<PAGE>

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

                                   FORM 10-K
(Mark One)
     [ x ]  Annual Report Pursuant to Section 13 or 15(d) of the
            Securities Exchange Act of 1934

                    For the Fiscal Year Ended December 31, 1997

                                      or
     [   ]  Transition Report Pursuant to Section 13 or 15(d) of the
            Securities Exchange Act of 1934

                        Commission File Number:  0-19171

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

              Delaware                              91-1463450
      (State of incorporation)                  (I.R.S. Employer
                                                Identification No.)
                             22021 - 20th Avenue S.E.
                            Bothell, Washington 98021
                                 (425) 485-1900
       (Address, including zip code, and telephone number, including
               area code, of principal executive offices)
       Securities registered pursuant to Section 12(b) of the Act:  None
         Securities registered pursuant to Section 12(g) of the Act:

                           Common Stock, $.01 par value

     Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.

                               Yes   X     No
                                    ---       ---
     Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.  [  X  ]

State the aggregate market value of voting and non-voting stock held by
non-affiliates of the registrant as of March 11, 1998.

                                $533,715,264

Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock as of March 11, 1998.

                 Title of Class              Number of Shares
            Common Stock, $.01 par value        39,903,945

                       DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the annual
meeting of stockholders to be held on May 6, 1998 relating to "Election
of Directors," "Continuing Directors (until 1999)," "Continuing Directors
(until 2000)," "Other Executive Officers," "Compliance with Section 16(a)
of the Securities Exchange Act of 1934," "Compensation of Directors,"
"Executive Compensation," "1997 Option Grants," "1997 Option Exercises
and Year-end Option Values," "Compensation Committee Interlocks and
Insider Participation," "Employment Contracts, Termination of Employment
and Change of Control Arrangements," "Security Ownership of Certain
Beneficial Owners and Management," and "Certain Relationships and
Related Transactions" are incorporated by reference in Part III of this
Form 10-K.

<PAGE>

                                 ICOS CORPORATION
                                 ----------------

                                 TABLE OF CONTENTS
                                 -----------------

Part I
------
     Item 1.     Business
     Item 2.     Properties
     Item 3.     Legal Proceedings
     Item 4.     Submission of Matters to a Vote of Security Holders

Part II
-------
     Item 5.     Market for the Registrant's Common Equity and Related
                    Stockholder Matters
     Item 6.     Selected Financial Data
     Item 7.     Management's Discussion and Analysis of Financial
                    Condition and Results of Operations
     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 the 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, Consolidated Financial Statement Schedules
                     and Reports on Form 8-K
                                        2
<PAGE>

                                PART  I
Item 1.  Business

Overview
--------

ICOS Corporation ("ICOS" or the "Company") was formed in 1989 to develop
and commercialize proprietary pharmaceuticals for the treatment of
inflammatory diseases and other serious medical conditions by
understanding the underlying mechanisms and identifying the molecular
entities involved.

The Company's strategy is to build a biopharmaceutical company that
translates a significant number of candidates into break-through products
with high commercial potential.  ICOS scientists are developing
pharmaceutical products that address important cellular and molecular
mechanisms in three separate, yet interrelated, areas of the inflammatory
process:  cell adhesion, the antagonists of proinflammatory mediators and
intracellular signal transduction.  Each of these mechanisms may provide
broad opportunities in the treatment of chronic diseases that have
inflammatory components, such as multiple sclerosis ("MS"), and in the
treatment of acute inflammatory conditions, such as those associated with
acute respiratory distress syndrome ("ARDS"), hemorrhagic shock,
myocardial infarction ("MI") and ischemic stroke.  In addition, ICOS'
programs have identified additional mechanisms that may provide
opportunities to treat certain cardiovascular diseases and cancer.  ICOS
believes that its research and development strategy will allow it to
develop novel therapeutics that are more selective in their activities
than existing drugs.

When used in this discussion, the words "believes," "intends,"
"anticipates," "plans to" and "expects" and similar expressions are
intended to identify forward-looking statements.  Such statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected.  See "Important
Factors Regarding Forward-Looking Statements."  Readers are cautioned not
to place undue reliance on such forward-looking statements, which speak
only as of the date hereof.  The Company undertakes no obligation to
release publicly the results of any revisions to such forward-looking
statements that may be made to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

Description of Programs
-----------------------
     Development Pipeline - Overview

The clinical targets that are the subject of ICOS' discoveries include
inflammatory and other diseases whose pathology is a result of the
dysfunction of the normal cellular mechanisms. The Company has discovered
important molecules and mechanisms underlying directed cell movement, the
inhibition of proinflammatory mediators and intracellular signal
transduction.  The chart below summarizes the programs with compounds
currently in clinical development.

<TABLE>

                        ICOS Clinical Development Projects
                                  (Table 1)
Program                     Product Candidate   Indication                                Status (1)
-------                     -----------------   ----------                                ----------
<S>                        <C>                 <C>                                        <C>

Cell Adhesion               Hu23F2G             Multiple sclerosis, acute exacerbation    Phase 2 clinical trial
                                                Hemorrhagic shock                         Phase 2 clinical trial
                                                Myocardial infarction                     Phase 2 clinical trial
                                                Ischemic Stroke                           Phase 2 clinical trial

                            ICM3                Severe psoriasis                          Phase 1 clinical trial

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

Antagonists of
Proinflammatory Mediators   rPAF-AH             ARDS                                      Phase 2 clinical trial
                                                Asthma                                    Phase 2 clinical trial
                                                Post-ERCP pancreatitis                    Phase 2 clinical trial

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

Signal Transduction         IC351               Male erectile dysfunction                 Phase 2 clinical trial


<FN>
       Status as of March 16, 1998
       Phase 1 clinical trial:  safety and pharmacology, dose-determining drug
       regimen
       Phase 2 clinical trial: determination of dose levels and potential
       efficacy of drug
</FN>
</TABLE>
                                        3
<PAGE>

Cell Adhesion Programs
----------------------

Cell adhesion molecules play a critical role in a variety of immune
functions, including cell migration or trafficking.  For inflammation to
occur, leukocytes, also known as white blood cells, must move from the
bloodstream into the tissue.  During this process they interact with
other cells that promote the activation of additional leukocytes, causing
them to move through the blood vessel wall and into the tissue.  The
interaction between certain cell adhesion molecules on the surface of
both the leukocyte and the endothelium facilitates these contacts.  To
date, a number of cell adhesion molecule families, such as integrins,
have been identified.

Integrins are a large family of cell adhesion molecules that, as a class,
are expressed throughout the body.  Leukointegrins comprise an integrin
family that is expressed only on leukocytes.  The interactions between
the leukointegrins and their primary ligands, known as intracellular
adhesion molecules ("ICAMs"), on the endothelium and other leukocytes
mediate a variety of immune functions.  This mediation promotes leukocyte
trafficking and antigen presentation.

Hu23F2G

     Background

The migration of circulating leukocytes into extravascular tissues in the
course of inflammation involves a complex series of events.  A critical
step involves the firm attachment of circulating leukocytes to the
endothelial wall.  The CD11/CD18 family of cell adhesion molecules found
on leukocytes mediate this adhesive interaction.  It is believed that by
intervening in the adhesion process, much of the inflammation-associated
damage can be prevented.  Monoclonal antibodies directed to CD11/CD18
adhesion molecules have been shown to protect against leukocyte-mediated
tissue injury by blocking adherence in a variety of disease models.

Hu23F2G is a recombinant humanized monoclonal antibody developed by ICOS
to block CD11/CD18-mediated cell adhesion in humans.  Hu23F2G has been
shown in Phase 1 clinical trials to bind to CD11/CD18 cell adhesion
molecules on the surface of leukocytes and to block subsequent movement
into the surrounding tissue.  To date, over 250 subjects have been
enrolled in clinical trials of Hu23F2G investigating its use as a
therapeutic for the treatment of MS, hemorrhagic shock, MI and ischemic
stroke.  These trials are designed to gather safety, efficacy and
pharmacological data to support further development of the program.  ICOS
is conducting clinical development of Hu23F2G for the indications
described below.

     Clinical Application - Multiple Sclerosis ("MS")

Multiple sclerosis is characterized by destruction of the myelin sheath
(demyelination) surrounding the nerve cells in the central nervous
system.  This destruction leads to a variety of diverse neurologic
deficits.  It is believed that the demyelination process is associated
with an inappropriate inflammatory response and subsequent migration of
blood-borne leukocytes into the central nervous system where few
leukocytes are normally found.  Once in the central nervous system, these
leukocytes are believed to damage the myelin sheath surrounding nerve
cells.

MS affects approximately 300,000 individuals in the United States.  Based
on the frequency of exacerbation, ICOS expects 110,000 exacerbations per
year are potentially treatable with Hu23F2G.  Current treatment for acute
exacerbation of MS consists of systemic administration of
corticosteroids, usually initiated as intravenous therapy for the first
few days of the exacerbation, followed by a course of oral steroid
therapy.  Other approved treatments include two different forms of
interferon-beta for treating relapsing remitting MS by reducing the
frequency of acute attacks.  Despite the advance represented by the
approval of betainterferon, ICOS believes there remains a significant
need for therapy to treat acute exacerbations of MS.

ICOS believes that Hu23F2G may reduce the severity and length of
recurrent MS exacerbations by interfering with the ability of leukocytes
to bind to the vascular endothelium in the brain and spinal cord, thus
limiting their movement into these tissues.  The Company believes that
treatment of the acute exacerbation with Hu23F2G may provide superior
treatment outcomes to those provided by corticosteroid treatment and
other treatment methods.

ICOS is currently conducting a Phase 2 clinical trial of Hu23F2G in MS
patients.  The results of the Phase 2 clinical trials of Hu23F2G are
expected to provide essential pharmacological efficacy and safety data
necessary to support continued development of Hu23F2G for this
indication.
                                        4
<PAGE>

     Clinical Application - Hemorrhagic Shock

Each year, approximately 200,000 Americans suffer major trauma and
associated blood loss, leading to shock.  Approximately 125,000 of these
victims are at risk for the development of hemorrhagic shock.  A major
cause of morbidity and mortality in those who survive the initial injury
is multiple organ dysfunction, for which there is no specific treatment.
The intensive care necessary for the support of these patients is
extremely expensive.

Based on in vitro and in vivo data, it has been hypothesized that
multiple organ dysfunction is the result of neutrophil-mediated tissue
injury.  Resuscitation of the trauma patient by medical staff
administering intravenous fluids and blood products leads to the re-
establishment of circulation in the affected tissues.  Restoring blood
flow, oxygen and leukocytes, in particular neutrophils, to these tissues
results in activation and adhesion of neutrophils to the endothelium.
Once attached to the endothelial lining these activated neutrophils
release toxins, such as free radicals and proteases, that damage the
endothelium and the surrounding tissue.  The consequences of this include
edema, hemorrhage and thrombosis that can often result in organ
dysfunction and ultimately failure.

Since the adhesion of neutrophils to endothelial cells is inhibited by
Hu23F2G, ICOS believes that treatment of trauma-induced hemorrhagic shock
patients with Hu23F2G may prevent the development of multiple organ
dysfunction and improve overall mortality rates.

ICOS is currently testing Hu23F2G in a Phase 2 clinical trial in patients
with trauma-induced hemorrhagic shock at multiple sites to evaluate the
compound's safety and efficacy.  As in all clinical trials for
hemorrhagic shock, the rate of enrollment in the initial Phase 2 clinical
trial was affected by the complexities of obtaining informed consent on
behalf of hemorrhagic shock patients.  New regulations regarding informed
consent are expected to increase the rate of enrollment in the expanded
Phase 2 trial.

     Clinical Application - Myocardial Infarction ("MI")

Each year, approximately 1.5 million myocardial infarctions  occur in the
United States, resulting in significant morbidity and mortality.  During
an MI, a coronary artery becomes blocked, impairing blood flow to a
region of the heart and damaging surrounding tissue.  A significant
portion of the tissue injury and death is thought to be caused by
neutrophil-mediated inflammatory mechanisms.  Current treatment of MI is
unable to protect at-risk tissue from this neutrophil-mediated damage.

A common and serious complication of MI is the failure of the heart to
pump blood adequately.  Generally, the larger the amount of tissue
damage, the less able the heart is to pump blood, resulting in congestive
heart failure, which is the major cause of in-hospital mortality and
disability following MI.

Preclinical studies have provided evidence that Hu23F2G inhibits
neutrophil functions shown to be important for neutrophil damage in
models of MI.  ICOS believes that treatment of patients with Hu23F2G
during an MI may limit the degree of inflammatory tissue damage and
protect significant amounts of heart tissue.  In turn, this tissue
preservation should help maintain the pumping capacity of the heart,
thereby reducing mortality and disability.

ICOS has initiated an expanded Phase 2 clinical trial of Hu23F2G for the
treatment of MI at multiple clinical sites.

     Clinical Application - Ischemic Stroke

In situations analogous to those in MI, during an ischemic stroke a blood
vessel in the brain becomes blocked and blood flow to a region of the
brain is reduced.  This ischemia results in injury and death of the
affected tissue.  Although the stroke event arises from the blockage of
one or more cerebral blood vessels by a blood clot, as in MI, a
significant portion of the tissue injury and death is thought to be
caused by neutrophil-mediated inflammatory mechanisms.  Data from
preclinical studies has indicated that Hu23F2G inhibits neutrophil
functions shown to be important for neutrophil-induced damage.  The
Company believes the treatment with Hu23F2G of patients who have suffered
a stroke may limit the degree of inflammatory tissue damage and protect
significant amounts of tissue and, thus, may decrease the extent of brain
damage for these patients.  A Phase 2 clinical trial of Hu23F2G for the
prevention of brain damage in ischemic stroke was begun in September 1997
at multiple clinical sites.
                                        5
<PAGE>

ICM3

     Background

T cell stimulation by antigen presenting cells is one of the early events
in the immune response that leads to inflammation.  ICAMs are cell
surface proteins known to mediate the interaction between T cells and
antigen presenting cells.  Known ICAMs include ICAM-1, ICAM-2 and ICAM-3.
In comparison to the other ICAMs, the expression pattern of ICAM-3 has
been shown by ICOS scientists to differ from the sites of expression on
ICAM-1 and ICAM-2.  Whereas ICAM-1 and ICAM-2 are primarily found on the
surfaces of endothelial cells and activated leukocytes, ICAM-3 expression
is normally restricted to leukocytes themselves.  Because ICAM-3 is
expressed at high levels independent of the state of cell activation,
ICAM-3 is believed to be involved in the earliest stages of T cell
activation and is therefore an attractive target for early intervention
to improve the outcome in T cell-mediated inflammatory conditions.

A proprietary series of anti-ICAM-3 antibodies developed by ICOS has been
shown to inhibit T cell activation.  One antibody, known as ICM3, is a
recombinant humanized monoclonal antibody that has been shown by ICOS
scientists to block ICAM-3 and function as an inhibitor of T cell
activation in both in vitro and clinical models.

     Clinical Application - Psoriasis

Psoriasis is a common inflammatory disorder affecting approximately five
million Americans.  Most psoriasis patients are treated with topical
therapy.  About 20% have a moderate or severe form of the disease that
does not respond to this treatment, thereby requiring systemic therapy.
Existing forms of systemic therapy include phototherapy, retinoids and
cyclosporin, all of which have significant side effects.  There is,
therefore, a need for effective and safe new systemic treatments.

ICOS believes that ICM3 treatment may effectively diminish the T cell
inflammatory component of psoriasis which may result in clinical
remission of the disease.  ICOS is currently testing ICM3 in a Phase 1
clinical trial for the treatment of psoriasis.

Antagonists of Proinflammatory Mediators Programs
-------------------------------------------------

Recombinant Platelet-Activating Factor Acetylhydrolase ("rPAF-AH")

     Background

Platelet-activating factor ("PAF") is a potent proinflammatory mediator
with diverse biological effects and is implicated in a number of
debilitating inflammatory conditions, including acute pancreatitis, ARDS,
necrotizing enterocolitis and asthma.  It is produced naturally by a
variety of human cells, including endothelial cells, leukocytes,
platelets and mast cells.  PAF affects a variety of cells that are
involved in the inflammatory process, including leukocytes, platelets and
vascular endothelial cells, and acts by binding to specific receptors,
thereby increasing the inflammatory response.

Platelet-activating factor acetylhydrolase is a naturally occurring
enzyme that destroys PAF and eliminates its proinflammatory effects.
ICOS is developing rPAF-AH, the recombinant form of PAF-AH, as an agent
for the treatment of diseases characterized by PAF activity.

In 1997, the Company formed a joint venture with Suntory Limited of Japan
("Suntory"). To facilitate the joint venture, Suncos Corporation
("Suncos") was formed to develop and commercialize rPAF-AH for use
worldwide.  See "Collaborations."

     Clinical Application - Acute Respiratory Distress Syndrome ("ARDS")

ARDS is a complication of acute lung inflammation associated with several
clinical conditions, including acute pancreatitis, massive blood
transfusion, septic shock, and trauma.  There are approximately 650,000
persons at risk for developing ARDS each year in the United States and of
these, approximately 150,000 develop ARDS, for which the mortality rate
is approximately 40%.  Current therapy for ARDS is supportive.

Although the cause of ARDS is not known, it is characterized by acute
lung inflammation.  PAF has been shown to have pronounced effects on the
lung.  In preclinical studies, PAF administration has been shown to cause
lung damage that
                                        6
<PAGE>

resembles ARDS.  Increased levels of PAF have also been
found in the lung fluid of humans who have been diagnosed with ARDS,
suggesting that PAF may contribute to lung inflammation.

rPAF-AH may be effective in patients at risk for ARDS or in improving the
outcome in patients who have already been diagnosed with ARDS by
inhibiting the ability of PAF to contribute to lung inflammation.

ICOS is conducting a Phase 2 clinical trial of rPAF-AH to evaluate its
use for the treatment of patients at risk for ARDS.

     Clinical Application - Asthma

Each year, approximately 300,000 people are hospitalized with severe
asthma.  Although there are a number of effective drugs for asthma, the
disease still causes considerable morbidity and mortality. Asthma is
characterized by a reversible narrowing of the airways and chronic airway
inflammation.  In preclinical studies, PAF has been shown to cause
bronchioconstriction of the airways similar to that observed in asthma
patients.  ICOS is currently conducting a Phase 2 clinical trial to
evaluate the potential of rPAF-AH for the treatment of asthma.

     Clinical Application - Pancreatitis

Each year, approximately 40,000 people in the United States suffer from
acute pancreatitis.  Currently, there is no specific therapy available to
treat this disease.  PAF has been implicated as a mediator of acute
pancreatitis.  In preclinical models, rPAF-AH has been demonstrated to
reduce the severity of pancreatitis.  ICOS is conducting a Phase 2
clinical trial to evaluate the potential of rPAF-AH for the treatment of
pancreatitis following an endoscopy procedure known as endoscopic
retrograde cholanglo pancreatography, or ERCP.

Preclinical and Research - Antagonists of Proinflammatory Mediators

ICOS is conducting preclinical research on additional compounds that show
promise as antagonists of proinflammatory mediators.

     Macrophage Derived Chemokine

Investigators at ICOS discovered macrophage derived chemokine ("MDC"), a
novel chemokine involved in the regulation of the immune and inflammatory
response.  MDC has recently been shown to be involved in the host
response to viral infection.

     Chemokine Antagonists

ICOS' research in the area of inflammation led to the discovery of
several novel chemokine receptors.  Chemokines are a large family of
secreted immunoregulatory proteins that selectively regulate the
migration of immune cells to sites of inflammation.  It is believed that
chemokine antagonists could be efficacious in the treatment of specific
immune dysfunction in inflammatory and infectious diseases without the
side effects seen with current immunosuppressive therapies.

Signal Transduction Programs
----------------------------
IC351

     Background

Research over the past 15 years has led to a better understanding of how
cells interact to coordinate the growth and maintenance of tissues in the
human body.  The key to this interaction is intracellular signal
transduction -- the transmission of a signal from the exterior to the
interior of a cell -- which results in the activation or suppression of
specific genes or metabolic pathways.

Physiologically, the concentrations of two second messenger molecules,
cAMP and cGMP, influence a wide range of cellular functions.  The
intracellular concentration of cAMP and cGMP in the cell is generally
controlled by the relative activity of two types of enzymes:  cyclases,
which produce these second messengers, and phosphodiesterases or PDEs,
which inactivate these second messengers.
                                        7
<PAGE>

There are at least 15 human genes that encode more than 20 different PDEs
that can be categorized into seven distinct PDE types.  The Company has
cloned and expressed a majority of these PDEs, each of which has been
shown to target particular signal transduction pathways.  These diverse
proteins are not, however, uniformly expressed and distributed throughout
the body, but rather are found in differing concentrations in different
tissues and cells.  This tissue-selective expression may provide
opportunities for specific intervention and development of selective
therapeutics that inhibit a single type of PDE enzyme.

     Clinical Application - Male Erectile Dysfunction

From 1991 to 1997, the Company worked with Glaxo Wellcome (formerly Glaxo
Group Ltd. and Glaxo, Inc.) to identify and develop potential
pharmaceutical products that have a therapeutic effect by modulating PDE
activity.  The first of these compounds, now called IC351, is one such
PDE modulator.  Such agents may be useful in a variety of inflammatory
diseases and cardiovascular disorders.  Male erectile dysfunction
("MED"), sometimes called impotence, is estimated to affect 10-20 million
men in the United States.  This condition can be the consequence of
several underlying factors that coexist in patients with MED.  ICOS is
developing IC351, an inhibitor of one type of PDE known as
phosphodiesterase type 5.  PDE5 is part of the signal transduction system
in vascular smooth muscle that acts to control the level of cGMP.  IC351
is a potent and selective blocker of PDE5 function.  When a guanylyl
cyclase in the vascular smooth muscle cell has been triggered to produce
cGMP by an external signal,  IC351, by blocking this PDE, prvents the
PDE5 from destroying the cGMP.  Thus, IC351 can be thought of as a
contingent agonist, a compound whose action is contingent upon the
presence of a signal triggering a cGMP increase.  Administration of IC351
is expected to increase cGMP in the vascular smooth muscle leading to
vessel relaxation and increased blood flow in response to stimuli.  ICOS
is conducting a Phase 2 clinical trial of IC351 overseas to evaluate its
potential for the treatment of MED. Further, the Company is evaluating
the potential use of IC351 for the treatment of angina, hypertension and
congestive heart failure.

Preclinical and Research - Signal Transduction Programs

ICOS scientists are evaluating several other potential products in the
area of signal transduction.  These programs are in various stages of
preclinical and research development.

     PDE4 Selective Inhibitor

Basic research demonstrated that inhibitors of PDE4 increase cAMP, a
cyclic nucleotide, and attenuate cellular responses in many
proinflammatory cell types.  ICOS has a number of potent PDE4-selective
inhibitors currently being evaluated in various disease models of
inflammation.

     Cell Cycle Checkpoint Modulators

Cell division is controlled, in part, by proteins that monitor the
integrity of genomic DNA.  Chromosomal DNA damage activates these
checkpoint proteins to arrest the cell division cycle.  A panel of cell
cycle check point proteins have been identified and cloned at ICOS.
Modulation of checkpoint protein activity may have therapeutic benefit in
proliferative disorders, including cancer and diseases of the immune
system.

     Anchoring Protein Modulators

ICOS scientists seek to understand the cellular response to a stimulus
that leads to the localization of enzymes.  Research at ICOS has shown
that certain molecules, called anchoring proteins, bind to signaling
enzymes and anchor them to specific compartments in a cell.  Modulators
that affect the binding of anchoring proteins to an enzyme offer a new
approach to therapeutic development for treatment of certain inflammatory
and neurological diseases.

Small Molecule Discovery Program
--------------------------------

The Company's scientists are also working to identify and develop synthetic
small molecule-based therapeutics designed to exploit the Company's
knowledge of the mechanisms of inflammation.  The Company has developed
a proprietary in-house, high-throughput small molecule screening program.
ICOS has assembled an extensive library of chemicals, consisting of
synthetic organic molecules, through its collaborations and independent
compound acquisitions.  This library has been used successfully to
identify potential drug candidates for a number of molecular targets
within the Company's research and development programs.

                                        8
<PAGE>

Clinical Production Facility
----------------------------

The Company has manufactured recombinant protein-based clinical materials
to support its previous and current clinical trials in its own production
facility.  This facility is capable of utilizing both microbial and
mammalian-based production processes and was designed to meet Food and
Drug Administration ("FDA") requirements for the production of marketable
products.  The facility is suited for the production of purified
recombinant protein bulk product.  As such, the Company anticipates that
vialing and other finishing steps will be completed under contract with
other companies.  See "Important Factors Regarding Forward-Looking
Statements."

Collaborations
--------------

The Company has entered into arrangements with other parties to access
technology and facilitate and fund the development and marketing of
certain of its products.

In 1991, the Company entered into a collaboration agreement with Glaxo
Wellcome to identify and develop pharmaceutical products that may have a
therapeutic impact on PDE activity and be useful in a variety of
inflammatory diseases and cardiovascular disorders.  In early 1997, ICOS
and Glaxo Wellcome changed the terms of their agreement, giving both ICOS
and Glaxo Wellcome the right to independently continue research and
development of compounds that inhibit PDEs.  Under the revised terms,
ICOS retains commercial and intellectual property rights to PDE
inhibitors arising from the collaboration, including potential treatments
for cardiovascular diseases and MED in exchange for future royalties
payable to Glaxo Wellcome on sales of such compounds.  One such compound,
now called IC351, is in a Phase 2 clinical trial overseas to evaluate its
potential for the treatment of MED.  Glaxo Wellcome is free to conduct
research and development of PDE inhibitors independent of ICOS.

In April 1995, the Company formed a collaboration with Abbott
Laboratories that seeks to discover small molecule drugs that modulate
the intracellular signaling connections of certain ICAMs and integrins.
In September 1997, ICOS and Abbott Laboratories expanded and extended
their relationship to include small molecule antagonists of the
extracellular domains of certain integrins and ICAMs.  Under the terms of
the agreement, each company will have exclusive rights to drugs against
specific molecular targets with royalties and milestone obligations to
the other party.  Each party will be responsible for the development,
registration and commercialization of its own products.  In addition, the
collaboration provided the Company with a library of chemical compounds
for use in its own discovery programs.

In February 1997, the Company and Suntory as joint venture partners
formed Suncos to develop and commercialize    rPAF-AH worldwide.  Under
the terms of the arrangement, the joint venture was established with a
$30 million cash investment by Suntory to Suncos.  ICOS licensed, on a
worldwide basis, all rights for rPAF-AH to Suncos.  In exchange, both
ICOS and Suntory received 50% ownership in Suncos.  Suntory has rights
and obligations to participate in the development and commercialization
of rPAF-AH in Japan and ICOS has similar rights and obligations with
respect to the United States.  Suncos will be managed jointly by Suntory
and ICOS.  Suntory and ICOS will each pay royalties to Suncos on sales of
rPAF-AH products in its respective territory.

From time to time, the Company enters into research collaborations with
various institutions and scientists to expand ICOS' access to new
scientific developments, technologies and discoveries in certain areas.
ICOS has contracted with several academic, corporate and institutional
collaborators to conduct certain research and development activities
relating to the products discussed herein.  The Company has also entered
into certain license agreements with respect to different technologies in
addition to the agreements noted above.  ICOS' agreements with these
organizations generally provide that the Company will fund either the
research or development of the technology, or both, and will obtain an
exclusive license or option to the technology developed, subject to
certain royalty and other obligations.

Research, Product Development and Commercialization Strategies
--------------------------------------------------------------

ICOS' research and product development efforts comprise three basic
stages prior to commercialization.  The initial stage, research, includes
early-stage discoveries through the identification of preclinical
targets.  During research, the Company tests candidate molecules in
relevant preclinical models of disease.  During the preclinical stage a
specific preclinical target is selected and the research and development
project personnel work to establish a production process.  After review
of the Investigational New Drug ("IND") application by the FDA, Phase 1
clinical trials are commenced to determine a product candidate's safety
and pharmacological profile.  The Company's Phase 1 clinical trials are
frequently designed to support the initiation of multiple Phase 2
clinical trials for distinct indications. Phase 1 safety and pharmacology
clinical trials lead to Phase 2 clinical trials designed to establish the
likely therapeutic dose and potential efficacy.  ICOS' product development

                                        9
<PAGE>

strategy emphasizes the acquisition of Phase 2 clinical data
to determine a particular product candidate's utility in a specific
disease indication. A drug candidate may then enter Phase 3 clinical
trials, where its efficacy will be verified through additional human
clinical trials.  Once Phase 3 clinical trials are successfully
completed, a Biological License Application ("BLA"), or New Drug
Application ("NDA") for small molecule products, is submitted to the FDA.
Product launch and commercialization depend on approval of the BLA or NDA
by the FDA.  See "Governmental Regulation."

The Company intends to select specific indications for potential products
that merit study in Phase 3 clinical trials with a view to full
commercialization based on data generated from relevant preceding
clinical work and ICOS' analysis of the best utilization of its
resources.  The Company does not expect to conduct Phase 3 clinical
trials on all the potential indications for its products.

The Company plans to develop the capabilities necessary to bring the
promising products of its research and development activities into the
marketplace. If the Company determines that it is strategically
advantageous to enter into a collaboration with another firm, the
Company's preference is to enter into collaborations with companies where
ICOS has the opportunity to share equally in research and product
development and co-promote and share profits from any products arising
from the collaboration.  The Company may, however, choose to license its
technology when it feels it is in the Company's best interest.  There can
be no assurance that additional joint venture or collaborative
arrangements will be available on terms acceptable to the Company.  See
"Collaborations."

To support the clinical development of Hu23F2G, rPAF-AH and ICM3 (the
"Partnership Products"), ICOS formed, and transferred certain of its
rights to the Partnership Products to ICOS Clinical Partners, L.P. (the
"Partnership").  The Partnership completed the sale to private investors
of interests in the Partnership in August, 1997. This sale will result in
net proceeds to the Partnership of approximately $79.8 million over a
three year period to fund continued development by the Company of the
Partnership Products. ICOS has the option to purchase all of the limited
partnership interests in the Partnership.

The Company's research and development expenses during 1997, 1996 and
1995 were $42.8 million, $30.0 million, and $24.0 million, respectively.

Competition
-----------

Competition in the pharmaceutical industry is intense and characterized
by rapid technological development.  The Company and Suncos, the
Company's joint venture with Suntory, will compete with pharmaceutical
companies and biotechnology firms in the United States, Japan, Europe and
elsewhere.  Many biotechnology companies have focused their development
efforts in the human therapeutics area, including inflammatory and other
diseases targeted by the Company, and many major pharmaceutical companies
have developed or acquired internal biotechnology capabilities or have
made commercial arrangements with other biotechnology companies or
research institutions.

The Company expects to encounter significant competition for the products
it plans to develop.  Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their
products before their competitors may achieve a significant competitive
advantage.  A number of biotechnology and pharmaceutical companies are
developing anti-inflammatory and cardiovascular products aimed at the
same indications as those ICOS has targeted.  Some of these have entered
clinical trials or are commercially available.  Several have been in
business longer than ICOS, have greater financial resources and have more
experience in obtaining and negotiating with corporate partners. There
can be no assurance that research and discoveries by others will not
render the Company's programs or products uneconomical or result in
therapies superior to any therapy developed by the Company or that any of
the Company's products will be preferred to any existing or newly
developed technologies.

Significant levels of biotechnology research occur in universities and
other nonprofit research institutions.  These entities have become
increasingly active in seeking patent protection and licensing revenues
for their research results.  They also compete with ICOS in recruiting
skilled scientific talent.

The Company believes that its competitive success will be based on the
ability to create and maintain scientifically advanced technology,
develop cost-effective proprietary products, attract and retain talented
and skilled personnel, obtain patent or other protection for its
products, obtain required regulatory approvals and manufacture and
successfully market its products, either alone or through outside
parties.  Many of the Company's competitors have substantially greater
financial, marketing and human resources and experience than ICOS.  See
"Important Factors Regarding Forward-Looking Statements."

                                        10
<PAGE>

Governmental Regulation
-----------------------

Regulation by governmental authorities in the United States, Europe,
Japan and other foreign countries is a significant factor in the
manufacture and marketing of the Company's potential products and in its
ongoing research and product development activities.  Virtually all the
Company's products, those of Suncos, its joint venture with Suntory, and
those licensed to the Partnership will require regulatory approval by
governmental agencies prior to commercialization.  In particular, human
therapeutic products are subject to rigorous preclinical and clinical
testing and other approval requirements by the FDA and comparable
agencies in foreign countries.  The time required for completing such
testing and obtaining such approvals is uncertain.  Any delay in testing
may delay product development.  In addition, delays or rejections may be
encountered based on changes in FDA or foreign regulatory policy during
the period of product development and testing.  Various federal statutes
and regulations also regulate the manufacturing, safety, labeling,
storage, record-keeping and marketing of such products.  The lengthy
process of obtaining regulatory approvals and ensuring compliance with
appropriate federal statutes and regulations requires the expenditure of
substantial resources.  Any delay or failure by ICOS to obtain regulatory
approval could adversely affect the commercialization of products being
developed by the Company, its ability to receive product, collaborative
research or royalty revenue and, thus, its liquidity and capital
resources.

Preclinical studies are generally conducted in the laboratory to evaluate
the potential efficacy and the safety of a therapeutic product.  The
results of these studies are submitted to the FDA as part of an IND
application, which must be reviewed by FDA personnel before clinical
testing can begin.  Once the FDA is satisfied with the submission, the
clinical trials in human subjects can commence.  Typically, clinical
evaluation involves three sequential phases, which may overlap.  During
Phase 1, clinical trials are conducted with a relatively small number of
subjects to determine the early safety profile of a drug, as well as the
pattern of drug distribution and drug metabolism by the subject.  In
Phase 2, trials are conducted with groups of patients afflicted by a
specific target disease to determine preliminary efficacy, optimal
dosages, and dosage tolerance and to gather additional safety data.  In
Phase 3, large-scale, multicenter comparative trials are conducted with
patients afflicted with a specific target disease to provide data for the
statistical proof of efficacy and safety as required by the FDA and
others.  The FDA, the clinical trial sponsor or the investigator may
suspend clinical trials at any time if it believes that clinical subjects
are being exposed to an unacceptable health risk.

The results of preclinical and clinical testing are required to be
submitted to the FDA in the form of an NDA for small molecule products or
a BLA for biological products.  In responding to an NDA or BLA, the FDA
may grant marketing approval, request additional information, or deny the
application if the FDA determines that the application does not satisfy
its regulatory approval criteria.  There can be no assurance that
approvals will be granted on a timely basis, if at all.  The failure to
obtain timely permission for clinical testing or timely approval for
product marketing would materially affect the Company.  Product approvals
may subsequently be withdrawn if compliance with regulatory standards is
not maintained or if problems are identified after the product reaches
the market.  The FDA may require testing and surveillance programs to
monitor the effect of a new product and may prevent or limit future
marketing of the product based on the results of these postmarketing
programs.

Some of the Company's potential products may qualify as orphan drugs
under the Orphan Drug Act of 1983.  This act generally provides
incentives to manufacturers to undertake development and marketing of
products to treat relatively rare diseases or diseases where fewer than
200,000 persons annually in the United States would be likely to receive
the treatment.  A drug that receives orphan drug designation by the FDA
and is the first product to receive FDA marketing approval for its
product claim is entitled to a seven-year exclusive marketing period in
the United States for that product claim.  A drug that is considered by
the FDA to be different from a particular orphan drug is not barred from
sale in the United States during such seven-year exclusive marketing
period.

The Company's policy is to conduct its research activities in compliance
with the National Institute of Health Guidelines for Research Involving
Recombinant DNA Molecules.  The Company is also subject to various
federal, state and local laws, regulations and recommendations relating
to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or
potentially hazardous substances, including radioactive compounds and
infectious disease agents, used in connection with the Company's work.
The extent and character of governmental regulation that might result
from future legislation or administrative action cannot be accurately
predicted.  See "Important Factors Regarding Forward-Looking Statements."

                                        11
<PAGE>

Patents and Trade Secrets
-------------------------

Because of the length of time and expense associated with bringing new
products through development and the governmental approval process to the
marketplace, the pharmaceutical industry has traditionally placed
considerable importance on obtaining and maintaining patent protection
for significant new technologies, products and processes.  This is
equally true for emerging biotechnology companies and, as such, the
Company has applied, and is applying, for patents for its products and
certain aspects of its technologies.  To date, the Company has filed
approximately 137 U.S.  patent applications on its own behalf or on
behalf of its exclusive licensors.  The United States Patent and
Trademark Office (the "USPTO") has issued  patents to ICOS for 35 of
these applications.

The enforceability of patents issued to biotechnology and pharmaceutical
firms is highly uncertain.  Federal court decisions indicating legal
considerations surrounding the validity of patents in the field are in
transition, and there can be no assurance that the historical legal
standards surrounding questions of validity will continue to be applied
or that current defenses as to issued patents in the field will, in fact,
be considered substantial in the future.  In addition, there can be no
assurance as to the degree and range of protection any patents will
afford, whether patents will issue or the extent to which the Company
will be successful in not infringing patents granted to others.  If
certain patents issued to others are upheld or if certain patent
applications filed by others  are issued as patents and are upheld, the
Company may be unable to market a product or may be required to obtain a
license to do so.  ICOS has entered into nonexclusive license agreements,
and anticipates entering into additional license agreements in the
future, with third parties for technologies that may be useful or
necessary for the manufacture of the Company's products.  The Company
believes that such additional licenses will be available on commercially
reasonable terms.  The Company has initiated discussions with commercial
entities which hold United States patents which may be needed for some of
the Company's activities.  There can be no assurance that such licenses,
if required, will be available on acceptable terms, if at all.

While ICOS pursues patent protection for products and processes where
appropriate, it also relies on trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive
position.  The Company's policy is to have each employee enter into an
agreement that contains provisions prohibiting the disclosure of
confidential information to anyone outside the Company.  Research and
development contracts and relationships between the Company and its
scientific consultants provide access to aspects of the Company's know-
how that is protected generally under confidentiality agreements with the
parties involved.  There can be no assurance, however, that these
confidentiality agreements will be honored or that the Company can
effectively protect its rights to its unpatented trade secrets.
Moreover, there can be no assurance that others will not independently
develop substantially equivalent proprietary information and techniques
or otherwise gain access to the Company's trade secrets.  See "Important
Factors Regarding Forward-Looking Statements."

Human Resources
---------------

As of December 31, 1997, ICOS employed 252 individuals.  Approximately
231 ICOS employees are engaged in research or development activities and
21 in general and administrative positions.

Important Factors Regarding Forward-Looking Statements
------------------------------------------------------

The following important factors, among others, could cause actual results
to differ materially from those contained in forward-looking statements
made in this report and presented elsewhere by management from time to
time.

Early Stage of Development; Lack of Commercial Products; No Assurance of
------------------------------------------------------------------------
Successful Product Development.  The Company has not yet completed the
-------------------------------
development of any products and does not expect to have any products
commercially available for several years, if at all.  The Company's
potential products will require significant additional development,
preclinical and clinical testing, regulatory approval and additional
investment prior to commercialization.  There can be no assurance that
further research and development will be successful or will result in
therapeutic products that will qualify for approval or be approved by
regulatory authorities in order for commercial sales to begin.

                                        12
<PAGE>

Uncertainty Associated With Clinical Testing.  Results of initial
--------------------------------------------
preclinical and clinical testing of products under development by the
Company are not necessarily predictive of results that will be obtained
from subsequent or more extensive preclinical and clinical testing.
There can be no assurance that clinical trials of Company products under
development will be completed or will demonstrate the products' safety
and efficacy.  The failure to adequately demonstrate safety and efficacy
could significantly delay or prevent regulatory approval of a product.
There can be no assurance that unacceptable toxicities or side effects
will not occur at any time in the course of human clinical trials or
commercial use of the Company's products. The appearance of any such
unacceptable toxicities or side effects could cause the Company to
interrupt, limit, delay or abort the development of any of its products
or, if previously approved, necessitate their withdrawal from the market.
Furthermore, there can be no assurance that disease resistance or other
physiological factors will not limit the efficacy of the Company's
products. Delays in patient enrollment in the Company's current clinical
trials or future clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on the
Company.

Continuing Operating Losses.  The Company has not generated revenues from
---------------------------
the commercialization of any products.  The Company anticipates that its
operating expenses and capital expenditures will increase significantly
in 1998 and subsequent years and expects to incur substantial operating
losses at least until sales of its potential products commence.  The
development of the Company's products will require the commitment of
substantial resources to conduct the time-consuming research, preclinical
development and clinical trials necessary to bring such products to
market and to establish production and marketing capabilities.  There can
be no assurance that the Company will generate significant product
revenues or achieve profitability.

Additional Financing Requirements and Access to Capital.  Substantial
-------------------------------------------------------
additional funding will be required for the Company's operations.  The
Company may seek additional funding through public or private financings,
including equity financings, and through other arrangements, including
collaborative arrangements.  Adequate funds may not be available when
needed or on terms acceptable to the Company.  If adequate funds are not
available, the Company may be required to delay, scale back or eliminate
expenditures for certain of its programs or to license third parties to
commercialize products or technologies that the Company would otherwise
seek to develop or commercialize itself.

Dependence on Others.  Under the Company's collaborative agreements with
--------------------
Abbott Laboratories, certain development efforts, regulatory compliance,
manufacturing and marketing activities may be performed primarily by
Abbott Laboratories.  Similarly under the Company's joint venture with
Suntory, certain development and manufacturing activities and regulatory
and marketing activities related to product sales in Japan may be
performed by Suntory.  The Company may enter into similar agreements with
other collaborators in the future. Continued collaborator participation
will depend not only on the achievement of research objectives by the
Company and its collaborators, which cannot be assured, but also on each
collaborator's own financial, competitive, marketing and strategic
considerations, which are outside the Company's control.  Such strategic
considerations may include the relative advantages of alternative
products being marketed or developed by others, including relevant patent
and proprietary positions.  There can be no assurance that the interest
and motivations of the Company's collaborators are, or will remain,
consistent with those of the Company or that such collaborators will
successfully perform their development, regulatory compliance,
manufacturing or marketing functions and that such current or future
collaborations will continue.  Furthermore, there can be no assurance
that the Company will be able to negotiate additional acceptable
collaborative arrangements in the future or that any such arrangements
would be successful.

Uncertain Availability of Third-Party Reimbursement and Product Pricing.
-----------------------------------------------------------------------
The Company's ability to commercialize products successfully will depend
substantially on reimbursement of the costs of such products and related
treatments at acceptable levels from government authorities, private
health insurers and other organizations, such as health maintenance
organizations ("HMOs").  There can be no assurance that reimbursement in
the United States or foreign countries will be available for any products
the Company may develop or, if available, will not be decreased in the
future, or that reimbursement amounts will not reduce the demand for, or
the price of, the Company's products, thereby adversely affecting its
business.

Third-party payors are increasingly challenging the prices charged for
medical products and services.  Also, the trend toward managed healthcare
in the United States and the concurrent growth of organizations, such as
HMOs, which can control or significantly influence the purchase of
healthcare services and products, as well as legislative proposals to
reform healthcare or reduce government insurance programs, may result in
lower prices for therapeutic products.  The cost-containment measures
that healthcare providers are instituting, including practice protocols
and guidelines and clinical pathways, and the effect of any healthcare
reform, could materially adversely affect the Company's ability to sell
products if successfully developed and approved.  Moreover, the Company
is unable to predict what additional legislation or regulation, if any,
relating to the healthcare industry or third-party coverage and
reimbursement may be enacted in the future or what effect such
legislation or regulation would have on the Company's business.

                                        13
<PAGE>

Limited Manufacturing Capabilities; No Marketing or Sales Capability.
--------------------------------------------------------------------
ICOS currently anticipates the need to hire additional personnel skilled
in the manufacturing, clinical testing and regulatory compliance
processes.  There can be no assurance that ICOS will be able to acquire
such resources or establish relationships with others to supplement its
resources.  ICOS may not have sufficient manufacturing capacity to
manufacture its potential biological products in commercial quantities.
Moreover, ICOS' manufacturing capacity may be inadequate to complete all
clinical trials contemplated by the Company. Although ICOS expects to
develop such capacity by expanding its current facilities, building new
facilities or contracting with others for manufacturing services, there
can be no assurance that such capacity will be developed or be available
on a timely basis.  The Company does not have facilities for the
manufacture of small molecule products.  Should the Company decide to
market certain of its potential products through a direct sales force in
certain markets, if and when regulatory approval is obtained, the Company
would be required to either hire a sales force with expertise or contract
with a third party to provide a sales force.  There can be no assurance
that the Company will be able to establish such a sales force or be
successful in establishing other channels for distributing its potential
products.

Uncertainty Relating to Patents and Proprietary Rights.  The Company's
------------------------------------------------------
ability to compete effectively with others is materially dependent on the
proprietary nature of the Company's patents and technologies.  The
Company has applied and will continue to apply for patents for its
products and certain aspects of its technology, products and processes.
The enforceability of certain patents issued to biotechnology firms is
highly uncertain.  Federal court decisions indicating legal
considerations surrounding the validity of biotechnology patents are in
transition, and there can be no assurance that the historical legal
standards surrounding questions of  patent validity will continue to be
applied or that current defenses as to issued patents will, in fact, be
considered substantial in the future.  In addition, there can be no
assurance as to the degree and range of the protection any patents will
afford, whether patents will be issued, or the extent to which the
Company will be successful in not infringing on any patents granted to
others.  ICOS has entered into nonexclusive license agreements, and
anticipates entering into additional license agreements in the future,
with third parties for technologies which may be useful or necessary for
the manufacture of the Company's products.  The Company believes that
such additional licenses will be available on commercially reasonable
terms.  The Company has initiated discussions with commercial entities
which hold United States patents that may be needed for some of the
Company's activities.  There can be no assurance that any licenses
required under any patents or proprietary rights will be made available
on terms acceptable to the Company, if at all.  If the Company does not
obtain required licenses, it could encounter delays in product
development while it attempts to design around the patents, or it could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed.  In addition, the Company could incur
substantial costs in defending any patent litigation brought against it
or in asserting its patent rights, including those licensed to it by
third parties, in a suit against another party.  Additionally, there can
be no assurance that the Company's confidentiality agreements will
adequately protect its trade secrets, know-how or other proprietary
information.

Technological Change and Competition.  The Company is involved in an
------------------------------------
intensely competitive field.  There are many companies and institutions,
both public and private, including pharmaceutical companies, chemical
companies, specialized biotechnology companies and research and academic
institutions, that are engaged in developing synthetic pharmaceuticals
and biotechnological products for human therapeutic applications,
including the applications targeted by the Company.  A number of
competitors are conducting research and development in the areas of cell-
trafficking, mediators of inflammation and intracellular signal
transduction, and research by others specifically addresses areas of
technology and/or medical indications or conditions targeted by the
Company.  Many of these companies have substantially more capital,
research and development, regulatory, manufacturing, marketing, human and
other resources and experience than the Company and may succeed in
developing products that are more effective or less costly than any that
may be developed by the Company and may also be more successful than the
Company in production or marketing.  In addition, other recently
developed technologies are, or may in the future be, the basis for
competitive products.  There can be no assurance that competitors will
not succeed in developing technologies and products that are more
effective than any being developed by the Company or that would render
the Company's technology and products obsolete or noncompetitive.

Volatility of Stock Price.  Market prices for securities of biotechnology
-------------------------
companies have been highly volatile.  The Company believes that several
factors could have a significant effect on the future price of the
Company's Common Stock, including, without limitation, future
announcements by the Company or others regarding progress in product
development, results and progress of  preclinical studies and clinical
trials, progress of existing and future collaborations, evidence of the
safety or efficacy of products, anticipated and actual financing events,
scientific discoveries, technological innovations, commercial products,
patents or propriety rights or regulatory actions, litigation,
fluctuations in the Company's results of operations and changes in
general market conditions for biotechnology stocks.

                                        14

<PAGE>

Governmental Regulation.  The FDA and comparable agencies in foreign
-----------------------
countries impose substantial requirements on biotechnology and
pharmaceutical companies during development of potential products.  These
requirements include lengthy and detailed laboratory and clinical testing
procedures, sampling activities and other costly and time-consuming
procedures surrounding the development and testing of proposed products.
Governmental regulation also affects the manufacture and marketing of
pharmaceutical products.  Any future FDA or other governmental approval
of products developed by the Company may entail limitations on the
indicated uses for which such products may be marketed.  The effect of
governmental regulation may be to delay marketing new products for a
considerable period of time, to impose costly requirements on the
Company's activities or to provide a competitive advantage to other
companies that compete with the Company.  There can be no assurance that
FDA or other regulatory review or approval for any product or proposed
product will be granted on a timely basis, if at all.  A delay in
obtaining or failure to obtain such approvals could adversely affect the
Company's liquidity and capital resources.

Potential Product Liability.  The Company faces an inherent business risk
---------------------------
of exposure to product liability claims in the event that the use of its
technology or products is alleged to have resulted in adverse effects.
Such risk exists in human clinical trials.  There can be no assurance
that the Company can avoid significant product liability exposure.  A
product liability claim could materially adversely affect the business,
financial condition or future prospects of the Company.  Although the
Company has in place product liability insurance it believes is
appropriate to its current level of clinical trials, there can be no
assurance that the Company will be able to maintain such coverage in the
future on acceptable terms or that such insurance will provide adequate
coverage against potential liabilities.  There can be no assurance that
adequate insurance coverage will be available at acceptable costs, if at
all.

Hazardous Materials; Environmental Matters.  The Company's research and
------------------------------------------
development activities involve the controlled use of hazardous materials,
chemicals, viruses and radioactive compounds.  The Company is subject to
federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of such materials and certain
waste products.  Although the Company believes that it complies with
standards prescribed by such laws, the risk of accidental contamination
or injury from these materials cannot be completely eliminated.  In the
event of such an accident, the Company could be held liable for any
damages that result.  The Company's operations, business or assets may be
materially adversely affected by current or future environmental laws or
regulations.

Key Personnel.  The Company is highly dependent on its scientific and
-------------
administrative staff and management team.  The loss of any of these
individuals could adversely affect the Company.  The Company is also
highly dependent on its ability to attract and retain qualified
scientific, technical and key management personnel.  There is intense
competition for qualified personnel in the areas of the Company's
activities and there can be no assurance that the Company will be able to
continue to attract and retain qualified personnel necessary for the
development of its business.

                                        15
<PAGE>

Item 2.  Properties

ICOS leases and/or owns approximately 130,000 square feet of space in
four buildings located in Bothell, Washington, a suburb of Seattle.  The
Company's leases expire from 1999 to February 2004, with options to renew
for additional five-year periods.  The Company's principal administrative
offices, research laboratories, and clinical production facility occupy
approximately 105,000 square feet.  In December 1992, the Company
purchased approximately seven acres of undeveloped land adjacent to its
leased facilities.  This purchase gives the Company the flexibility to
expand in its current geographic location.  Over the next several years,
the Company plans to lease or acquire additional facilities to
accommodate the activities and personnel as necessary to further develop
its products.

Item 3.  Legal Proceedings

The Company is not a party to any material legal proceedings.

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

No matters were submitted to a vote of ICOS' stockholders during the
fourth quarter of its fiscal year ended December 31, 1997.

                                        16
<PAGE>

                                PART II

Item 5.  Market for the Registrant's Common Equity and Related
         Stockholder Matters

ICOS Common Stock trades on the Nasdaq Stock Market under the symbol
ICOS.  As of December 31, 1997, there were 2,367 holders of record of
Common Stock.  The Company has never paid any cash dividends and does not
anticipate paying any cash dividends in the foreseeable future.  The
Company intends to retain future earnings and capital for use in its
business.  The following table sets forth, for the periods indicated, the
high and low sale prices for the Common Stock as reported by the Nasdaq
Stock Market.


     1996                       High         Low
     ----                       ----         ---

     First Quarter            $10 3/8      6 1/2
     Second Quarter             9 3/4      7 5/8
     Third Quarter              9 1/4      6 1/2
     Fourth Quarter             9          7

     1997
     ----

     First Quarter               9 1/4      7 1/4
     Second Quarter              8 9/16     6 7/16
     Third Quarter              14 3/8      7 7/8
     Fourth Quarter             19 1/4     11

     1998
     ----

     First Quarter
     (through March 1, 1998)     18 3/4    13 1/2

                                       17
<PAGE>

Item 6.  Selected Financial Data

The information set forth below 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
Notes thereto included in this Form 10-K.


<TABLE>
                                                             Year Ended December 31,
                                                       (in thousands, except per share data)

                                       ----------------------------------------------------------
<S>                                   <C>        <C>         <C>           <C>          <C>
                                            1997        1996         1995        1994        1993
                                            ----        ----         ----        ----        ----

Statement of Operations Data:

Revenues:
   Collaborative research and
     development from related parties   $ 21,076    $      -     $      -    $      -    $      -
   License of technology to related
      party                                8,500           -            -           -           -
   Other                                   2,000       2,000        1,500           -          90
                                        --------    --------     --------    --------    --------

        Total revenues                    31,576       2,000        1,500           -          90
                                        --------    --------     --------    --------    --------

Operating expenses:
   Research and development               42,783      30,011       24,039      21,272      18,116
   General and administrative              2,737       2,555        2,482       2,835       2,873
                                        --------    --------     --------    --------    --------
        Total operating expenses          45,520      32,566       26,521      24,107      20,989
                                        --------    --------     --------    --------    --------
        Operating loss                   (13,944)    (30,566)     (25,021)    (24,107)    (20,899)
                                        --------    --------     --------    --------    --------
Other income (expense):
   Investment income                       2,164       2,070        1,768       1,498       3,134
   Interest expense                            -           -          (52)       (125)       (165)
   Other, net                               (235)          1          (64)        (14)         (8)
                                        --------    --------     --------    --------    --------
                                           1,929       2,071        1,652       1,359       2,961
                                        --------    --------     --------    --------    --------
         Net loss                       $(12,015)   $(28,495)    $(23,369)   $(22,748)   $(17,938)
                                        ========    ========     ========    ========    ========

Net loss per common share -
   basic and diluted                    $   (.30)   $   (.77)    $   (.73)   $   (.88)   $   (.71)
                                        ========    ========     ========    ========    ========

Weighted average common shares
   outstanding - basic and diluted        39,595      36,805       32,194      25,946      25,401


                                                                   December 31,
                                                                  (in thousands)
                                        ----------------------------------------------------------


                                           1997         1996         1995        1994        1993
                                           ----         ----         ----        ----        ----

Balance Sheet Data:

   Cash and cash equivalents,
      investment securities and
      interest receivable              $ 25,773     $ 41,820     $ 21,376    $ 44,485    $ 44,402
   Other current assets                   2,956          693          732         711         709
   Restricted investment securities           -            -            -       1,800       2,400
   Net property and equipment            17,950       15,627       15,386      11,309      11,353
   Other non-current assets               7,386           65          241         229           6
                                       --------     --------     --------    --------    --------
         Total assets                    54,065       58,205       37,735      58,534      58,870

   Current liabilities                 $  4,193     $  2,938     $  4,443    $  3,441    $  2,291
   Obligations under capital lease
      excluding current installments          -            -            -          74         984
   Stockholders' equity                  49,872       55,267       33,292      55,020      55,595
                                       --------     --------     --------    --------    --------
         Total liabilities and
            stockholders' equity       $ 54,065     $ 58,205     $ 37,735    $ 58,535    $ 58,870
                                       ========     ========     ========    ========    ========
</TABLE>
                                        18
<PAGE>

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

Risks and Uncertainties
-----------------------

This discussion contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected.  The Company's future cash requirements
and expense levels will depend on many factors, including continued
scientific progress in its research and development programs; the results
of research and development, preclinical studies and clinical trials;
acquisitions of products or technology, if any; relationships with
corporate collaborators; competing technological and market developments;
the time and costs involved in filing, prosecuting patents and enforcing
patent claims; the regulatory process, the time and costs of
manufacturing scale-up and commercialization activities; and other
factors.  Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this
report.  The Company undertakes no obligations to publicly release the
results of any revisions to these forward-looking statements that may be
made to reflect events or circumstances after the date of this report or
to reflect the occurrence of unanticipated events.

Overview
--------

The Company is developing and commercializing proprietary pharmaceutical
candidates for the treatment of inflammatory diseases and other serious
medical conditions by understanding the underlying mechanisms and
identifying the molecular entities involved.

The Company's strategy is to identify therapeutic targets through an
understanding of inflammation at the molecular level.  The Company is
developing pharmaceutical products that address important cellular and
molecular mechanisms in three separate, yet interrelated, areas of the
inflammatory process:  directed cell movement, the inhibition of
proinflammatory mediators and intracellular signal transduction.  Each of
these different mechanisms may provide broad opportunities in the
treatment of chronic diseases that have inflammatory components, such as
multiple sclerosis ("MS"), and in the treatment of acute inflammatory
conditions, such as those associated with acute respiratory distress
syndrome ("ARDS"), hemorrhagic shock and myocardial infarction.  In
addition, the Company's other programs have yielded additional approaches
that may be useful in treating cardiovascular diseases and cancer.  The
Company believes that its discoveries will allow it to develop novel
therapeutics that are more selective in their activities than existing
drugs.

During 1996, the Company initiated a Phase 2 clinical trial with Hu23F2G
in patients with trauma-induced hemorrhagic shock and continued the Phase
1 evaluation of Hu23F2G.   A  Phase 2 clinical trial of Hu23F2G for acute
exacerbations of MS was initiated in 1997.  During 1997, the Company
continued its Phase 2 clinical trial of Hu23F2G for acute exacerbations
of MS and commenced two Phase 2 clinical trials of Hu23F2G for the
treatment of myocardial infarction and ischemic stroke.  In 1996, the
Company began a Phase 1 clinical trial of rPAF-AH in healthy volunteers.
In 1997, the Company began two Phase 2 clinical trials of rPAF-AH for the
treatment of asthma and ARDS.  Additionally, in 1996 the Company
completed preclinical development of ICM3 to allow for the commencement
of Phase 1 clinical trials of ICM3 in 1997 for the treatment of
psoriasis, trials which continued through 1997.

In early 1998 the Company announced the initiation of a Phase 2 clinical
trial overseas of IC351 in patients with male erectile dysfunction
("MED") and two expanded Phase 2 clinical trials of Hu23F2G for the
treatment of hemorrhagic shock and myocardial infarction.  In addition in
early 1998, the Company completed patient enrollment in two separate
Phase 2 clinical trials of rPAF-AH in asthma and ARDS.
                                        19

<PAGE>

In February 1997, the Company and Suntory Limited of Japan ("Suntory")
formed a new joint venture company, Suncos Corporation ("Suncos") to
develop and commercialize rPAF-AH.  In forming Suncos, the Company
granted a license for the rPAF-AH technology to Suncos, and Suntory made
an initial capital contribution of $30 million.  Also in 1997, ICOS
Clinical Partners, L.P. (the "Partnership"), an affiliate of the Company,
completed the sale to private investors of interests in the Partnership.
The sale will result in net proceeds to the Partnership of approximately
$79.8 million.   Approximately $25.9 million, before payment of offering
costs, was paid to the Partnership at closing of the sale of the
Partnership units and the balance to be paid in installments over a
three-year period.  Net proceeds from the sale will be used to fund the
continued development by the Company (pursuant to the terms of a Product
Development Agreement between the Company and the Partnership) of
products based on Hu23F2G, rPAF-AH and ICM3 (the "Partnership Products").

The Company had an accumulated deficit of $122.4 million as of
December 31, 1997.  The Company's results of operations may vary significantly
from quarter to quarter and will depend, among other factors, on the
timing of certain expenses, payments received on certain research
collaborations, and the progress of the Company's research and
development efforts.  The Company expects increased expenditures in 1998
and subsequent years as it expands the clinical trials being conducted on
the product candidates Hu23F2G, IC351, ICM3, rPAF-AH and other potential
product candidates.  Some of these costs will be reimbursed by Suncos and
by the Partnership.  In addition, the Company took over development of
all compounds resulting from the Company's collaboration with Glaxo
Wellcome and anticipates initiating additional clinical trials of the
compounds for potential use in treating a number of medical indications,
including MED.  The Company anticipates expanding preclinical research
and other development activities for additional potential products and
commencing clinical trials on those deemed most promising in the future.

Results of Operations
---------------------

Year Ended December 31, 1997 Compared With Year Ended December 31, 1996

Revenue for the year ended December 31, 1997 totaled $31.6 million and
consisted of $18.4 million from the Partnership, $11.2 million in cost
reimbursement revenue from Suncos, and $2.0 million received under the
Company's research and development agreement with Abbott Laboratories.
The revenue from the Partnership included both a one-time license fee as
well as cost reimbursement for development costs incurred by the Company
on behalf of the Partnership.  Revenue for the year ended December 31,
1996 was $2.0 million, and consisted entirely of payments received under
the Company's agreement with Abbott Laboratories.

Total operating expenses for 1997 increased 40% to $45.5 million from
$32.6 million in 1996.  Research and development expense increased 43% to
$42.8 million in 1997 from $30.0 million in 1996, due primarily to costs
related to the progression of clinical trials for Hu23F2G, rPAF-AH, ICM3
and IC351, and the expansion of other product development efforts.
General and administrative expenses increased 7% to $2.7 million in 1997
from $2.6 million in 1996, due primarily to increased administrative
activities and personnel to support increased research and development
activity.

Investment income for 1997 was $2.2 million compared with $2.1 million in
1996.

The Company's net loss decreased 58% to $12.0 million in 1997 compared
with a net loss of $28.5 million in 1996.  The decrease in net loss was
due primarily to revenue recognized from Suncos and the Partnership,
including a one-time license fee and cost reimbursement.

Year Ended December 31, 1996 Compared With Year Ended December 31, 1995

Revenue for the years ended December 31, 1996 and 1995 resulted entirely
from the Company's research and development agreement with Abbott
Laboratories, which was initiated in April 1995, and totaled $2.0 million
in 1996 compared with $1.5 million in 1995.

Total operating expenses in 1996 increased 23% to $32.6 million from
$26.5 million in 1995.  Research and development expense increased 25% to
$30.0 million in 1996 from $24.0 million in 1995, due primarily to costs
related to ongoing clinical trials and related product development
efforts.  General and administrative expenses increased 3% to $2.6
million in 1996 from $2.5 million in 1995.

                                        20
<PAGE>

Investment income in 1996 was $2.1 million compared with $1.8 million in
1995.  The increase was due primarily to higher average cash balances as
a result of the Company's equity offering in May 1996.

The Company's net loss increased 22% to $28.5 million in 1996 compared
with a net loss of $23.4 million for 1995, due  primarily to costs
related to ongoing clinical trials and related product development
efforts.

Liquidity and Capital Resources
-------------------------------

The Company has financed its operations since inception through private
and public sales of the Company's Common Stock, investment income,
revenue from research collaborations, license payments, grants and
capital lease obligations.

At December 31, 1997, the Company had $25.8 million in cash and cash
equivalents, investment securities and interest receivable, a decrease of
$16.0 million from December 31, 1996.  This decrease is attributable
primarily to ongoing costs associated with clinical trials for Hu23F2G,
rPAF-AH, IC351 and ICM3, production of materials to support these and
future clinical trials, regulatory submissions and expansion of the
Company's other research and development programs.  These costs were
partially offset by increased revenues from Suncos and the Partnership.
Through December 31, 1997, the Company had invested a total of $33.3
million in production facilities, laboratory and computer equipment,
furniture, buildings and leasehold improvements.  In addition, the
Company has invested $2.3 million in land for future facilities
expansion.

On August 15, 1997, the Partnership completed the sale to private
investors of interests in the Partnership. The sale will result in net
proceeds to the Partnership of approximately $79.8 million.
Approximately $25.9 million, before payment of offering costs, was paid
to the Partnership at closing of the sale of the Partnership units and
the balance to be paid in installments over a three-year period.  In
connection with the offering of the Partnership units, the Company issued
warrants to purchase an aggregate of approximately 7.6 million shares of
the Company's Common Stock.  Net proceeds from the offering will be used
by the Partnership to fund continued development by the Company of the
Partnership Products pursuant to the terms of the Product Development
Agreement.  While the Partnership will reimburse the Company for certain
costs associated with the development of these compounds, it is unlikely
that all such costs will be reimbursed.  Certain rights relating to the
Partnership Products were licensed by the Partnership from the Company in
connection with the sale of the Partnership units.

The Company anticipates that its operating expenses will continue to
increase during 1998 and subsequent years as it adds the personnel and
facilities associated with advancing several potential product candidates
through development and clinical trials.  Foreseeable incremental costs
may include, but are not limited to, those associated with the Company's
own product development, preclinical studies and clinical trials, patent
filings and administrative activities.  The Company may also incur costs
and make capital contributions under its joint venture agreement with
Suntory related to its obligations to develop rPAF-AH.  Under provisions
of the development agreement with Suncos, the Company will be reimbursed
for certain of these costs; however, there can be no assurance that all
such costs will be reimbursed.  The Company may also incur costs
associated with the development of the Partnership Products pursuant to
the terms of the Product Development Agreement entered into with the
Partnership.

The Company intends to use its financial resources for ongoing and future
clinical trials of certain of its current product candidates, including
Hu23F2G, rPAF-AH, ICM, and IC351, expansion of preclinical research and
development activities for additional potential product candidates and
the initiation of clinical trials for those product candidates deemed
most promising, expansion of the Company's facilities and general
corporate purposes.

The Company anticipates that its existing cash, including interest income
from cash investments and anticipated payments from Abbott Laboratories,
Suncos and the Partnership, will be adequate to satisfy its cash
requirements for approximately nine months.  However, the amounts and
timing of expenditures will depend on the progress of ongoing research
and development, the rate at which operating losses are incurred, the
execution of development and licensing agreements with potential
corporate partners, the Company's development of products, the Food and
Drug Administration ("FDA") regulatory process, and other factors, many
of which are beyond the Company's control.

                                       21
<PAGE>

The Company has been successful in negotiating collaborations and joint
development agreements with other parties where the work and strategies
of the other parties complement those of the Company.  In some instances,
these relationships may involve commitments by the Company to fund some
or all of certain development programs.  Although corporate
collaborations and joint ventures have provided cost reimbursement
revenue to the Company in the past, there can be no assurance that such
funds will be available to the Company in the future.  The Company
intends to expand its operations and hire the additional personnel deemed
necessary to continue development of its current portfolio of product
candidates in clinical trials, as well as continuing discovery and
preclinical research to identify additional potential drug candidates.
The Company anticipates that expansion of these activities will increase
operating expenses in future quarters.  Further, incremental expenditures
will be required for additional laboratory, production and office
facilities to accommodate activities and the personnel associated with
this increased development activity.  As such, the Company will need to
raise substantial additional funds to conduct its research and
development activities, preclinical studies and clinical trials necessary
to bring its product candidates to market and to establish marketing
capabilities if and when a product candidate is ready for
commercialization.  There can be no assurance that additional funds will
be available as needed or on terms that are acceptable to the Company.
Insufficient funding will require the Company to delay, scale-back or
eliminate some or all of its research and development activities, planned
clinical trials and administrative programs.

The amounts and timing of operating expenditures will depend on the
progress of ongoing research and development of the Company's potential
products, as well as the activities of corporate collaborators and joint
venture partners related to collaborative research and development
activities, the FDA regulatory process and other factors, many of which
are beyond the Company's control.

Year 2000

The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is
developing an implementation plan to resolve the issue.  The Year 2000
problem is the result of computer programs being written using two,
rather than four, digits to define the applicable year.  Unless
corrected, those systems that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000, potentially
resulting in system failures or miscalculations.  The Company presently
believes that, with certain modifications to existing software and
selective conversion to new software, the Year 2000 problem will not pose
significant operational problems for the Company's computer systems as so
modified and converted and that the cost of such modifications will be
minimal.  The Company anticipates that all necessary modifications and
conversions of its systems will be completed by the end of 1998.

                                        22
<PAGE>

Item 8.  Financial Statements and Supplementary Data

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements                              Page in Form 10-K
---------------------------------                              -----------------

Independent Auditors' Report..................................................24

Consolidated Balance Sheets at December 31, 1997 and 1996.....................25

Consolidated Statements of Operations for the years ended
December 31, 1997, 1996, and 1995.............................................26

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996, and 1995.............................................27

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995.............................................28

Notes to Consolidated Financial Statements.................................29-38

All consolidated financial statement schedules have been omitted since
the information is not required or because the information required is
included in the consolidated financial statements or the notes thereto.

                                       23
<PAGE>


                           INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
ICOS Corporation:


We have audited the accompanying consolidated balance sheets of ICOS
Corporation and subsidiary as of December 31, 1997, and 1996 and the
related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended
December 31, 1997.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ICOS
Corporation and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997 in conformity with
generally accepted accounting principles.



/S/ KPMG Peat Marwick LLP

Seattle, Washington
January 21, 1998

                                        24
<PAGE>
<TABLE>
                                         ICOS CORPORATION
                                    CONSOLIDATED BALANCE SHEETS
                               (in thousands, except par value data)


                                            ASSETS

                                                                                         December 31,
                                                                                   ----------------------
<S>                                                                               <C>           <C>
                                                                                     1997          1996
                                                                                   --------      --------
Current assets:
   Cash and cash equivalents                                                       $  1,404      $  2,159
   Investment securities available for sale, at market value                         23,845        39,512
   Interest receivable                                                                  524           149
   Receivables under collaborative arrangements from related parties                  2,270             -
   Other receivables                                                                    177            93
   Prepaid expenses                                                                     509           600
                                                                                   --------      --------
       Total current assets                                                          28,729        42,513
                                                                                   --------      --------
Property and equipment, at cost:
   Land                                                                               2,310         2,310
   Building and improvements                                                          9,454         6,652
   Leasehold improvements                                                             8,361         7,007
   Furniture and equipment                                                           15,450        13,632
                                                                                   --------      --------
                                                                                     35,575        29,601
   Less accumulated depreciation and amortization                                    17,676        13,998
                                                                                   --------      --------
                                                                                     17,899        15,603
Construction in progress                                                                 51            24
Net property and equipment                                                         --------      --------
                                                                                     17,950        15,627
                                                                                   --------      --------
Loan receivable from related party                                                    7,341             -
                                                                                   --------      --------
Other assets                                                                             45            65
                                                                                   --------      --------
                                                                                   $ 54,065      $ 58,205
                                                                                   ========      ========

                                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                                                                $  2,363      $  1,184
   Accrued payroll and benefits                                                         873           649
   Other accrued expenses                                                               957         1,105
                                                                                   --------      --------
       Total current liabilities                                                      4,193         2,938

Stockholders' equity:
   Preferred Stock, $.01 par value.  Authorized 2,000 shares; none issued                 -             -
   Common Stock, $.01 par value.  Authorized 100,000 shares; issued and
       outstanding 39,885 at December 31, 1997 and 39,418 at December 31, 1996          399           394
   Additional paid-in capital                                                       171,879       165,273
   Net unrealized gain on investment securities available for sale                       19            10
   Accumulated deficit                                                             (122,425)     (110,410)
                                                                                   --------      --------
       Total stockholders' equity                                                    49,872        55,267
                                                                                   --------      --------
                                                                                   $ 54,065      $ 58,205
                                                                                   ========      ========


                   See accompanying notes to consolidated financial statements.

</TABLE>


                                        25
<PAGE>


<TABLE>
                                               ICOS CORPORATION
                                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (in thousands, except per share data)


                                                                  Years Ended December 31,
                                                         --------------------------------------
<S>                                                    <C>           <C>            <C>
                                                            1997          1996          1995
                                                         ---------     ----------    ----------

Revenues:

   Collaborative research and development from
      related parties                                    $  21,076     $       -     $       -
   License of technology to related party                    8,500             -             -
   Other                                                     2,000         2,000         1,500
                                                         ---------     ---------     ---------
     Total revenues                                         31,576         2,000         1,500
                                                         ---------     ---------     ---------

Operating expenses:

   Research and development                                 42,783        30,011        24,039
   General and administrative                                2,737         2,555         2,482
                                                         ---------     ---------     ---------
     Total operating expenses                               45,520        32,566        26,521
                                                         ---------     ---------     ---------
     Operating loss                                        (13,944)      (30,566)      (25,021)
                                                         ---------     ---------     ---------
Other income (expense):
   Investment income                                         2,164         2,070         1,768
   Interest expense                                              -            -            (52)
   Other, net                                                 (235)            1           (64)
                                                         ---------     ---------     ---------
                                                             1,929         2,071         1,652
                                                         ---------     ---------     ---------
     Net loss                                            $ (12,015)    $ (28,495)    $ (23,369)
                                                         =========     =========     =========


Net loss per common share - basic and diluted            $   (0.30)    $   (0.77)    $   (0.73)
                                                         =========     =========     =========
Weighted average common shares outstanding - basic
   and diluted                                              39,595        36,805        32,194
                                                         =========     =========     =========









                  See accompanying notes to consolidated financial statements.
</TABLE>
                                        26
<PAGE>
<TABLE>


                                                             ICOS CORPORATION
                                               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                 For the three years ended December 31, 1997
                                                                (in thousands)




                                                                                         Net
                                                                                     unrealized
                                                                                     gain (loss)
                                                                                          on
                                                                                      investment
                                          Common       Additional      Restricted     securities                Total
                                           Stock         paid-in          Stock       available   Accumulated stockholders'
                                      Shares   Amount    capital    Shares   Amount    for sale     deficit     equity
                                      ------   ------   --------    ------   ------  ----------  ----------- -------------
<S>                                  <C>       <C>     <C>          <C>     <C>       <C>       <C>         <C>
Balances at December 31, 1994         32,053    $321    $114,700     (26)    $(486)    $(969)    $(58,546)   $55,020
  Issuance costs related to sale
    of Common Stock in 1994                -       -         (57)      -         -         -            -        (57)
  Vesting of restricted Common Stock       -       -           -      15       278         -            -        278
  Issuance of Common Stock from
    exercise of options                  166       1         504       -         -         -            -        505
  Issuance of Common Stock from
    exercise of warrants                   5       -          16       -         -         -            -         16
  Issuance of Common Stock from
    exercise of warrants in exchange
    for Common Stock                      10       -           -       -         -         -            -          -
  Net unrealized gain on investment
    securities available for sale          -       -           -       -         -       899            -        899
  Net loss for the year ended
    December 31, 1995                      -       -           -       -         -         -      (23,369)   (23,369)
                                      ------    ----    --------     ---      ----     -----    ---------    -------
Balances at December 31, 1995         32,234     322     115,163     (11)     (208)      (70)     (81,915)    33,292
  Issuance of Common Stock, net of
    issuance costs of $3,506           6,900      69      49,037       -         -         -            -     49,106
  Vesting of restricted Common Stock       -       -           -      11       208         -            -        208
  Issuance of Common Stock from
    exercise of options                  284       3       1,073       -         -         -            -      1,076
  Net unrealized gain on investment
    securities available for sale          -       -           -       -         -        80            -         80
  Net loss for the year ended
    December 31, 1996                      -       -           -       -         -         -      (28,495)   (28,495)
                                      ------    ----    --------     ---      ----     -----     --------    -------
Balances at December 31, 1996         39,418     394     165,273       -         -        10     (110,410)    55,267
  Issuance of Common Stock from
    exercise of options                  467       5       2,525       -         -         -            -      2,530
  Warrants issued to ICOS Clinical
    Partners, L.P.                         -       -       4,081       -         -         -            -      4,081
  Net unrealized gain on investment
    securities available for sale          -       -           -       -         -         9            -          9
  Net loss for the year ended
    December 31, 1997                      -       -           -       -         -         -      (12,015)   (12,015)
                                      ------    ----    --------     ---      ----     -----    ---------    -------
Balances at December 31, 1997         39,885    $399    $171,879       -         -     $  19    $(122,425)   $49,872
                                      ======    ====    ========     ===      ====     =====    =========    =======



                                See accompanying notes to consolidated financial statements.
</TABLE>
                                        27
<PAGE>

<TABLE>

                                                  ICOS CORPORATION
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   (in thousands)



                                                                                Years Ended December 31,
                                                                       ----------------------------------------


                                                                          1997           1996           1995
                                                                       ----------     ----------     ----------
<S>                                                                   <C>             <C>            <C>
Cash flows from operating activities:
   Net loss                                                             $ (12,015)     $ (28,495)     $ (23,369)
   Adjustments to reconcile net loss to net cash used in
      operating activities:
   Depreciation and amortization                                            3,678          3,519          3,120
   Amortization of investment premiums/discounts                             (570)          (381)           131
   (Gain) loss on sale of investment securities                                (4)            20             14
   Amortization of restricted stock                                             -            208            278
   Change in operating assets and liabilities:
      Interest receivable                                                    (375)           (43)            56
      Receivables under collaborative arrangements from related parties    (2,089)             -              -
      Other receivables                                                       (84)             5             (8)
      Prepaid expenses                                                         91             34            (13)
      Accounts payable                                                      1,008            355            228
      Accrued payroll, benefits and other expenses                             76           (545)           378
      Deferred research and development revenue                                 -           (500)           500
                                                                       ----------     ----------      ---------
         Net cash used in operating activities                            (10,284)       (25,823)       (18,685)
                                                                       ----------     ----------      ---------
Cash flows from investing activities:
   Purchases of investment securities                                     (41,644)       (50,884)       (15,533)
   Maturities of investment securities                                     31,978         14,000          7,789
   Sales of investment securities                                          25,916         14,828         12,863
   Acquisitions of  property and equipment                                 (5,830)        (4,531)        (6,427)
   Loan receivable from related party                                      (7,341)             -              -
   Decrease (increase) in other assets                                         20            176            (12)
                                                                       ----------     ----------      ---------
      Net cash provided by (used in) investing activities                   3,099        (26,411)        (1,320)
                                                                       ----------     ----------      ---------
Cash flows from financing activities:
   Proceeds from issuance of Common Stock                                       -         49,106            (56)
   Proceeds from exercise of options and warrants                           2,530          1,076            521
   Proceeds from issuance of warrants                                       3,900              -              -
   Principal payments on obligations under capital lease                        -            (45)          (947)
                                                                       ----------     ----------      ---------
      Net cash provided by (used in) financing activities                   6,430         50,137           (482)
                                                                       ----------     ----------      ---------
      Net decrease in cash and cash equivalents                              (755)        (2,097)       (20,487)
Cash and cash equivalents at beginning of year                              2,159          4,256         24,743
                                                                       ----------     ----------      ---------
Cash and cash equivalents at end of year                               $    1,404     $    2,159      $   4,256
                                                                       ==========     ==========      =========
Supplemental disclosure of cash flow information:
   Cash paid for interest                                              $        -     $        -      $      52
Supplemental disclosure of noncash financing and investing activities:
   Acquisition of property and equipment financed through accounts
     payable                                                                  171              -            770
   Receivable for issuance of warrants                                        181              -              -
                                                                       ==========     ==========      =========


                   See accompanying notes to consolidated financial statements.

</TABLE>
                                       28
<PAGE>

                                ICOS CORPORATION


                     Notes to Consolidated Financial Statements
                            December 31, 1997 and 1996
                      (in thousands, except per share amounts)


(1)  Summary of Significant Accounting Policies

     (a)  Nature of Operations

          ICOS Corporation and subsidiary (the "Company") is developing
          and commercializing proprietary pharmaceutical candidates for
          the treatment of inflammatory diseases and other serious
          medical conditions by understanding the underlying mechanisms
          and identifying the molecular entities involved.

     (b)  Principles of Consolidation

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

     (c)  Basis of Presentation

          Through December 31, 1996, the Company reported as a
          development stage enterprise in accordance with the Financial
          Accounting Standards Board's ("FASB") Statement of Financial
          Accounting Standards ("SFAS") No. 7, Accounting and Reporting
          by Development Stage Enterprises.  The Company has commenced
          its principal operations, has generated significant revenues
          and, therefore, beginning with the year ended December 31,
          1997, the Company is no longer a development stage enterprise.

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

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

     (e)  Cash and Cash Equivalents

          All highly liquid short-term investments purchased with a
          maturity of three months or less are considered to be cash
          equivalents.

     (f)  Investment Securities

          The Company's investment securities are classified as
          available-for-sale and carried at market value, with unrealized
          gains and losses excluded from results of operations and
          reported in a separate component of stockholders' equity.
          Gross realized gains and losses on the sales of investment
          securities are determined on the specific identification method
          and included in investment income.

     (g)  Property and Equipment

          Depreciation of furniture and equipment is provided on the
          straight-line method over the assets' estimated useful lives of
          three to seven years.  The Company owns one building which is
          being depreciated over its estimated remaining economic life of
          ten years.  Leasehold and building improvements are depreciated
          over the remaining lease term and remaining economic life of
          the building, respectively.

                                      29
<PAGE>

     (h)  Investment in Affiliates

          Investments in ICOS Clinical Partners, L.P. ("the Partnership")
          and Suncos Corporation ("Suncos"), a 50% owned joint venture,
          are accounted for using the equity method.  Accordingly, the
          investment is recorded at cost, adjusted for the Company's
          share of income or losses of the entities.

     (i)  Revenue Recognition

          For contracts under which the Company is reimbursed for
          research and development efforts, revenue is recognized as the
          related expenses are incurred.  Payments received that are
          related to future performance are deferred and recognized as
          revenue over the specified future performance periods.

     (j)  Research and Development Costs

          Research and development costs are charged to expense as
          incurred.

     (k)  Income Taxes

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

     (l)  Net Loss Per Common Share

          In February 1997, the FASB issued SFAS No. 128, Earnings Per
          Share ("Statement 128").  Statement 128 establishes standards
          for the computation, presentation, and disclosure of earnings
          per share ("EPS"), replacing the presentation of the currently
          required primary EPS with a presentation of basic EPS.  It also
          requires dual presentation of basic EPS and diluted EPS on the
          face of the income statement for entities with complex capital
          structures.  Basic EPS is based on the weighted average number
          of common shares outstanding during the period.  Diluted EPS is
          based on the potential dilution that would occur on exercise or
          conversion of securities into common stock using the treasury
          stock method.  Under the provisions of Statement 128, common
          shares that are considered to be antidilutive are excluded from
          the computation of diluted EPS.  As the Company has a loss from
          continuing operations, inclusion of potential common shares in
          the diluted EPS computation will result in an antidilutive per
          share amount.  Therefore, as any potentially dilutive common
          stock equivalents are antidilutive, the adoption of this
          statement does not have an impact on reported EPS.   Securities
          that could potentially dilute basic EPS in future periods
          include all outstanding stock options, stock warrants and
          contingently issuable stock warrants.

     (m)  Stock Based Compensation

          On January 1, 1996, the Company adopted SFAS No. 123,
          Accounting for Stock-Based Compensation, which permits entities
          to recognize as expense over the vesting period the fair value
          of all stock-based awards on the grant date.  Alternatively,
          SFAS No. 123 also allows entities to continue to apply the
          provisions of Accounting Principles Board ("APB") Opinion No. 25
          and provide pro forma net income and pro forma earnings per
          share disclosures for employee stock option grants made in 1995
          and future years as if the fair-value-based method defined in
          SFAS No. 123 had been applied.  The Company has elected to
          continue to apply the provisions of APB Opinion No. 25 and
          provide the pro forma disclosure provisions of SFAS No. 123.

     (n)  Reclassifications

          Certain prior year amounts have been reclassified to conform
          with the 1997 presentation.

                                       30
<PAGE>

(2)  Financing

     The Company anticipates that its existing capital resources should
     be sufficient to fund its cash requirements for the next nine
     months.  However, the amounts and timing of expenditures will depend
     on the progress of ongoing research and development, the rate at
     which operating losses are incurred, the execution of development
     and licensing agreements with potential corporate partners, the
     Company's development of products, the Food and Drug Administration
     ("FDA") regulatory process, and other factors, many of which are
     beyond the Company's control.  The Company's existing capital
     resources will not be sufficient to fund the Company's operations
     through commercialization of its first product.  Accordingly, the
     Company will need to raise substantial additional funds for its
     programs.  The Company is currently evaluating several financing
     alternatives, some of which may involve the sale of additional
     stock, commencement of additional corporate partnerships, and other
     methods of raising capital from public, private and corporate
     sources.  The Company anticipates completion of one or more of these
     financing events during 1998.

(3)  Investment Securities

     The following table summarizes the Company's investment securities
     at December 31, 1997 and 1996:


<TABLE>


                                                    Gross         Gross
                                                  unrealized    unrealized
                                 Market value       gains         losses      Amortized cost
                                 ------------     ----------    ----------    --------------
<S>                              <C>              <C>           <C>           <C>
December 31,1997:

U.S. Treasury Notes                 $ 5,517          $13           $ -          $ 5,504

Corporate debt securities            17,792            6             3           17,789

U.S. government agency
  mortgage-backed securities            536            3             -              533
                                    -------          ---           ---          -------
Total                               $23,845          $22           $ 3          $23,826
                                    =======          ===           ===          =======


December 31, 1996:

U.S. Treasury Notes                 $ 8,457          $ 4           $12          $ 8,465

Corporate debt securities            24,227            8             -           24,219

U.S. government agency
  mortgage-backed securities          6,828           11             -            6,817
                                    -------          ---           ---          -------
Total                               $39,512          $23           $12          $39,501
                                    =======          ===           ===          =======

</TABLE>
                                       31
<PAGE>

     Amortized cost and estimated market value of debt securities at
     December 31, 1997, by contractual maturity, are shown below:

          Maturing within         Market value           Amortized cost
          ---------------         ------------           --------------

             1 year                    $23,309                  $23,293
             7 years                       536                      533

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

     Investment income includes interest of $2,160, $2,089, and $1,782
     earned on investments for 1997, 1996, and 1995, respectively, and a
     capital gain of $4 for 1997 and capital losses of $19 and $14 for
     1996 and 1995, respectively.

(4)  Leases

     The Company leases office and laboratory space under noncancellable
     operating leases that expire from 1999 to 2004.  These leases
     include options to extend the terms for two additional five-year
     periods.

     Total rent expense was $1,631, $1,311, and $1,349 for 1997, 1996,
     and 1995, respectively.

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

          1998                                  $ 1,388
          1999                                    1,193
          2000                                    1,202
          2001                                    1,272
          2002                                      944
          Thereafter                                445
                                                -------
          Total minimum lease payments          $ 6,444
                                                =======

(5)  Federal Income Taxes

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

	                                                          December 31,
	                                                   1997 	              1996
                                             ----------------------------------
           Depreciation                        	$   3,066             $   2,032
           Net operating loss carryforwards        39,787                36,114
           Research and experimentation
              tax credit carryforwards              3,923                 3,213
           Other                                    1,107                 1,006
                                                ---------             ---------
           Gross deferred tax assets               47,883                42,365
           Valuation allowance                    (47,883)              (42,365)
                                                ---------             ---------
           Total                                $       0             $       0
                                                =========             =========

                                       32
<PAGE>

     The increases in the valuation allowance for deferred tax assets of
     $5,518, $10,720, and $7,915 in 1997, 1996 and 1995, respectively,
     are attributable primarily to increases in net operating loss
     carryforwards that could not be utilized.  At December 31, 1997, the
     Company has net operating tax loss carryforwards available to offset
     future taxable income as follows:


                      Year of Expiration
                      ------------------

                    2005           $  1,027
                    2006              5,671
                    2007             12,367
                    2008             17,003
                    2009             21,507
                    2010             21,039
                    2011             26,774
                    2012             11,635
                                   --------
                                   $117,023
                                   ========
     At December 31, 1997, the Company also had available approximately
     $3,923 of research and experimentation tax credit carryforwards to
     offset future tax liabilities.  These credits expire from 2005 to
     2012.

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

(6)  Preferred Stock

     The Company has the authority to issue up to 2,000 shares of
     Preferred Stock in one or more series.  The Company's Board of
     Directors has the authority to fix the powers, designations,
     preferences, and relative participating, optional, or other rights
     thereof, including dividend rights, conversion rights, voting
     rights, redemption terms, liquidation preferences, and the number of
     shares constituting any series, without any further vote or action
     by the Company's stockholders.  The issuance of Preferred Stock in
     certain circumstances may have the effect of delaying or preventing
     a change in control of the Company.  Such issuance with voting and
     conversion rights may adversely affect the voting power of the
     Common Stock holders.  The Company has no shares of Preferred Stock
     outstanding.  In the future, the Company may issue Preferred Stock
     as part of its overall financing strategy.

(7)  Common Stock Transactions

     (a)  Public Offering

          In May 1996, the Company completed a public offering of 6,900
          shares of Common Stock at $7.625 per share, with the Company
          receiving net proceeds of $49.1 million.

     (b)  Stock Option Plans

          Employee Stock Option Plan

          The Company has an incentive and nonqualified stock option
          plan, (the "Employee Plan"), under which 8,500 shares of Common
          Stock have been reserved for grant to various executive,
          scientific, and administrative personnel of the Company.  All
          incentive stock options are granted with an exercise price not
          less than 100% of the fair market value of the Common Stock on
          the grant date.  Nonqualified stock options are generally
          granted with an exercise price equal to 100% of the fair market
          value of the Common Stock on the grant date; however, in no
          case are they granted with an exercise price of less than 85%
          of the fair

                                      33
<PAGE>

          market value of the Common Stock on the grant date.
          The options generally vest over a four-year period commencing
          on the grant date and have a term of ten years from the grant
          date.

          A summary of stock options under the Employee Plan follows:

<TABLE>

                                        Incentive stock options                  Nonqualified stock options
                                              outstanding                                 outstanding
                                        ---------------------------------------------------------------------
                                                      Weighted-average                      Weighted-average
                                         Number        exercise price        Number           exercise price
                                        of shares         per share         of shares            per share
                                        ---------------------------------------------------------------------
<S>                                     <C>                 <C>                 <C>               <C>
         Balance at December 31, 1994        2,308            $ 6.90               701              $ 6.02
         Options granted in 1995               777              4.29                93                4.25
         Cancellations in 1995                (160)             8.51              (135)               8.35
         Options exercised in 1995            (165)             3.05                 -                   -
                                             ------                              ------
         Balance at December 31, 1995        2,760              6.30               659                6.26
         Options granted in 1996               774              7.72               121                7.46
         Cancellations in 1996                 (49)             6.75                 -                   -
         Options exercised in 1996            (119)             4.88              (167)               3.00
                                             ------                              ------
         Balance at December 31, 1996        3,366              6.68               614                6.31
         Options granted in 1997             1,012              9.40               156                8.61
         Cancellations in 1997                (124)             8.42               (33)               7.50
         Options exercised in 1997            (269)             5.53               (30)               5.76
                                             ------                              ------
         Balance at December 31, 1997        3,985              7.39               707                6.79
                                             ======                              ======
</TABLE>

         At December 31, 1997, 2,221 shares remained reserved and
         available for grant under the Employee Plan.

         Director Stock Option Plan

         The Company has a Stock Option Plan for Nonemployee Directors
         (the "Director Plan") under which 950 shares of Common Stock
         have been reserved for grant to directors who are not employees
         of the Company.  The Director Plan provides for an initial grant
         and automatic annual grants thereafter to each nonemployee
         director of a number of nonqualified stock options determined by
         dividing $100 (increased by $10 each year starting in 1993) by
         the market price of the Common Stock on the grant date.  The
         exercise price of the options will be the closing market price
         of the Common Stock on the grant date.  Initial options granted
         under the Director Plan become exercisable 50% after the
         director has served for one year from the date of initial
         election to the Board and 100% after two years.  Automatic
         annual grants are fully vested on the grant date.  The options
         have a term of ten years but cannot be exercised later than two
         years after termination of service as a director.

         During 1997, 1996, and 1995, options to purchase 163, 142, and
         218 shares at weighted-average exercise prices of $7.375,
         $7.875, and $4.77 per share, respectively, were granted under
         the Director Plan.  During 1997, options to purchase 118 shares
         were exercised under the Director Plan  at a weighted-average
         exercise price of $6.331 per share.  To date, no options have
         been canceled under this Plan.  At December 31, 1997, options to
         purchase 754 shares were outstanding.

                                       34
<PAGE>

         The following table summarizes information about stock options
         outstanding under the Employee Plan and Director Plan at
         December 31, 1997:

<TABLE>
                                          Options Outstanding                        Options Exercisable
                             ------------------------------------------------   --------------------------------

                                               Weighted-
                                                average          Weighted-                        Weighted-
                                               remaining          average                          average
            Range of            Number      contractual life   exercise price      Number       exercise price
         exercise prices     outstanding       (in years)        per share       exercisable      per share
         ---------------    -------------------------------------------------   -------------------------------
        <C>                 <C>                 <C>              <C>             <C>               <C>
         $ 3.000-$4.000           712             6.52            $  3.8675           493           $  3.8175
           4.187-6.000          1,453             6.04               5.5533         1,367              5.5472
           6.125-7.375            924             7.31               7.1733           707              7.1708
           7.500-8.250          1,000             7.50               7.8520           595              7.7829
           8.375-12.750         1,118             8.02               9.5566           486             10.3116
          13.000-19.750           239             7.20              14.5098           110             15.3787
         ---------------    ------------------------------------------------    ------------------------------
           3.000-19.750         5,446             7.07            $  7.2451         3,758           $  6.8845

</TABLE>
         The Company applies APB Opinion No. 25 in accounting for its
         plans and therefore no compensation cost has been recognized
         related to its stock options.  Had the Company determined
         compensation cost based on the fair value at the grant date for
         its stock options under SFAS No. 123, the Company's net loss
         would have been increased to the pro forma amounts indicated
         below:

<TABLE>
                                             1997           1996          1995
                                           -------        -------       -------
<S>                      <C>              <C>            <C>           <C>
		Net loss
                          As reported      $12,015        $28,495       $23,369
                          Pro forma         15,305         30,481        24,592

		Net loss per share -
    basic and diluted
                          As reported      $  0.30        $  0.77       $  0.73
                          Pro forma           0.39           0.83          0.76

</TABLE>
         Pro forma net loss and net loss per share reflect only options
         granted in 1997, 1996, and 1995.  Therefore, the full impact of
         calculating compensation cost for stock options under SFAS
         No. 123 is not reflected in the pro forma net loss and net loss
         per share amounts presented above because compensation cost is
         reflected over the options' vesting period and compensation cost
         for options granted prior to January 1, 1995 is not considered.

         The per share weighted-average fair value of stock options
         granted during 1997, 1996, and 1995 was $4.52, $4.06, and $2.83,
         respectively, on the grant date using the Black Scholes option-pricing
         model with the following weighted-average assumptions:

                                1997         1996         1995
                              --------     --------     --------

		Expected dividend yield        0.0%         0.0%          0.0%
		Risk-free interest rate        6.3%         6.3%          7.5%
		Expected volatility           42.0%        40.0%         55.0%
		Expected life in years         6.0          7.4           7.1

                                        35
<PAGE>

     (c)  Other Stock Options

          Outside of the Employee Plan and the Director Plan, the Company
          granted stock options to one investor in June 1990 to purchase
          50 shares of Common Stock at $3.00 per share.  The options have
          terms and conditions substantially identical to those granted
          under the Employee Plan.  During 1997, all of these options
          were exercised.

     (d)  Warrants Outstanding

          In connection with the Partnership's sale of limited
          partnership units, the Company issued, on June 5, 1997 and
          August 15, 1997, warrants to purchase an aggregate of 5,540 and
          2,011 shares, respectively, of the Company's Common Stock at
          exercise prices  of $9.13 and $10.35 per share, respectively.
          The warrants are exercisable from October 1, 1998 through
          May 31, 2002.  The Company will issue in June 1999, subject to
          certain requirements, warrants to purchase an aggregate of
          approximately 7.6 million shares of the Company's Common Stock
          to the holders of limited partnership interests in the
          Partnership.  Such additional warrants, if issued, will be
          exercisable from July 31, 1999 through June 30, 2004, at an
          exercise price to be determined at the time of issuance of such
          warrants, which is expected to reflect a 25% premium over the
          then-prevailing market prices for the Company's Common Stock.

(8)  Scientific Collaboration Agreements

     Glaxo Wellcome

     In October 1991, the Company entered into a collaboration agreement
     with Glaxo Wellcome (formerly Glaxo Group Ltd. and Glaxo, Inc.), an
     international pharmaceutical group based in the United Kingdom.  The
     agreement provided for three phases of collaboration, including
     research, development, and commercialization of potential products.
     The terms of this collaboration agreement were changed.  Under the
     new terms, the Company and Glaxo Wellcome both have the right to
     continue research and development of compounds that inhibit
     phosphodiesterases ("PDEs").  Under the new terms, the Company
     retains all commercial rights in the compounds arising from the
     collaboration as PDE inhibitors in exchange for future royalties
     payable to Glaxo Wellcome on sales of such compounds.  Under the
     modified terms, Glaxo Wellcome is free to pursue research and
     development of PDE inhibitors independently of the Company.

     Abbott Laboratories

     In April 1995, the Company entered into a collaborative agreement
     with Abbott Laboratories, a worldwide manufacturer of health care
     products.  The collaboration focuses on the development of small
     molecules that modulate, by an intracellular interaction, the
     activity of certain cell adhesion molecules.  Under the agreement,
     when and if developed, the Company will have exclusive  rights in
     the United States for all products for the treatment of cancer,
     while Abbott Laboratories will have exclusive rights outside the
     United States for all products for the treatment of cancer and
     exclusive worldwide rights for all other products.  The Company will
     receive research funding, and milestone and royalty payments for
     products, other than cancer treatment products, developed by Abbott
     Laboratories as a result of the collaboration.

     Suncos

     In February 1997, the Company and Suntory Limited of Japan
     ("Suntory") formed Suncos, a corporate joint venture company, for
     the purpose of developing and commercializing rPAF-AH. In forming
     Suncos, the Company granted a license for the rPAF-AH technology to
     Suncos, and Suntory made an initial capital contribution of $30
     million.  Both parties have committed to jointly fund all
     development activities and expenses of Suncos once the initial
     capital contribution of $30 million from Suntory has been used.
     Suncos is managed jointly by Suntory and the Company.  The Company
     has rights to market rPAF-AH in the United States and Suntory has
     market rights in Japan.   Each  company will pay royalties to Suncos
     for its territorial marketing rights.  Suncos will retain all rights
     to market the potential product in territories outside the United
     States and Japan.

                                      36
<PAGE>

     In 1997, the Company recognized research and development revenue of
     $11.2 million from Suncos, of which $1.2 million was receivable at
     December 31, 1997.

     The technology contributed to Suncos by the Company had a zero basis
     for accounting purposes and as such the Company has recorded its
     investment in Suncos as zero.  The Company will not report its
     proportionate share of Suncos' losses until such time that Suncos's
     accumulated losses equal Suntory's investment and the Company makes
     capital contributions to Suncos.   Summarized unaudited financial
     information for Suncos is as follows:


         Financial position December 31, 1997
         Current assets                                              $ 19,470
                                                                     --------
                                                                     $ 19,470
                                                                     ========

         Current liabilities, related parties                        $  1,529
         Stockholders' equity                                          17,941
                                                                     --------
                                                                     $ 19,470
                                                                     ========

         Operating Results - February 6, 1997 (inception) to
           December 31, 1997
         Operating expenses, related parties                         $ 13,290
         Other income (expense)                                         1,233
                                                                     --------
            Net loss                                                 $(12,057)
                                                                     ========


     ICOS Clinical Partners, L.P.

     On August 15, 1997, the Partnership completed the sale to private
     investors of limited partnership interests in the Partnership.  Net
     proceeds from the sale will be used by the Partnership to fund
     continued development of product candidates by the Company pursuant
     to the terms of  the Product Development Agreement based on three
     compounds:  Hu23F2G, rPAF-AH and ICM3.

     The sale will result in net proceeds to the Partnership of
     approximately $79.8 million.  Approximately $25.9 million, before
     payment of offering costs, was paid to the Partnership at closing of
     the sale of the Partnership units with the balance to be paid in
     installments over a three-year period.

     In 1997, the Company recognized revenue of $18.4 million from the
     Partnership, including a one-time payment for an exclusive license
     to certain technology.  At December 31, 1997, the Company had a
     receivable from the Partnership for development expenses incurred
     but not paid of $1.0 million.

     The Company loaned the Partnership an aggregate of $7.3 million to
     fund certain initial expenditures of the Partnership that consist
     primarily of organizational expenses, selling commissions, financial
     advisory fees and other fees.  The loan is full recourse to the
     Partnership, bears interest at the prime rate plus one quarter of
     one percent (0.25%) and matures on June 1, 2000.  At December 31,
     1997, interest income and interest accrued on the loan to the
     Partnership was $345.

                                      37
<PAGE>

     The Company has a 1% interest in the Partnership and is the only
     general partner of the Partnership.   The Company's share of losses
     of the Partnership for the period from April 11, 1997 (inception) to
     December 31, 1997, was $226 and is included in other expenses, net.
     The investment balance of $37 at December 31, 1997 is included in
     other assets.   Summarized unaudited financial information for the
     Partnership is as follows:

     Financial position December 31, 1997
     Current assets                                                $   4,632
                                                                   ---------
                                                                   $   4,632
                                                                   =========

     Current liabilities, related party                            $   1,390
     Note payable, related party                                       7,341
     Partner's deficit                                                (4,099)
                                                                   ---------
                                                                   $   4,632
                                                                   =========

     Operating Results - April 11, 1997 (inception)
       to December 31, 1997
     Investment income                                             $     291
     Research and development expenses, related party                 22,448
     Interest expense                                                    345
     General and administrative expenses                                  71
                                                                   ---------
        Net loss                                                   $ (22,573)
                                                                   =========


Item 9.  Changes In and Disagreements With Accountants on Accounting and
         Financial Disclosure

Not applicable.
                                        38
<PAGE>

                                PART III

Item 10.  Directors and Executive Officers of the Registrant

The information requested by this item is incorporated by reference from
the sections labeled "Election of Directors," "Continuing Directors
(until 1999)," "Continuing Directors (until 2000)," "Other Executive
Officers," "Compliance with Section 16(a) of the Securities Exchange Act
of 1934," "Compensation of Directors," "Executive Compensation," "1997
Option Grants," "1997 Option Exercises and Year-end Option Values,"
"Compensation Committee Interlocks and Insider Participation,"
"Employment Contracts, Termination of Employment and Change of Control
Arrangements," "Security Ownership of Certain Beneficial Owners and
Management," and "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on May 6, 1998.

Item 11.  Executive Compensation

The information requested by this item is incorporated by reference from
the sections labeled "Compensation of Directors," "Executive
Compensation," "1997 Option Grants," "1997 Option Exercises and Year-end
Option Values," "Compensation Committee Interlocks and Insider
Participation," and "Employment Contracts, Termination of Employment and
Change of Control Arrangements" in the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 6, 1998.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The information requested by this item is incorporated by reference from
the section labeled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 6, 1998.

Item 13.  Certain Relationships and Related Transactions

The information requested by this item is incorporated by reference from
the section labeled "Certain Relationships and Related Transactions" in
the Company's Proxy Statement for the Annual Meeting of Stockholders to
be held on May 6, 1998.

                                       39
<PAGE>

                                  PART IV

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

          a)  1.  Consolidated Financial Statements
                  ---------------------------------

                  See Index to Consolidated Financial Statements under
                  Item 8 of this Form 10-K.

              2.  Consolidated Financial Statement Schedules
                  ------------------------------------------

                  See Index to Consolidated Financial Statements
                  accompanying those statements under Item 8 of this
                  Form 10-K.

              3.  Exhibits
                  --------

                  See Index to Exhibits filed herewith.

          b)      Reports on Form 8-K
                  -------------------

                  One report on Form 8-K was filed during the third
                  quarter of the fiscal year ended December 31, 1997.

                                       40
<PAGE>

                             Index to Exhibits
                             -----------------

                                                                     Page
                                                                     ----

 3.1   Restated Certificate of Incorporation of ICOS Corporation       a
 3.2   Restated Bylaws of ICOS Corporation                             a
 4.1   Restated Certificate of Incorporation of ICOS Corporation
         (included in Exhibit 3.1)
10.1   ICOS Corporation 1989 Stock Option Plan
         (Amended and Restated as of January 8, 1997)                  g
10.2   ICOS Corporation 1991 Stock Option Plan for Non-employee
         Directors (Amended and Restated as of January 8, 1997)        g
10.3   Industrial Real Estate Lease dated January 1, 1997
         between WRC Properties, Inc. and ICOS Corporation             j
10.4   Industrial Real Estate Lease dated August 1, 1992
         between Trinity at Canyon Park and ICOS Corporation           c
10.5   Real Estate Purchase and Sale Agreement dated
         October 30, 1992 between Canyon Park Business Center
         Limited Partnership and ICOS Corporation                      c
10.6   Industrial Real Estate Lease dated August 6, 1993
         between John H. Harland Company and ICOS Corporation          d
10.7   Industrial Real Estate Lease Renewal and Amendment
         Agreement dated May 20, 1997 between Benaroya Capital
         Company, L.L.C. and ICOS Corporation                          j
10.8   Industrial Real Estate Lease Renewal and Amendment
         Agreement dated August 5, 1997 between
         WRC Properties, Inc. and ICOS Corporation                     j
10.9   R&D Collaboration/License Agreement dated April 1, 1995
         between Abbott Laboratories and ICOS Corporation              e
10.10  Shareholders Agreement, entered into December 18, 1996,
         among ICOS Corporation, Suntory Limited and
         Suncos Corporation.                                           g
10.11  PAF-AH License Agreement, dated February 6, 1997,
         between ICOS Corporation and Suncos Corporation               g
10.12  Development and Supply Agreement, dated February 6, 1997,
         among ICOS Corporation, Suntory Limited and
         Suncos Corporation                                            g
10.13  ICOS Services Agreement, dated February 6, 1997, between
         ICOS Corporation and Suncos Corporation                       g
10.14  ICOS License Agreement, dated February 6, 1997, between
         Suncos Corporation and ICOS Corporation                       g
10.15  First Amendment to R & D Collaboration/License Agreement
         dated April 1, 1995 between Abbott Laboratories and
         ICOS Corporation                                              h
10.16  Agreement of Limited Partnership dated as of June 5, 1997,
         by and among ICOS Development Corporation, as general
         partner, and each of the limited partners of ICOS
         Clinical Partners, L.P.                                       i
10.17  Purchase Agreement dated as of June 5, 1997 between the
         Registrant and each of the Limited Partners from time
         to time of ICOS Clinical Partners, L.P.                       i
10.18  Product Development Agreement, dated as of June 5, 1997,
         by and between the Registrant and
         ICOS Clinical Partners, L.P.                                  i
23.1   Consent of KPMG Peat Marwick LLP                               45
27.1   Financial Data Schedule                                         k

        see next page for explanatory notes

                                        41
<PAGE>

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

a     Filed as an exhibit to the Company's Registration Statement
      (Registration No. 333-3312) effective May 7, 1996 and incorporated
      herein by reference.

b     Filed as an exhibit to the Company's Registration Statement
      (Registration No. 333-08485) effective July 19, 1996 and
      incorporated herein by reference.

c     Filed as an exhibit to the Company's Form 10-K Annual Report on
      March 29, 1993 and incorporated herein by reference.

d     Filed as an exhibit to the Company's Form 10-Q Quarterly Report on
      November 2, 1993 and incorporated herein by reference.

e     Filed as an exhibit to the Company's Form 10-Q Quarterly Report on
      May 12, 1995 and incorporated herein by reference.

f     Filed as an exhibit to the Company's Form 10-K Annual Report on
      March 29, 1996 and incorporated herein by reference.

g     Filed as an exhibit to the Company's Form 10-K Annual Report on
      March 28, 1997 and incorporated herein by reference.

h     Filed as an exhibit to the Company's Form 10-Q Quarterly Report on
      August 14, 1997 and incorporated herein by reference.

i     Filed as an exhibit to the Company's Form 8-K Current Report on
      August 26, 1997 and incorporated herein by reference.

j     Filed as an exhibit to the Company's Form 10-Q Quarterly Report on
      November 14, 1997 and incorporated herein by reference.

k     Filed with this document.

                                        42
<PAGE>

                               SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Bothell, State of Washington, on the 31st day of March, 1998.

                                      ICOS CORPORATION
                                      (Registrant)




                                      By:  /S/  GEORGE B. RATHMANN
                                      George B. Rathmann
                                      Chairman of the Board of Directors,
                                      Chief Executive Officer and
                                      President

                                      43
<PAGE>
<TABLE>
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
            ---------                              -----                           ----
<S>                               <C>                                        <C>

/S/ GEORGE B. RATHMANN              Chairman of the Board of Directors,       March 31, 1998
----------------------------        Chief Executive Officer and President     --------------
George B. Rathmann                  (Principal Executive Officer)


/S/ GARY L. WILCOX                  Director and Executive Vice President,    March 31, 1998
----------------------------        Operations                                --------------
Gary L. Wilcox


/S/ HOWARD S. MENDELSOHN            Chief Accounting Officer                  March 31, 1998
----------------------------        (Principal Accounting Officer)            --------------
Howard S. Mendelsohn


/S/ FRANK T. CARY                   Director                                  March 31, 1998
----------------------------                                                  --------------
Frank T. Cary


/S/ JAMES L. FERGUSON               Director                                  March 31, 1998
----------------------------                                                  --------------
James L. Ferguson


/S/ WILLIAM H. GATES, III           Director                                  March 31, 1998
----------------------------                                                  --------------
William H. Gates, III


/S/ JANICE M. LECOCQ                Director                                  March 31, 1998
----------------------------                                                  --------------
Janice M. LeCocq


/S/ DAVID V. MILLIGAN               Director                                  March 31, 1998
----------------------------                                                  --------------
David V. Milligan


/S/ ROBERT W. PANGIA                Director                                  March 31, 1998
----------------------------                                                  --------------
Robert W. Pangia


/S/ ALEXANDER B. TROWBRIDGE         Director                                  March 31, 1998
----------------------------                                                  --------------
Alexander B. Trowbridge


/S/ WALTER B. WRISTON               Director                                  March 31, 1998
----------------------------                                                  --------------
Walter B. Wriston

</TABLE>
                                      44
<PAGE>

                  CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors
ICOS Corporation:


We consent to incorporation by reference in the registration statements
(Nos. 33-48401, 33-80680, 33-64762 and 333-08485) on Form S-8 of ICOS
Corporation and subsidiary of our report dated January 21, 1998, relating
to the consolidated balance sheets of ICOS Corporation and subsidiary as
of December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1997, which report appears in
the December 31, 1997 annual report on Form 10-K of ICOS Corporation and
subsidiary.



/S/ KPMG Peat Marwick LLP
Seattle, Washington
March 27, 1998



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