


Off-Balance
Sheet Arrangements

Genelabs principal research, clinical
development and office facilities are leased from third-parties
under operating leases. As such, Genelabs expenses its facility
rental costs as those costs are incurred over the term of the
lease. Genelabs owns all of the equipment used in conducting its
business, and, other than the facility operating leases, does
not have any off-balance sheet arrangements.

As of December 31, 2001, the Company had
total open purchase order commitments for approximately
$0.7 million of products and services, all of which we
expect to receive and pay for in 2002. In addition, Genelabs has
commitments of $0.9 million due in 2002 under its operating
lease. There are currently no additional contractual obligations.




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risk

Genelabs exposure to market risk for
changes in interest rates relates primarily to the
Companys short-term investments. We consider the risk
minimal as each security in our portfolio of short-term
investments matures in less than two years, to date we have not
used derivative instruments, and we have placed our investments
with high quality debt issuers. As of December 31, 2001,
the overall average maturity of Genelabs short-term investment
portfolio was less than six months, leaving little exposure to
changes in interest rates.

Genelabs exposure to market risk for
changes in foreign currency exchange rates relates primarily to
the Companys investment in a Taiwan-based
biopharmaceutical company, Genovate Biotechnology Co., Ltd.,
which is accounted for at cost, based on the lower of cost or
market value method. This investment is the only item included
in the balance sheet caption Long-term investments.
Genelabs may attempt to divest a portion of this investment, in
which case changes in foreign currency exchange rates would
impact the proceeds received upon sale of these shares. Because
the book value of Genelabs ownership percentage of
Genovate is greater than our carrying cost, we currently do not
believe that any foreign currency exchange rate changes would
impact the value of this investment as reported in the financial
statements unless the value of a Taiwan dollar depreciates by
greater than 60% compared to the U.S. dollar, which, depending
on other circumstances, might require Genelabs to record a
non-cash charge to write-down the long-term investment.




Item 8.     Consolidated
Financial Statements and Supplementary Data.

The Companys Consolidated Financial
Statements are set forth in the Genelabs Technologies,
Inc. Consolidated Financial Statements and Annual Report on Form
10-K Index on page F-1 of this Annual Report on
Form 10-K.






|        |                                                                                        
|------- | ---------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
	Accountants on Accounting and Financial
	Disclosure.

Not applicable.




PART III




Item 10.     Directors
and Executive Officers of Registrant.

The information concerning the Companys
directors required by Item 10 is incorporated herein by
reference to the section entitled Proposal
No. 1  Election of Directors  of the
definitive Proxy Statement for the Companys 2002 Annual
Meeting of Shareholders to be held on June 20, 2002 (the
Proxy Statement). The information concerning the
Companys executive officers required by Item 10 is
incorporated herein by reference to Item 4A of this Annual
Report on Form 10-K. The information concerning compliance
with Section 16 of the Securities Exchange Act of 1934, as
amended, required by Item 10 is incorporated herein by
reference to the section of the Proxy Statement entitled
Compliance With Section 16(a) of the Exchange Act.

26



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##### Table of Contents






Item 11.     Executive
Compensation.

The information required by Item 11 is
incorporated herein by reference to the sections of the Proxy
Statement entitled Executive Compensation and Other
Information and Compensation of Directors.






|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
	Owners and Management.

The information required by Item 12 is
incorporated herein by reference to the section of the Proxy
Statement entitled Security Ownership of Certain
Beneficial Owners and Management.




Item 13.     Certain
Relationships and Related Transactions.

The information required by Item 13 is
incorporated herein by reference to the section of the Proxy
Statement entitled Certain Relationships and Related
Transactions.




PART IV






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 14. | Exhibits, Financial Statement Schedules,
	and Reports on Form 8-K.

(a)(1), (a)(2) and (d) Financial Statements
and Schedules.Reference is made to Genelabs
Technologies, Inc. Consolidated Financial Statements Annual
Report on Form 10-K Index on page F-1 of this
Annual Report on Form 10-K. All financial statement
schedules have been omitted because they are not applicable or
because the information is included elsewhere in the
Consolidated Financial Statements or notes thereto.

(a)(3) and (c) Index to Exhibits.The
following documents are filed herewith or incorporated by
reference herein.

|        |       |               |  |                                                                                                                                                                                                                                                                            
|------- | ----- | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |              
|Number  |       | Exhibit Title
|        |       |              
|        | 3.01  |               |  | Registrants Amended and Restated Articles
	of Incorporation (incorporated herein by reference to
	Exhibit  3.01 to Registrants Quarterly Report on
	Form 10-Q for the quarter ended March 31, 2001).                                                                     
|        | 3.02  |               |  | Registrants Amended and Restated Bylaws
	(incorporated herein by reference to Exhibit 3.02 to
	Registrants Annual Report on Form 10-K for the year
	ended December 31, 2000 (the 2000
	Form 10-K)).                                                                    
|        | 4.01  |               |  | Specimen Certificate for Registrants Common
	Stock (incorporated herein by reference to Exhibit 4.01 to
	Registrants Registration Statement on Form S-1 filed
	with the Commission on April 29, 1991 (File
	No. 33-40120) (the Form S-1)).                             
|        | 10.01 |               |  | Registrants 1985 Employee Stock Option Plan
	and related documents, as amended to date (incorporated herein
	by reference to Exhibit 4.03 to the Registrants
	Registration Statement on Form S-8 (File No. 33-81894)
	filed on July 25, 1994 (the July 1994
	Form S-8).
|        | 10.02 |               |  | Registrants 1987 Directors Stock Option
	Plan and related documents, as amended to date (incorporated
	herein by reference to Exhibit 10.02 to Registrants
	Annual Report on Form 10-K for the year ended
	December 31, 1995 (the 1995 Form 10-K)).                    
|        | 10.03 |               |  | Registrants 1991 Employee Stock Purchase
	Plan, as amended to date (incorporated herein by reference to
	Exhibit 4.04 to Registrants Registration Statement on
	Form S-8 (File No. 333-30083) filed on June 26,
	1997).                                                  
|        | 10.04 |               |  | Registrants Amended 1994 Annual and
	Long-Term Incentive Based Compensation Plan (incorporated herein
	by reference to Exhibit 10.06 to the 2000 Form 10-K).                                                                                                              
|        | 10.05 |               |  | Registrants 1992 Restricted Stock Award
	Plan, as amended to date (incorporated herein by reference to
	Exhibit 4.06 to the Registrants Registration
	Statement on Form S-8 (File No. 333-4806) filed on
	May 7, 1996).                                                  

27



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##### Table of Contents



|        |       |               |  |                                                                                                                                                                                                                                                                                  
|------- | ----- | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |              
|Number  |       | Exhibit Title
|        |       |              
|        | 10.06 |               |  | Registrants 1995 Stock Option Plan, as
	amended to date (incorporated herein by reference to
	Exhibit 10.07 of the Registrants Annual Report on
	Form 10-K for the year ended December 31, 1997).                                                                              
|        | 10.07 |               |  | Registrants 2001 Stock Option Plan.                                                                                                                                                                                                                                             
|        | 10.08 |               |  | Registrants 2001 Employee Stock Purchase
	Plan.                                                                                                                                                                                                                                 
|        | 10.09 |               |  | Form of Registrants Indemnity Agreement
	entered into by Registrant with certain officers and directors
	(incorporated herein by reference to Exhibit 10.04 to the
	Form S-1).                                                                                                  
|        | 10.10 |               |  | Industrial Net Lease Agreement by and between
	Registrant and Lincoln Property Company N.C., Inc. dated
	July 29, 1986, as amended to date (incorporated herein by
	reference to Exhibit 10.06 to the Form S-1).                                                                 
|        | 10.11 |               |  | Amendment to Industrial Net Lease Agreement by
	and between Registrant and Metropolitan Life Insurance Company
	dated June 17, 1997 (incorporated herein by reference to
	Exhibit 10.36 to Registrants Quarterly Report on
	Form 10-Q for the quarter ended September 30, 1997).
|        | 10.12 |               |  | Agreement, dated as of January 26, 1996, by
	and between Registrant and Dr. Edgar G. Engleman
	(incorporated herein by reference to Exhibit 10.15 to
	Registrants Annual Report on Form 10-K for the year
	ended December 31, 1996 (the 1996
	Form 10-K))*.                   
|        | 10.13 |               |  | License Agreement, dated as of October 1,
	1993, by and between Registrant and Stanford University
	(incorporated herein by reference to Exhibit 10.16 to the
	1996 Form 10-K)*.                                                                                                 
|        | 10.14 |               |  | Joint Investment Agreement for formation of
	Genelabs Biotechnology Co., Ltd., a company organized under the
	laws of Taiwan, Republic of China (incorporated herein by
	reference to Exhibit 10.28 to the 1995 Form 10-K)*.                                                     
|        | 10.15 |               |  | Technology Transfer Agreement, dated as of
	November 21, 1995, by and between Registrant and Genelabs
	Biotechnology Co., Ltd. (incorporated herein by reference to
	Exhibit 10.29 to the 1995 Form 10-K)*.                                                                      
|        | 10.16 |               |  | Collaboration and License Agreement made as of
	November 12, 2000 by and between Registrant and Watson
	Pharmaceuticals, Inc. (incorporated herein by reference to
	Exhibit 10.17 to the 2000 Form 10-K)*.                                                                       
|        | 10.17 |               |  | Agreement entered into by Registrant with
	Irene A. Chow, Ph.D., as of January 3, 2002.                                                                                                                                                                                          
|        | 10.18 |               |  | Form of Agreement entered into by Registrant with
	certain employees of Registrant.                                                                                                                                                                                              
|        | 23.01 |               |  | Consent of Ernst & Young LLP,
	Independent Auditors.                                                                                                                                                                                                                             



---



|  |                                                                                            
|- | -------------------------------------------------------------------------------------------
|* | Confidential treatment has been granted with
	respect to certain portions of this document.

(b) Reports on Form 8-K.

None.

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##### Table of Contents






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.



| |                            
| | ---------------------------
| | GENELABS TECHNOLOGIES, INC.



| |     |                  
| | --- | -----------------
| | By: | /s/ IRENE A. CHOW

| |                                     
| | ------------------------------------
| |                                     
| | Irene A. Chow                       
| | Chairman and Chief Executive Officer

March 29, 2002

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each
individual whose signature appears below constitutes and
appoints Irene A. Chow and James A.D. Smith, and each
of them, his or her true and lawful attorneys-in-fact and agents
with full power of substitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign
any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, 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 or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his, her or their substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.

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.

|                                             |  |                                      |  |               
|-------------------------------------------- |  | ------------------------------------ |  | --------------
|Signature                                    |  | Title                                |  | Date          
|                                             |  |                                      |  |               
|                                            
|Principal Executive Officer:                 |  |                                      |  |               
|                                            
|/s/ IRENE A. CHOWIrene A. Chow               |  | Chairman and Chief Executive Officer |  | March 29, 2002
|                                            
|Principal Financial and Accounting
	Officer: |  |                                      |  |               
|                                            
|/s/ MATTHEW M. LOARMatthew M. Loar           |  | Chief Financial Officer              |  | March 29, 2002
|                                            
|Additional Directors:                        |  |                                      |  |               
|                                            
|/s/ RICHARD CROUTJ. Richard Crout            |  |                                      |  | March 29, 2002
|                                            
|/s/ THOMAS E. DEWEY, JR.Thomas E. Dewey, Jr. |  |                                      |  | March 29, 2002
|                                            
|/s/ ARTHUR GRAY, JR.Arthur Gray, Jr.         |  |                                      |  | March 29, 2002

29



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##### Table of Contents



|                                       |  |                      |  |               
|-------------------------------------- |  | -------------------- |  | --------------
|Signature                              |  | Title                |  | Date          
|                                       |  |                      |  |               
|                                      
|/s/ H. H. HAIGHTH. H. Haight           |  |                      |  | March 29, 2002
|                                      
|/s/ ALAN Y. KWANAlan Y. Kwan           |  |                      |  | March 29, 2002
|                                      
|/s/ JAMES A. D. SMITHJames A. D. Smith |  | President & Director |  | March 29, 2002
|                                      
|/s/ NINA K. WANGNina K. Wang           |  |                      |  | March 29, 2002

30



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.

CONSOLIDATED FINANCIAL STATEMENTS
AND

ANNUAL REPORT ON FORM 10-K


INDEX

|                                                   |                                                                                                      |      |           
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---- | ----------
|                                                   |                                                                                                      | Page
|                                                   |                                                                                                      |     
|Report of Ernst & Young LLP, Independent
	Auditors |                                                                                                      | F-2 
|Consolidated Financial Statements:                 |                                                                                                      |     
|                                                   | Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                        |      | F-3       
|                                                   | Consolidated Statements of Operations for the
	Years Ended December 31, 2001, 2000 and 1999          |      | F-4       
|                                                   | Consolidated Statement of Shareholders
	Equity for the Years Ended December 31, 2001, 2000 and 1999 |      | F-5       
|                                                   | Consolidated Statements of Cash Flows for the
	Years Ended December 31, 2001, 2000 and 1999          |      | F-6       
|                                                   | Notes to Consolidated Financial Statements                                                           |      | F-7  F-14

All schedules are omitted because they are not
required or the required information is included in the
consolidated financial statements or notes thereto.

F-1



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##### Table of Contents






REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Shareholders

Genelabs Technologies, Inc.


We have audited the accompanying consolidated
balance sheets of Genelabs Technologies, Inc. as of
December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders equity and cash
flows for each of the three years in the period ended
December 31, 2001. 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 in accordance with
auditing standards generally accepted in the United States.
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 financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Genelabs Technologies, Inc.
at December 31, 2001 and 2000, and the consolidated results
of its operations and its cash flows for each of the three years
in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

Palo Alto, California

February 6, 2002


F-2



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.






CONSOLIDATED BALANCE SHEETS


|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |          |        | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------ | -------- | ------ | - | ------ | -------- | ------ | 
|                                                   |                                                                                                                                                     |                          
|                                                   |                                                                                                                                                     | December 31,             
|                                                   |                                                                                                                                                     |                          
|                                                   |                                                                                                                                                     | 2001                      |        | 2000    
|                                                   |                                                                                                                                                     |                           |        |         
|                                                   |                                                                                                                                                     |                          
|                                                   |                                                                                                                                                     | (in thousands)           
|ASSETS                                            
|Current assets:                                    |                                                                                                                                                     |                           |        |          |        |   |        |         
|                                                   | Cash, cash equivalents and short-term investments:                                                                                                  |                           |        |          |        |   |        |          |       
|                                                   |                                                                                                                                                     | Cash and cash equivalents |        | $        | 8,626  |   |        | $        | 11,646 | 
|                                                   |                                                                                                                                                     | Short-term investments    |        |          | 10,374 |   |        |          | 23,025 | 
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|                                                   | Total cash, cash equivalents and short-term
	investments                                                                                            |                           |        | 19,000   |        |   |        | 34,671   |       
|                                                   | Other current assets                                                                                                                                |                           |        | 602      |        |   |        | 478      |       
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|Total current assets                               |                                                                                                                                                     |                           | 19,602 |          |        |   | 35,149 |         
|Property and equipment, net                        |                                                                                                                                                     |                           | 1,251  |          |        |   | 1,459  |         
|Long-term investments                              |                                                                                                                                                     |                           | 960    |          |        |   | 986    |         
|Net assets of diagnostics subsidiary held for sale |                                                                                                                                                     |                           | 287    |          |        |   |       |         
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|                                                   |                                                                                                                                                     | $                         | 22,100 |          |        | $ | 37,594 |         
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|                                                  
|LIABILITIES AND SHAREHOLDERS
	EQUITY             
|Current liabilities:                               |                                                                                                                                                     |                           |        |          |        |   |        |         
|                                                   | Accounts payable and other accrued liabilities                                                                                                      |                           | $      | 1,474    |        |   | $      | 1,587    |       
|                                                   | Accrued compensation and related expenses                                                                                                           |                           |        | 1,769    |        |   |        | 1,387    |       
|                                                   | Unearned contract revenue                                                                                                                           |                           |        | 3,000    |        |   |        | 3,417    |       
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|Total current liabilities                          |                                                                                                                                                     |                           | 6,243  |          |        |   | 6,391  |         
|Accrued compensation                               |                                                                                                                                                     |                           | 332    |          |        |   | 578    |         
|Unearned contract revenue                          |                                                                                                                                                     |                           | 3,625  |          |        |   | 6,625  |         
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|Total liabilities                                  |                                                                                                                                                     |                           | 10,200 |          |        |   | 13,594 |         
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|Commitments and contingencies                      |                                                                                                                                                     |                           |        |          |        |   |        |         
|Shareholders equity:                              |                                                                                                                                                     |                           |        |          |        |   |        |         
|                                                   | Preferred stock, no par value, 5,000 shares
	authorized, none issued or outstanding at December 31, 2001
	or 2000                                   |                           |        |         |        |   |        |         |       
|                                                   | Common stock, no par value, 75,000 shares
	authorized, 49,843 and 49,398 shares issued and outstanding at
	December 31, 2001 and 2000, respectively |                           |        | 180,500  |        |   |        | 179,600  |       
|                                                   | Accumulated deficit                                                                                                                                 |                           |        | (168,600 | )      |   |        | (155,600 | )     
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|Total shareholders equity                         |                                                                                                                                                     |                           | 11,900 |          |        |   | 24,000 |         
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         
|                                                   |                                                                                                                                                     | $                         | 22,100 |          |        | $ | 37,594 |         
|                                                   |                                                                                                                                                     |                           |        |          |        |   |        |         

See accompanying notes.

F-3



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.






CONSOLIDATED STATEMENTS OF
OPERATIONS


|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |        | 
|--------------------------------------------------------------------- | -------------------------- | ------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                                                      |                            | 2001                      |         | 2000   |  | 1999
|                                                                      |                            |                           |         |        |  |     
|                                                                      |                            |                          
|                                                                      |                            | (in thousands,           
|                                                                      |                            | except per share amounts)
|Contract revenue                                                      |                            | $                         | 4,769   |        |  | $    | 7,075   |        |  | $ | 8,017   |       
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       
|Operating expenses:                                                   |                            |                           |         |        |  |      |         |        |  |   |         |       
|                                                                      | Research and development   |                           |         | 13,238 |  |      |         | 14,671 |  |   |         | 13,953 | 
|                                                                      | General and administrative |                           |         | 6,464  |  |      |         | 5,626  |  |   |         | 4,704  | 
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       
|Total operating expenses                                              |                            |                           | 19,702  |        |  |      | 20,297  |        |  |   | 18,657  |       
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       
|Operating loss                                                        |                            |                           | (14,933 | )      |  |      | (13,222 | )      |  |   | (10,640 | )     
|Interest income                                                       |                            |                           | 1,646   |        |  |      | 589     |        |  |   | 501     |       
|Gain on sale of long-term investments                                 |                            |                           |        |        |  |      | 351     |        |  |   |        |       
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       
|Loss from continuing operations                                       |                            |                           | (13,287 | )      |  |      | (12,282 | )      |  |   | (10,139 | )     
|Income/(loss) from discontinued operations of
	diagnostics subsidiary |                            |                           | 287     |        |  |      |        |        |  |   | (2,682  | )     
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       
|Net loss                                                              |                            | $                         | (13,000 | )      |  | $    | (12,282 | )      |  | $ | (12,821 | )     
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       
|Loss per share from continuing operations                             |                            | $                         | (0.27   | )      |  | $    | (0.28   | )      |  | $ | (0.25   | )     
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       
|Net loss per share                                                    |                            | $                         | (0.26   | )      |  | $    | (0.28   | )      |  | $ | (0.32   | )     
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       
|Weighted average shares outstanding                                   |                            |                           | 49,584  |        |  |      | 43,507  |        |  |   | 39,928  |       
|                                                                      |                            |                           |         |        |  |      |         |        |  |   |         |       

See accompanying notes.

F-4



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.






CONSOLIDATED STATEMENT OF SHAREHOLDERS
EQUITY


|                                                                                        |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |         |  
|--------------------------------------------------------------------------------------- | --------------------------------------- | --------------- | ------ | ------ |  | ----------- | ------- | ------------- |  | ------------- | -------- | ------- | - | - | --- | ---- | - | - | ------- | ------- | -
|                                                                                        |                                         |                 |        |        |  |             |         | Accumulated   |  |              
|                                                                                        |                                         | Series A        |        |        |  |             |         | Other         |  | Total        
|                                                                                        |                                         | Convertible     |        | Common |  | Accumulated |         | Comprehensive |  | Shareholders
|                                                                                        |                                         | Preferred Stock |        | Stock  |  | Deficit     |         | Income        |  | Equity       
|                                                                                        |                                         |                 |        |        |  |             |         |               |  |              
|                                                                                        |                                         |                
|                                                                                        |                                         | (in thousands) 
|Balance, December 31, 1998                                                              |                                         | $               | 9,682  |        |  | $           | 138,335 |               |  | $             | (130,497 | )       |   | $ | 266 |      |   | $ | 17,786  |        
|Comprehensive loss:                                                                     |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |        
|                                                                                        | Net loss                                |                 |        |        |  |             |         |               |  |               |          | (12,821 | ) |   |     |      |   |   |         | (12,821 | )
|                                                                                        | Foreign currency translation adjustment |                 |        |        |  |             |         |               |  |               |          |         |   |   |     | (266 | ) |   |         | (266    | )
|                                                                                        |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |        
|Total comprehensive loss                                                                |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   | (13,087 | )      
|114 shares issued under the restricted stock plan                                       |                                         |                 |        |        |  |             | 234     |               |  |               |          |         |   |   |     |      |   |   | 234     |        
|199 shares issued under the employee stock
	purchase plan                               |                                         |                 |        |        |  |             | 275     |               |  |               |          |         |   |   |     |      |   |   | 275     |        
|175 shares issued under stock options                                                   |                                         |                 |        |        |  |             | 363     |               |  |               |          |         |   |   |     |      |   |   | 363     |        
|                                                                                        |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |        
|Balance, December 31, 1999                                                              |                                         |                 | 9,682  |        |  |             | 139,207 |               |  |               | (143,318 | )       |   |   |    |      |   |   | 5,571   |        
|Comprehensive loss:                                                                     |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |        
|                                                                                        | Net loss                                |                 |        |        |  |             |         |               |  |               |          | (12,282 | ) |   |     |      |   |   |         | (12,282 | )
|16 shares canceled under the restricted stock plan                                      |                                         |                 |        |        |  |             | (26     | )             |  |               |          |         |   |   |     |      |   |   | (26     | )      
|267 shares issued under the employee stock
	purchase plan                               |                                         |                 |        |        |  |             | 456     |               |  |               |          |         |   |   |     |      |   |   | 456     |        
|811 shares issued under stock options                                                   |                                         |                 |        |        |  |             | 2,652   |               |  |               |          |         |   |   |     |      |   |   | 2,652   |        
|3,333 shares issued upon conversion of
	Series A convertible preferred stock            |                                         |                 | (9,682 | )      |  |             | 9,682   |               |  |               |          |         |   |   |     |      |   |   |        |        
|1,779 shares issued under financing agreement                                           |                                         |                 |        |        |  |             | 6,925   |               |  |               |          |         |   |   |     |      |   |   | 6,925   |        
|3,000 shares and warrant to purchase
	500 shares issued to Watson Pharmaceuticals, Inc. |                                         |                 |        |        |  |             | 20,533  |               |  |               |          |         |   |   |     |      |   |   | 20,533  |        
|Non-employee equity awards                                                              |                                         |                 |        |        |  |             | 171     |               |  |               |          |         |   |   |     |      |   |   | 171     |        
|                                                                                        |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |        
|Balance, December 31, 2000                                                              |                                         |                 |       |        |  |             | 179,600 |               |  |               | (155,600 | )       |   |   |    |      |   |   | 24,000  |        
|Comprehensive loss:                                                                     |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |        
|                                                                                        | Net loss                                |                 |        |        |  |             |         |               |  |               |          | (13,000 | ) |   |     |      |   |   |         | (13,000 | )
|336 shares issued under the employee stock
	purchase plans                              |                                         |                 |        |        |  |             | 504     |               |  |               |          |         |   |   |     |      |   |   | 504     |        
|109 shares issued under stock options                                                   |                                         |                 |        |        |  |             | 278     |               |  |               |          |         |   |   |     |      |   |   | 278     |        
|Non-employee equity awards                                                              |                                         |                 |        |        |  |             | 118     |               |  |               |          |         |   |   |     |      |   |   | 118     |        
|                                                                                        |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |        
|Balance, December 31, 2001                                                              |                                         | $               |       |        |  | $           | 180,500 |               |  | $             | (168,600 | )       |   | $ |    |      |   | $ | 11,900  |        
|                                                                                        |                                         |                 |        |        |  |             |         |               |  |               |          |         |   |   |     |      |   |   |         |        

See accompanying notes.

F-5



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.






CONSOLIDATED STATEMENTS OF CASH
FLOWS


|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |         |       |  
|--------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------ | ------- | ------ | ---- | ------ | ------- | ----- | - | ------ | ------- | ----- | -
|                                                                      |                                                                              | 2001                                                             |        | 2000    |        | 1999
|                                                                      |                                                                              |                                                                  |        |         |        |     
|                                                                      |                                                                              |                                                                 
|                                                                      |                                                                              | (increase (decrease) in cash                                    
|                                                                      |                                                                              | and cash equivalents)                                           
|                                                                      |                                                                              | (in thousands)                                                  
|Cash flows from operating activities:                                 |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|                                                                      | Net loss                                                                     |                                                                  | $      | (13,000 | )      |      | $      | (12,282 | )     |   | $      | (12,821 | )    
|                                                                      | Adjustments to reconcile net loss to net cash
	used in operating activities: |                                                                  |        |         |        |      |        |         |       |   |        |         |      
|                                                                      |                                                                              | Depreciation and amortization expense                            |        |         | 692    |      |        |         | 665   |   |        |         | 578   |  
|                                                                      |                                                                              | (Income)/loss of discontinued diagnostics
	subsidiary            |        |         | (287   | )    |        |         |      |   |        |         | 2,682 |  
|                                                                      |                                                                              | Gains on sales of long-term investments                          |        |         |       |      |        |         | (351  | ) |        |         |      |  
|                                                                      |                                                                              | Non-employee equity awards                                       |        |         | 118    |      |        |         | 171   |   |        |         |      |  
|                                                                      | Changes in assets and liabilities:                                           |                                                                  |        |         |        |      |        |         |       |   |        |         |      
|                                                                      |                                                                              | Other current assets                                             |        |         | (124   | )    |        |         | (7    | ) |        |         | (88   | )
|                                                                      |                                                                              | Accounts payable, accrued liabilities, and
	accrued compensation |        |         | 23     |      |        |         | (597  | ) |        |         | (596  | )
|                                                                      |                                                                              | Unearned contract revenue                                        |        |         | (3,417 | )    |        |         | 9,073 |   |        |         | 224   |  
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|                                                                      | Net cash used in operating activities                                        |                                                                  |        | (15,995 | )      |      |        | (3,328  | )     |   |        | (10,021 | )    
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|Cash flows from investing activities:                                 |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|                                                                      | Purchases of short-term investments                                          |                                                                  |        | (36,215 | )      |      |        | (29,824 | )     |   |        | (4,460  | )    
|                                                                      | Proceeds from sales and maturities of short-term
	investments                |                                                                  |        | 48,866  |        |      |        | 12,364  |       |   |        | 15,565  |      
|                                                                      | Capital expenditures                                                         |                                                                  |        | (484    | )      |      |        | (378    | )     |   |        | (860    | )    
|                                                                      | Proceeds from sales of long-term investments                                 |                                                                  |        | 26      |        |      |        | 539     |       |   |        |        |      
|                                                                      | Net remittances to diagnostics subsidiary                                    |                                                                  |        |        |        |      |        |        |       |   |        | (607    | )    
|                                                                      | Other                                                                        |                                                                  |        |        |        |      |        | 199     |       |   |        | (86     | )    
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|                                                                      | Net cash provided by/(used in) investing
	activities                         |                                                                  |        | 12,193  |        |      |        | (17,100 | )     |   |        | 9,552   |      
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|Cash flows from financing activities:                                 |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|                                                                      | Proceeds from issuance of common stock, net                                  |                                                                  |        | 782     |        |      |        | 30,540  |       |   |        | 872     |      
|                                                                      | Payments on short-term borrowings                                            |                                                                  |        |        |        |      |        | (1,000  | )     |   |        | (1,500  | )    
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|                                                                      | Net cash provided by/(used in) financing
	activities                         |                                                                  |        | 782     |        |      |        | 29,540  |       |   |        | (628    | )    
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|Net (decrease)/increase in cash and cash
	equivalents                 |                                                                              |                                                                  | (3,020 | )       |        |      | 9,112  |         |       |   | (1,097 | )      
|Cash and cash equivalents, beginning of the period                    |                                                                              |                                                                  | 11,646 |         |        |      | 2,534  |         |       |   | 3,631  |        
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|Cash and cash equivalents, end of the period                          |                                                                              |                                                                  | 8,626  |         |        |      | 11,646 |         |       |   | 2,534  |        
|Short-term investments, end of the period                             |                                                                              |                                                                  | 10,374 |         |        |      | 23,025 |         |       |   | 5,565  |        
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|Cash, cash equivalents and short-term
	investments, end of the period |                                                                              | $                                                                | 19,000 |         |        | $    | 34,671 |         |       | $ | 8,099  |        
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|Supplemental Cash Flow Information:                                   |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        
|                                                                      | Interest paid                                                                |                                                                  | $      |        |        |      | $      | 19      |       |   | $      | 68      |      
|                                                                      |                                                                              |                                                                  |        |         |        |      |        |         |       |   |        |        

See accompanying notes.

F-6



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2001


(in thousands, except per share
amounts)


1.     Significant
Accounting Policies

Business
Description

Genelabs Technologies, Inc. is a
biopharmaceutical company focused on discovering and developing
pharmaceutical products. We have an investigational drug,
AsleraTM, for which the U.S. Food and Drug
Administration, referred to as the FDA, is reviewing our New
Drug Application. Aslera is a potential new treatment for
systemic lupus erythematosus, a disease for which current
therapies are not adequate. To develop this drug candidate, we
have built internal clinical development capabilities which may
be used to support the development of additional indications for
Aslera and for new drug candidates. Genelabs acquired and
developed this late-stage investigational drug to provide
opportunities to fund and support our core business: the
discovery and development of novel drug candidates.

Basis of
Presentation

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries,
Accelerated Clinical Research Organization, Inc. and Genelabs
Diagnostic, Inc. All intercompany accounts and transactions have
been eliminated. Genelabs operates in one business segment, the
discovery and development of pharmaceutical products. See
Note 4 for discussion of the Companys diagnostics
subsidiary. All amounts in footnotes are in thousands, except
per share data.

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. It is possible that actual amounts will
differ from those estimates.

Revenue
Recognition

Contract revenue for research and development, or
R&D, is recorded as earned based on the performance
requirements of the contract. Non-refundable contract fees for
which no further performance obligations exist, and there is no
continuing involvement by Genelabs, are recognized on the
earlier of when the payments are received or when collection is
assured.

Revenue from non-refundable upfront license fees
where we continue involvement through development, a
collaboration, or an obligation to supply product is recognized
ratably over the development period when, at the execution of
the agreement, the development period involves significant risk
due to the incomplete stage of the products development.

Revenue associated with development milestones,
if any, is recognized based upon the achievement of the
milestones, as defined in the respective agreements. Revenue
associated with royalty payments based on third party sales, if
any, is recognized as earned in accordance with contract terms,
when third-party results are reliably measured and
collectibility is reasonably assured.

Revenue under R&D cost reimbursement
contracts is recognized as the related costs are incurred.

Advance payments received in excess of amounts
earned are classified as deferred revenue.

In November 2000, Genelabs entered into an
agreement with Watson Pharmaceuticals, Inc. providing Watson
with an exclusive license to the marketing rights for Aslera in
North America. Under the agreement, Genelabs received a $10,000
non-refundable up-front license fee in 2000, of which $3,000 and
$400 was recognized as revenue in 2001 and 2000, respectively.
The non-refundable license fee has been deferred and is being
recognized on a straight-line basis over the longer of the
periods incorporating FDA consideration of approval of Aslera,
Genelabs transfer of technology to Watson, and
Genelabs fulfillment of supply obligations; the longest of
these periods is currently estimated to be approximately three
and one-half years

F-7



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share
amounts)


from the signing of the agreement with Watson.
Deferred revenue at December 31, 2001 of approximately
$6,600 consists entirely of the remaining portion of the
up-front fee received from Watson in 2000. The collaboration and
license agreement with Watson also provides Genelabs with
significant royalties on product sales and a milestone payment
of up to $45,000 if the FDA approves the marketing of Aslera for
the treatment of systemic lupus erythematosus. Also see Note 6
regarding sale of common stock and warrants to Watson in 2000.

Revenue recognized from certain of Companys
grants and collaborations represents 10% or more of total
contract revenue. In 2001, there was one significant source of
revenue accounting for 63% of total revenue. In 2000, there was
one significant source of revenue accounting for 70% of total
contract revenue. In 1999, there were two significant sources of
revenue accounting for 64% and 19% of total contract revenue.

Stock-Based
Compensation

The Company grants employee stock options at an
exercise price equal to the fair market value of the shares at
the date of grant. The Company accounts for employee stock-based
compensation using the intrinsic value method and, accordingly,
recognizes no compensation expense for stock options granted to
employees.

Compensation expense for options or warrants
granted to non-employees is recorded at fair value of the
consideration received or fair value of the equity instruments
issued, whichever is more reliably measured. The fair value of
options granted to non-employees is remeasured and adjusted over
the vesting term of the underlying options.

Earnings Per
Share

Net loss per share has been computed using the
weighted average number of shares of common stock outstanding
during the period. Diluted net loss per share has not been
presented, as, due to the Companys net loss position, it
is antidilutive. Had the Company been in a net income position,
diluted earnings per share for 2001, 2000 and 1999 would have
included an additional 529, 1,373 and 287 shares,
respectively, related to the Companys outstanding stock
options, and zero, 1,667 and 3,833 shares, respectively,
related to the Series A Convertible Preferred Stock.

Cash, Cash
Equivalents and Short-Term Investments

Cash, cash equivalents and short-term investments
are held primarily in demand deposit, money market and custodial
accounts with United States banks. Cash equivalents consist of
financial investments with maturities of 90 days or less at
acquisition that are readily convertible into cash and have
insignificant interest rate risk.

The Company invests funds that are not required
for immediate operating needs principally in a diversified
portfolio of debt securities. Management determines the
appropriate classification of these marketable debt securities
at the time of purchase and reevaluates such designation as of
each balance sheet date. As of December 31, 2001 and 2000,
all marketable securities are classified as available-for-sale.
These securities are stated at estimated fair value based upon
market quotes. Unrealized gains and losses, when material, are
included in accumulated other comprehensive income. Amortization
of premiums and discounts and realized gains and losses are
included in interest income. The cost of securities sold is
based on the specific identification method. The Company has not
experienced any significant losses on its investments.

Property and
Equipment

Property and equipment are stated at cost.
Depreciation on equipment is calculated on a straight-line basis
over the estimated useful lives of the assets, generally three
to five years. Leasehold improvements are amortized over the
shorter of the lease term or the estimated useful lives of the
improvements.

F-8



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share
amounts)


Long-Term
Investments

The Company uses the cost method of accounting
for its equity investment in a private company. The Company
holds less than 20% of the voting shares of this entity and
management periodically monitors the liquidity and financing
activities of this entity to determine if an impairment
write-down is required.

Research and
Development Expenses

Our research and development costs are expensed
as incurred. Research and development expenses include, but are
not limited to, payroll and personnel expense, lab supplies,
consulting costs, clinical trial costs and allocations of
corporate costs.

Recent
Accounting Pronouncements

In August 2001, the Financial Accounting
Standards Board (FASB) issued Statement No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (FAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived
assets and supercedes FASB Statement No. 121, Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of
Operations for a disposal of a segment of a business.
FAS 144 is effective for fiscal years beginning after
December 15, 2001, with transition provisions for assets
held for sale that were initially recorded under
previous models (APB 30 or FAS 121) and do not meet
the new held for sale criteria. The Company expects
to adopt FAS 144 as of January 1, 2002, and believes
that the adoption of this statement will have no material effect
on its financial statements.

2.     Available-for-Sale
Securities

The following table summarizes estimated fair
value and cost of available-for-sale securities at
December 31:

|                                                                      |  |      |        |      |  |   |        | 
|--------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                                      |  | 2001 |        | 2000
|                                                                      |  |      |        |     
|Description:                                                          |  |      |        |      |  |   |        | 
|U.S. Treasury securities and obligations of
	U.S. government agencies |  | $    | 12,205 |      |  | $ | 16,879 | 
|Corporate debt securities                                             |  |      | 2,065  |      |  |   | 10,097 | 
|Asset-backed securities                                               |  |      | 2,304  |      |  |   | 6,570  | 
|Money-market mutual funds                                             |  |      | 1,409  |      |  |   | 572    | 
|                                                                      |  |      |        |      |  |   |        | 
|                                                                      |  | $    | 17,983 |      |  | $ | 34,118 | 
|                                                                      |  |      |        |      |  |   |        | 
|Balance Sheet Classification:                                         |  |      |        |      |  |   |        | 
|Included in cash and cash equivalents                                 |  | $    | 7,609  |      |  | $ | 11,093 | 
|Included in short-term investments                                    |  |      | 10,374 |      |  |   | 23,025 | 
|                                                                      |  |      |        |      |  |   |        | 
|                                                                      |  | $    | 17,983 |      |  | $ | 34,118 | 
|                                                                      |  |      |        |      |  |   |        | 
|Maturity:                                                             |  |      |        |      |  |   |        | 
|Due within one year                                                   |  | $    | 14,927 |      |  | $ | 22,726 | 
|Due after one year through two years                                  |  |      | 3,056  |      |  |   | 11,392 | 
|                                                                      |  |      |        |      |  |   |        | 
|                                                                      |  | $    | 17,983 |      |  | $ | 34,118 | 
|                                                                      |  |      |        |      |  |   |        | 

F-9



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share
amounts)


3.     Property and
Equipment

The components of property and equipment are as
follows:

|                                               |  |      |        |      |  |   |        |  
|---------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                               |  | 2001 |        | 2000
|                                               |  |      |        |     
|Laboratory equipment                           |  | $    | 4,479  |      |  | $ | 4,127  |  
|Leasehold improvements                         |  |      | 4,421  |      |  |   | 4,337  |  
|Office and other equipment                     |  |      | 2,226  |      |  |   | 2,178  |  
|                                               |  |      |        |      |  |   |        |  
|                                               |  |      | 11,126 |      |  |   | 10,642 |  
|Less accumulated depreciation and amortization |  |      | (9,875 | )    |  |   | (9,183 | )
|                                               |  |      |        |      |  |   |        |  
|                                               |  | $    | 1,251  |      |  | $ | 1,459  |  
|                                               |  |      |        |      |  |   |        |  

4.     Discontinued
Operation  Diagnostics Subsidiary

At December 31, 2001, the Company owned 100%
of the common stock of Genelabs Diagnostics Pte. Ltd.
(GLD) through a series of separate domestic and
foreign corporations. In 1998, Genelabs adopted a plan to divest
this subsidiary and began accounting for GLD as a discontinued
operation. Shortly thereafter, Institut Pasteur and Pasteur
Sanofi Diagnostics filed a lawsuit in Singapore, alleging that
GLD infringed an HIV-2 patent owned by Institut Pasteur and
exclusively licensed to Pasteur Sanofi Diagnostics. Subsequent
to the filing of the lawsuit, Pasteur Sanofi Diagnostics was
sold to Bio-Rad Laboratories, Inc. (Bio-Rad).

On February 4, 2000, a Singapore court found
that GLD infringed the patent and assessed an interim royalty to
be paid by GLD on sales of products that infringed the patent.
Damages were not determined at that time because Singapore law
requires a separate damages hearing. To estimate potential
damages, the interim royalty rate determined by the court was
applied to the period of infringement, and the damages
calculated exceeded the net assets of GLD. Based on the
Singapore courts findings, Genelabs believed that
GLDs value had been impaired and that there was reasonable
basis for estimating the amount of the loss. Therefore, Genelabs
wrote-off its investment in GLD as of December 31, 1999.

On October 24, 2001, Bio-Rad and GLD
announced a global settlement of claims regarding alleged
infringement of HIV-2 patents. In consideration of the
settlement an HIV-2 license was granted to GLD for the products
at issue in the lawsuit, and GLD is required to make certain
payments to Bio-Rad. The settlement payments were within
estimates established by Genelabs in consolidation of GLD, and
accordingly, no adjustments were made to the loss provisions
that had been provided.

Genelabs management is pursuing the sale of
GLD, and expects to complete its divestment in 2002.

Summarized financial information for GLD for the
years ended and as of December 31, is as follows:

Statements of Operations

|                                                                     |  |      |       |      |  |      |       |  |  |   |        |  
|-------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ------ | -
|                                                                     |  | 2001 |       | 2000 |  | 1999
|                                                                     |  |      |       |      |  |     
|Product sales                                                        |  | $    | 6,676 |      |  | $    | 7,925 |  |  | $ | 6,604  |  
|Cost of sales                                                        |  |      | 3,467 |      |  |      | 4,108 |  |  |   | 3,673  |  
|                                                                     |  |      |       |      |  |      |       |  |  |   |        |  
|Gross profit                                                         |  |      | 3,209 |      |  |      | 3,817 |  |  |   | 2,931  |  
|Operating expenses                                                   |  |      | 2,792 |      |  |      | 2,960 |  |  |   | 3,393  |  
|                                                                     |  |      |       |      |  |      |       |  |  |   |        |  
|Income/(loss) prior to loss of patent litigation                     |  |      | 417   |      |  |      | 857   |  |  |   | (462   | )
|Charge accrued in consolidation for loss of HIV-2
	patent litigation |  |      | 130   |      |  |      | 857   |  |  |   | 2,220  |  
|                                                                     |  |      |       |      |  |      |       |  |  |   |        |  
|Income/(loss) from discontinued operations                           |  | $    | 287   |      |  | $    |      |  |  | $ | (2,682 | )
|                                                                     |  |      |       |      |  |      |       |  |  |   |        |  

F-10



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share
amounts)


Balance Sheets

|                                              |  |      |       |      |  |   |       | 
|--------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                              |  | 2001 |       | 2000
|                                              |  |      |       |     
|Cash                                          |  | $    | 1,713 |      |  | $ | 2,215 | 
|Accounts receivable                           |  |      | 1,247 |      |  |   | 1,337 | 
|Inventories                                   |  |      | 1,476 |      |  |   | 1,661 | 
|Net property & equipment and other assets     |  |      | 250   |      |  |   | 421   | 
|                                              |  |      |       |      |  |   |       | 
|Total assets                                  |  | $    | 4,686 |      |  | $ | 5,634 | 
|                                              |  |      |       |      |  |   |       | 
|Liabilities, principally current              |  | $    | 4,399 |      |  | $ | 5,634 | 
|Net equity of Genelabs Diagnostics Pte.
	Ltd. |  |      | 287   |      |  |   |      | 
|                                              |  |      |       |      |  |   |       | 
|Total liabilities and net equity              |  | $    | 4,686 |      |  | $ | 5,634 | 
|                                              |  |      |       |      |  |   |       | 

5.     Commitments
and Contingencies

The Company leases its primary office and
laboratory facilities under a non-cancelable operating lease
that has a term expiring November 2002. The Company is required
to pay certain maintenance expenses in addition to monthly rent.
There are no other material lease obligations. At
December 31, 2001, future minimum lease payments under all
operating leases with original terms greater than one year are
$907 for 2002, excluding sublease rentals. Total lease expense,
net of sublease income, was $883, $1,043 and $911 for 2001, 2000
and 1999, respectively.

In connection with the Active Pharmaceutical
Ingredient and Finished Product Supply Agreement with Watson, as
of December 31, 2001, the Company had outstanding orders
with third party suppliers totaling $574.

The Company is subject to legal proceedings and
claims that arise in the ordinary course of business. Management
currently believes that the ultimate amount of liability, if
any, with respect to any pending actions, either individually or
in the aggregate, will not materially affect Genelabs
financial position or results of operations. However, the
ultimate outcome of any litigation is uncertain. If an
unfavorable outcome were to occur, the impact could be material.
Furthermore, any litigation, regardless of the outcome, can have
an adverse impact on the Companys results of operations as
a result of defense costs, diversion of management resources,
and other factors.

6.     Shareholders
Equity

Common
Stock

At December 31, 2001, the Company had
13,410 shares reserved for future issuance. During 2001,
the Company recorded compensation expense of $118 for
non-employee equity awards.

The Company has entered into a series of
agreements with Watson for the licensing of marketing rights to
Aslera in North America. In connection with these agreements the
Company issued 3,000 shares of common stock and a warrant
to purchase 500 shares of common stock to Watson for
$20,550 in November 2000. The warrant is immediately exercisable
at $6.85 per share and expires no later than November 2005.

7.     Stock-Based
Compensation

Employee Stock Purchase Plan (Stock
Purchase Plan).Employees who
meet certain minimum requirements are eligible to participate in
the Companys Stock Purchase Plan, for which
2,000 shares of Common Stock have been reserved. Eligible
employees are entitled to purchase stock at 85% of the market

F-11



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share
amounts)


value at the beginning or ending of six-month
purchase periods, whichever is lower, and stock may be purchased
at the same price for up to four periods. Purchases are limited
to a maximum of $25 per year and employees can contribute up to
15% of total compensation. Through December 31, 2001 and
2000, a cumulative total of 1,461 and 1,125 shares,
respectively, had been issued under the Stock Purchase Plan and
a similar predecessor plan, with 1,854 shares remaining for
future purchases.

Stock Award Plans.The Company has stock award plans that
provide for the issuance of shares of Common Stock to employees
and independent contractors who are not officers or directors.
There are 700 shares of Common Stock reserved for issuance under
these plans. Through both December 31, 2001 and 2000, a
cumulative total of 204 shares had been issued under these plans.

Stock Option Plan.The Companys stock option plan
provides for the issuance of incentive stock options and
nonqualified stock options to employees, officers, directors and
independent contractors. The number of stock options granted is
determined by the Board of Directors or a committee designated
by the Board of Directors, except for grants to directors, who
receive options based on a formula. Stock options generally may
not be granted at prices lower than fair market value on the
date of grant and vest over periods ranging from two to four
years, with expiration no later than ten years from the date of
grant. At December 31, 2001, 3,033 shares were available
for future grants.

Stock option transactions from 1999 through 2001
are summarized as follows:

|                                 |           |           |       |                |   |          |      |      |  |  |              |              | 
|-------------------------------- | --------- | --------- | ----- | -------------- | - | -------- | ---- | ---- |  |  | ------------ | ------------ | 
|                                 |           |           |       | Weighted       |   | Range of
|                                 |           | Number of |       | Average        |   | Exercise
|                                 |           | Shares    |       | Exercise Price |   | Prices  
|                                 |           |           |       |                |   |         
|Outstanding at December 31, 1998 |           |           | 3,422 |                |   | $        | 3.79 |      |  |  | $1.41-$ 9.16 |             
|                                 | Granted   |           |       | 1,214          |   |          | $    | 2.18 |  |  |              | $1.53-$ 3.53 | 
|                                 | Exercised |           |       | (175           | ) |          | $    | 2.07 |  |  |              | $1.41-$ 3.47 | 
|                                 | Canceled  |           |       | (636           | ) |          | $    | 4.10 |  |  |              | $1.66-$ 9.16 | 
|                                 |           |           |       |                |   |          |      |      |  |  |              |             
|Outstanding at December 31, 1999 |           |           | 3,825 |                |   | $        | 3.34 |      |  |  | $1.41-$ 8.81 |             
|                                 | Granted   |           |       | 1,018          |   |          | $    | 5.29 |  |  |              | $2.20-$12.78 | 
|                                 | Exercised |           |       | (811           | ) |          | $    | 3.30 |  |  |              | $1.41-$ 6.43 | 
|                                 | Canceled  |           |       | (604           | ) |          | $    | 3.53 |  |  |              | $1.53-$ 6.75 | 
|                                 |           |           |       |                |   |          |      |      |  |  |              |             
|Outstanding at December 31, 2000 |           |           | 3,428 |                |   | $        | 3.85 |      |  |  | $1.41-$12.78 |             
|                                 | Granted   |           |       | 1,392          |   |          | $    | 4.22 |  |  |              | $1.26-$ 7.08 | 
|                                 | Exercised |           |       | (109           | ) |          | $    | 2.50 |  |  |              | $1.41-$ 5.80 | 
|                                 | Canceled  |           |       | (524           | ) |          | $    | 4.63 |  |  |              | $1.65-$ 8.44 | 
|                                 |           |           |       |                |   |          |      |      |  |  |              |             
|Outstanding at December 31, 2001 |           |           | 4,187 |                |   | $        | 3.91 |      |  |  | $1.26-$12.78 |             
|                                 |           |           |       |                |   |          |      |      |  |  |              |             

F-12



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##### Table of Contents



GENELABS TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share
amounts)


The exercise price ranges and average remaining
terms of options outstanding and exercisable at
December 31, 2001 were:

|                         |  |             |       |           |  |          |           |             |  |          |      |  |  |  |       |  |  |   |      | 
|------------------------ |  | ----------- | ----- | --------- |  | -------- | --------- | ----------- |  | -------- | ---- |  |  |  | ----- |  |  | - | ---- | 
|                         |  | Number of   |       | Weighted  |  | Weighted |           | Number of   |  | Weighted
|                         |  | Options     |       | Average   |  | Average  |           | Options     |  | Average 
|                         |  | Outstanding |       | Remaining |  | Exercise |           | Exercisable |  | Exercise
|Range of Exercise Prices |  | at 12/31/01 |       | Term      |  | Price    |           | at 12/31/01 |  | Price   
|                         |  |             |       |           |  |          |           |             |  |         
|$1.26-$ 2.97             |  |             | 2,088 |           |  |          | 6.5 years |             |  | $        | 2.20 |  |  |  | 1,484 |  |  | $ | 2.35 | 
|$3.02-$ 5.94             |  |             | 1,147 |           |  |          | 7.1 years |             |  | $        | 4.53 |  |  |  | 747   |  |  | $ | 4.34 | 
|$6.25-$12.78             |  |             | 952   |           |  |          | 7.0 years |             |  | $        | 6.92 |  |  |  | 495   |  |  | $ | 6.75 | 
|                         |  |             |       |           |  |          |           |             |  |          |      |  |  |  |       |  |  |   |      | 
|$1.26-$12.78             |  |             | 4,187 |           |  |          | 6.8 years |             |  | $        | 3.91 |  |  |  | 2,726 |  |  | $ | 3.69 | 
|                         |  |             |       |           |  |          |           |             |  |          |      |  |  |  |       |  |  |   |      | 

There were options for 2,067 and 2,239 shares
exercisable at December 31, 2000 and 1999, respectively.

Disclosure of Fair Value of Stock Options.As disclosed in Note 1, Genelabs
accounts for employee stock options using their intrinsic value
at the time of grant. However, generally accepted accounting
principles require companies that account for stock options
under the intrinsic value method to also disclose the pro forma
impact as if they had accounted for stock options using a fair
value approach. Accordingly, for disclosure purposes, the fair
value of stock options was estimated at the date of grant using
a Black-Scholes option valuation model. The Black-Scholes option
valuation model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and
are fully transferable. This model requires highly subjective
assumptions regarding expected stock price volatility. Because
the Companys stock options have characteristics
significantly different from those of traded options and changes
in the volatility assumptions can materially affect the fair
value estimate, the Companys management believes that this
model does not provide a representative measure of the fair
value of the options actually granted under the Companys
stock-based compensation plans. To determine the pro forma
disclosure, the Company used the following weighted average
assumptions for 2001, 2000 and 1999, respectively: dividend
yields of zero, risk-free interest rates of 4.0%, 6.0% and 6.0%,
volatility factors of 1.0 and a one-year expected life of the
options after vesting. Based on these assumptions, the
weighted-average fair value of options granted during 2001, 2000
and 1999 was $3.53, $4.28 and $1.38 per share,
respectively. For purposes of pro forma disclosures, the
estimated fair value of the options is expensed ratably over the
options vesting period. If the Company elected to record
the fair value estimate of stock options in its financial
statements, the net loss for 2001, 2000 and 1999, respectively,
would have been $16,695, $14,712 and $14,339 and the net loss
per share would have been $0.34, $0.34 and $0.36 per share.

8.     Income
Taxes

At December 31, 2001, the Company has net
operating loss carryforwards for federal income tax purposes of
approximately $136,000 that expire in various amounts between
the years 2002 and 2021. In addition, the Company has federal
research and development tax credit carryforwards of
approximately $2,200 that expire in various amounts between the
years 2002 and 2021. Under provisions of the Internal Revenue
Code and similar state provisions, the availability of the
Companys net operating loss and tax credit carryforwards
may be subject to future limitations if future financing
transactions result in significant ownership changes. To date,
no restriction in the ability to utilize the Companys
carryforwards is anticipated.

Deferred tax assets and liabilities reflect the
net tax effects of net operating loss and credit carryforwards
and of temporary differences between the carrying amounts of
assets and liabilities for financial reporting and

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GENELABS TECHNOLOGIES, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


(in thousands, except per share
amounts)


income tax purposes. Significant components of
the Companys deferred tax assets and liabilities as of
December 31 are as follows:

|                                            |                                          |      |         |        |  |   |         |        | 
|------------------------------------------- | ---------------------------------------- | ---- | ------- | ------ |  | - | ------- | ------ | 
|                                            |                                          | 2001 |         | 2000  
|                                            |                                          |      |         |       
|Deferred tax assets:                        |                                          |      |         |        |  |   |         |       
|                                            | Net operating loss carryforwards         |      | $       | 47,400 |  |   | $       | 41,100 | 
|                                            | Research credits                         |      |         | 3,100  |  |   |         | 3,000  | 
|                                            | Capitalized research expenditures        |      |         | 1,300  |  |   |         | 1,600  | 
|                                            | Deferred revenue                         |      |         | 2,700  |  |   |         | 4,000  | 
|                                            | Other individually immaterial items, net |      |         | 2,000  |  |   |         | 2,000  | 
|                                            |                                          |      |         |        |  |   |         |       
|                                            | Total deferred tax assets                |      |         | 56,500 |  |   |         | 51,700 | 
|Valuation allowance for deferred tax assets |                                          |      | (56,500 | )      |  |   | (51,700 | )     
|                                            |                                          |      |         |        |  |   |         |       
|Net deferred tax assets                     |                                          | $    |        |        |  | $ |        |       
|                                            |                                          |      |         |        |  |   |         |       

Realization of deferred tax assets is dependent
upon future earnings, if any, the timing and amount of which are
uncertain. Accordingly, the net deferred tax assets have been
fully offset by a valuation allowance. For 2001, 2000 and 1999,
the valuation allowance increased by $4,800, $6,500 and $4,100,
respectively. Approximately $2,700 and $2,600 of the valuation
allowance for deferred tax assets in 2001 and 2000,
respectively, relates to benefits of stock option deductions
which, when recognized, will be allocated directly to
contributed capital.

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EXHIBIT INDEX

|        |       |             |  |                                                                                       
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 10.07 |             |  | Registrants 2001 Stock Option Plan                                                   
|        | 10.08 |             |  | Registrants 2001 Employee Stock Purchase
	Plan                                       
|        | 10.17 |             |  | Agreement entered into by Registrant with
	Irene A. Chow, Ph.D., as of January 3, 2002
|        | 10.18 |             |  | Form of Agreement entered into by Registrant with
	certain employees of Registrant    
|        | 23.01 |             |  | Consent of Ernst & Young LLP,
	Independent Auditors                                   

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