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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-K

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 FOR THE FISCAL YEAR ENDED December 31, 2000


                                       or

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

Commission File Number: 0-22669

                         AURORA BIOSCIENCES CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in our charter)

              Delaware                                  33-0669859
  -------------------------------          ------------------------------------
  (State or other jurisdiction of          (I.R.S. Employer Identification No.)
  incorporation or organization)


11010 Torreyana Road, San Diego, CA                         92121
---------------------------------------    -------------------------------------
(Address of principal executive offices)                 (Zip code)


                                 (858) 404-6600
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g)
  of the Act:                                    Common Stock, Par Value $0.001
                                                 ------------------------------
                                                       (Title of class)

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 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 the 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]

The aggregate market value of Common Stock held by non-affiliates, based on the
last sale price as reported on the Nasdaq National Market on March 1, 2001, was
approximately $373 million*. The number of shares of registrant's Common Stock
outstanding as of March 1, 2001 was 22,486,708.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant's Definitive Proxy Statement to be filed with the
Commission pursuant to Regulation 14A in connection with the registrant's 2001
Annual Meeting of Stockholders, to be filed subsequent to the date hereof, are
incorporated by reference into Part III of this Report. Such Definitive Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the conclusion of the registrant's fiscal year ended
December 31, 2000.


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

*Excludes 862,696 shares of Common Stock held by directors, executive officers
and stockholders whose ownership exceeds ten percent of the shares outstanding
on March 1, 2001. Exclusion of shares held by any person should not be construed
to indicate that such person possesses the power, directly or indirectly, to
direct or cause the direction of the management or policies of the registrant or
that such person is controlled by or under common control with the registrant.



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                                     PART I


This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 including, without limitation, statements
regarding the completion of our ultra-high throughput screening system, or
UHTSS(TM) Platform, utilization and capabilities of our technologies and our
ability to increase revenue and maintain profitability. These statements, which
sometimes include words such as "expect", "goal" or "will", reflect our
expectations and assumptions as of the date of this Annual Report based on
currently available operating, financial and competitive information. Actual
results could differ materially from those in the forward-looking statements as
a result of a number of factors, including the ability to attract additional
collaborative partners, development or availability of competing systems, the
ability to meet existing collaborative commitments, risks associated with
strategic opportunities, acquisitions or investments, the ability to effectively
manage growth and the risks associated with our dependence on patents and
proprietary rights. These factors and others are more fully described in "Risk
Factors" and elsewhere in this Form 10-K. We assume no obligation to update any
forward-looking statements.

ITEM 1. BUSINESS

OVERVIEW

Aurora Biosciences Corporation is a drug discovery company that develops and
commercializes technologies, products and services to accelerate the discovery
of new medicines. Our core technologies include a broad portfolio of proprietary
fluorescence assays and screening platforms designed to provide an integrated
solution for drug discovery. Our fluorescence assay technologies include our
GeneBLAzer(TM), GenomeScreen(TM), Vivid(TM) and PhosphoryLIGHT(TM) technologies,
as well as a broad collection of fluorescent proteins. Our screening platforms
include our ultra-high throughput screening system, the UHTSS(R) Platform, and
our automated master compound store, the AMCS Platform, as well as our ion
channel screening platform, which includes our proprietary voltage sensor probes
and voltage ion probe reader, the VIPR(TM) subsystem. We also provide assay
development and screening services as part of our drug discovery collaborations.

We believe that we are a leading provider of proprietary drug discovery
solutions for all major classes of gene targets, including receptors, ion
channels and enzymes. To capture more value from our technologies and drug
discovery capabilities, we are currently launching our Big Biology(TM)
initiative, an internal drug discovery program designed to rapidly identify
promising drug candidates within all major classes of gene targets. Our
technologies and drug discovery capabilities have been commercially validated by
over 20 major life sciences companies and research organizations, including:

<TABLE>
<S>                                           <C>
     -   Allergan                               -   Genentech
     -   American Home Products                 -   The Hereditary Disease Foundation
     -   Bristol-Myers Squibb                   -   Johnson & Johnson
     -   The Cystic Fibrosis Foundation         -   Merck & Co.
     -   Families of SMA                        -   NV Organon Laboratories
     -   F.Hoffmann-La Roche                    -   Pfizer
     -   GlaxoSmithKline                        -   Pharmacia & Upjohn
</TABLE>

INDUSTRY BACKGROUND

The process of discovering and developing new medicines can be time-consuming,
expensive and inefficient. It is estimated to take on average as many as 15
years and $500 million or more using conventional drug discovery methods to
bring a new drug to market. Failure rates remain high, with only 1 in 10 drug
candidates that enter clinical trials actually marketed as a new drug.
Pharmaceutical companies recognize that in order to support their future growth,
they must bring more drugs to market faster and at a lower cost. In addition, we
believe the demand for new products will be increased further by the expiration
in coming years of patents on numerous significant revenue-generating drugs.
Many pharmaceutical companies are hoping that technological advances in the
field of genomics will improve current drug development methods.

DNA, GENES, PROTEINS AND GENOMICS. To understand genomics, the study of human
genes, it is useful to understand how genes play a role in human development.
The human genome is organized into 46 chromosomes, or two sets of 23
chromosomes, one set inherited from each parent. Each chromosome is one
continuous stranded molecule of deoxyribonucleic acid, or DNA. The DNA
contributed by one parent is organized into between 30,000 and 60,000 distinct
genes. Genes are segments of DNA located throughout the chromosomes. Genes
comprise approximately 5% of the DNA in


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a human cell. Some additional amount of DNA is used to regulate DNA function and
a large percentage of DNA has no known function.

Each DNA molecule contains two complementary strands comprised of four different
types of nucleotide bases, commonly referred to as G, C, A and T. The order of
these letters is called a DNA sequence. The entire DNA content of an organism is
referred to as its genome.

All cells contain that organism's entire genome, but each cell type expresses
only those genes necessary for its specific function. When a gene is expressed,
a copy of its DNA sequence, called messenger RNA, is used as a template to
direct the synthesis of a protein. Proteins are composed of 20 different
constituents called amino acids. Certain fragments of DNA direct the position
and identity of amino acids in a protein.

Basic cellular function is largely the outcome of the actions of proteins. This
process generally involves interactions between proteins, as well as other
molecules, within a cell. Proteins have various roles in the cell, such as
structural building blocks, enzymes that catalyze reactions, and receptors that
sense the environment. A small number of proteins also act as functionally
interconnected networks for the transmission of signals in and between cells.
For a person to be healthy, specific proteins must be produced at the right time
in the appropriate amounts in specific cells. DNA variations can change the
properties of a protein, or where, when or how much of a protein is produced.

Recent advances in genomics have led to the sequencing of the entire human
genome. Knowledge of such sequences has in turn led to the identification of
large numbers of genes encoding potential drug targets. Drug targets are
biological molecules, such as enzymes, receptors, ion channels, other proteins
and nucleic acids, which may play a role in the onset or progression of a
disease. The proliferation of potential new drug targets represents a unique
historical opportunity for drug discovery.

DRUG DISCOVERY PROCESS. To capitalize on the vast amounts of information on the
human genome now available, the pharmaceutical industry is seeking solutions to
bottlenecks at each of the following steps in the drug discovery process.

Target Identification and Validation. Identifying the genes that comprise the
human genome is only the first of many steps required to develop a new drug
candidate. Once the gene is identified, the next challenge is to determine the
function of that gene within a cell, often referred to as target identification.
A gene's function refers to its role in a cell based on its assignment to, or
relationship with, a particular signaling network and the predicted consequence
of modulating its activity. Gene function cannot be inferred directly from its
DNA sequence, nor can it be derived from attributes, such as sequence variation,
similarities to other genes of known function or expression of encoded proteins.
Many recently discovered genes are of unknown function. These genes are often
referred to as "orphan" genes. Once a target has been identified, the next step
is to validate that target. Target validation typically involves determining
which gene, or protein encoded by the gene, is a relevant target for a drug.
More specifically, a target is regarded as validated if a causal link is
established between an intracellular protein target and a cellular response
important in a disease process. Target validation has become a critical
bottleneck in drug discovery because of the abundance of potential targets
stemming from genomics efforts and the lack of definitive methods for linking
genes with disease states.

Assay Development. Once a gene of interest has been selected as a drug target, a
test must be developed to identify compounds that might affect the target's
function and therefore lead to a drug. This test is called an assay. Ideally,
the assay will be compatible with high throughput screening and model the
activity of the target in its natural, functional state. Because it is currently
impractical to conduct screens in the human body, living cells are often used as
hosts for the targets. This is often referred to as a cell-based assay. However,
the development of cell-based assays is difficult and time-consuming and is
therefore a rate-limiting step in the drug discovery process. Consequently, many
companies rely on alternative assay formats, such as biochemical assays, which
do not involve the use of living cells, but as a result often do not provide the
same degree of functional information as cell-based assays. Typically, assay
development for a gene target, whether cell-based or biochemical, takes between
three and six months. Many validated targets and orphan targets are so difficult
to configure into assays that they are never considered for drug discovery.

Screening. This step involves using assays to test chemical compounds for either
binding or functional activity on a drug target. A compound with binding or
functional activity against a target is often referred to as a hit. Advances in
assay miniaturization, microfluidics and automation now enable scientists to
screen tens of thousands of compounds per day against one or more targets, which
is commonly referred to as high throughput screening. Screening over 100,000
compounds



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per day represents the current best practice and is often referred to as ultra
high throughput screening. As compound libraries continue to grow, we believe
ultra high throughput screening will become an operational necessity to maintain
a competitive advantage. Managing and screening large chemical libraries can be
expensive, labor-intensive and time-consuming. In addition, large-scale
screening can utilize large amounts of scarce and expensive compounds. We
believe that very few companies possess the infrastructure to conduct ultra high
throughput screening and manage compound libraries efficiently.

Lead Optimization and Validation. Lead optimization involves repeated chemical
modification of the hits obtained from primary screening for the purpose of
developing compounds with desired properties and activities. Additional assays
are developed and used in secondary screens to select compounds with the
greatest likelihood of becoming drugs, based on expected efficacy and
selectivity, low toxicity and optimal pharmacological properties. These
modified, or optimized, hits are often referred to as lead compounds. Lead
validation involves testing lead compounds in animal models to determine whether
they have the desired affect against the disease of interest. Using the current
best practice, the vast majority, approximately 90%, of lead compounds fail to
become drugs. New technologies are needed to reduce the attrition rate of
compounds as they move through the drug development process.

AURORA'S SOLUTIONS AND ADVANTAGES

Since our founding, we have focused on the development and commercialization of
technologies, products and services that provide solutions to bottlenecks in the
drug discovery process. These solutions involve the integration of innovative
fluorescence assay technologies, instrumentation and automation. We believe that
our drug discovery systems and technologies provide an effective bridge between
the sequenced human genome and the chemistry needed to develop the next
generation of medicines.

Target Identification and Validation. Several of our proprietary technologies
are used to identify and validate gene targets. Our GenomeScreen technology
enables scientists to rapidly identify genes regulated by a stimulus of
interest. We have identified many novel genes using this method. Fluorescent
proteins are used widely by functional genomics companies to identify potential
therapeutic targets. Several companies involved in target identification and
validation have licensed our patented fluorescent proteins for this purpose.

Assay Development. We have developed proprietary technologies, such as
GeneBLAzer, Phosphorylight, fluorescent proteins and our ion channel screening
platform, to facilitate the rapid development of assays for all major
therapeutic target classes, including receptors, ion channels and enzymes. We
also develop miniaturized cell-based assays, which we believe provide a more
representative measurement of target function than purely biochemical assays.
Our cell-based assays miniaturize functional human biology and enable us to
generate tens to hundreds of millions of data points each year. In addition, our
cell-based assays enable us to screen selected targets that could not otherwise
be screened using conventional biochemical approaches. We believe the
combination of our proprietary fluorescence assay technologies and our expertise
in developing miniaturized cell-based assays enable us to develop assays in a
fraction of the time normally required for this activity. In our discovery
services business, we have developed assays for over 100 drug targets for our
customers, many of which were brought to us because our customers considered the
targets intractable.

Screening. Our UHTSS Platform enables our scientists to screen over 100,000
compounds per day in either cell-based or biochemical formats, which utilize
assay volumes approaching one millionth of a liter, thereby enabling us to
perform more assays with the same amount of material compared to traditional
screening techniques. We have a library of over 500,000 compounds available for
screening. We completed our own UHTSS Platform and delivered the final module of
the UHTSS Platform to Bristol-Myers Squibb in late 2000. We are currently in the
process of delivering the final module of the UHTSS Platform to the other
members of our UHTSS consortium and our AMCS Platform, which facilitates the
storage and management of large compound libraries, to Warner Lambert and
Pfizer. In addition, our ion channel screening platform, which includes our
proprietary voltage sensor probes and VIPR subsystem, facilitates the rapid
development of assays and the high throughput screening of ion channel targets.

Lead Optimization and Validation. We are currently developing a library of high
throughput profiling assays, including our Vivid fluorogenic substrates, to
assess individual compounds or entire libraries of compounds for metabolism,
safety and other drug-like properties. We believe these assays will reduce the
cost of drug development by identifying compounds with inappropriate properties
earlier in the drug discovery process.



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The Integrated Solution: Big Biology. To capture more value from our
technologies and drug discovery capabilities, we are currently launching our Big
Biology initiative, an internal drug discovery program designed to rapidly
identify promising drug candidates within all major classes of gene targets. We
believe our miniaturized assay formats, ultra high throughput screening system
and integrated approach to assay development, screening and compound management
significantly reduce the time and expense required to identify suitable drug
targets and generate drug candidates. We intend to use our fluorescence assay
technologies, along with our UHTSS Platform, to rapidly validate targets with
high throughput chemical methods, rather than using low throughput or less
definitive techniques. We expect this approach to identify multiple hit
compounds for lead optimization and to generate better information about
potential drug targets earlier in the drug discovery process. We believe our
innovative approach to drug discovery will generate a larger number of high
quality drug candidates than was previously possible for a company of our size.

OUR STRATEGY

Our goal is to be the leading provider of drug discovery solutions and
high-quality drug candidates to the pharmaceutical industry. The key elements of
our strategy are to:

        -       Launch Big Biology Initiative. As part of our Big Biology
                initiative, we intend to leverage our assay development and
                automated screening capabilities to rapidly generate large
                numbers of high quality lead compounds and drug candidates
                across all major drug target classes, such as ion channels,
                receptors and enzymes. We intend to commercialize this program
                by licensing access to information and lead compounds and by
                entering into drug discovery collaborations with companies that
                develop and commercialize new medicines.

        -       Expand Customer Base for Proprietary Technologies and Platforms.
                We intend to generate additional revenue by licensing our
                proprietary technologies and screening platforms, including
                intellectual property we develop as part of our Big Biology
                initiative. We will continue to aggressively license our
                technologies in new fields, such as agriculture, diagnostic,
                industrial and environmental applications.

        -       Establish Additional Drug Discovery Collaborations. We intend to
                establish additional drug discovery collaborations and expand
                our existing collaborations. Our goal is to offer gene-to-lead
                drug discovery programs in a broad range of different
                therapeutic areas.

        -       Enhance Our Existing Drug Discovery Capabilities. We intend to
                enhance our current drug discovery capabilities through
                acquisitions, licensing and/or strategic alliances in the areas
                of chemistry, informatics, in vitro ADME/Tox (absorption,
                digestion, metabolism, excretion and toxicology), and in vitro
                and in vivo pharmacology, including animal models of drug
                efficacy. We may also acquire expertise in specific disease or
                therapeutic areas.

        -       Support and Enhance Our Screening Platforms. We intend to seek
                additional partners for our ion channel screening platform and
                as many as two additional collaborative partners for our UHTSS
                Platform. We will continue to upgrade, enhance and offer
                additional services based on our screening platforms. We believe
                we will be able to leverage our base of collaborators by
                providing new products and services as we expand and develop
                enhancements to our screening platforms.

TECHNOLOGIES, PRODUCTS AND SERVICES

We have developed and commercialized a broad range of technologies and products
to facilitate drug discovery. Our technologies and products assist scientists by
improving their ability to rapidly identify targets, develop assays and screen
compounds to be used as potential new medicines:

TARGET IDENTIFICATION AND ASSAY DEVELOPMENT

        -       GenomeScreen Technology. We use our patented GenomeScreen
                technology to identify and validate targets by scanning the
                genome of living human cells and identifying those genes
                activated or repressed in disease states. GenomeScreen also
                facilitates the rapid development of cell-based assays for
                endogenously expressed targets, without having to utilize cloned
                cDNAs for those targets. We have used this technology to
                generate hundreds of cell-based assays. In addition, we have
                used GenomeScreen to assist us in mapping gene activation and
                cell signaling pathways and characterizing poorly understood
                cellular processes.



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        -       GeneBLAzer Technology. Our patented GeneBLAzer technology
                enables scientists to rapidly develop cell-based assays with
                fluorescence-activated cell sorting (FACS). GeneBLAzer is
                readily adapted to a broad range of target classes, including G
                protein-coupled receptors (GPCRs), chemokine receptors,
                transcription factors and intracellular cis-acting proteases.
                Using GeneBLAzer, we have developed over 80 assays relating to
                various therapeutic areas, including inflammation, oncology,
                metabolic, infectious and central nervous system diseases, for
                our collaborators and ourselves.

        -       Fluorescence Polarization Technology. Scientists use our
                fluorescence polarization technology to study molecular
                interactions in a number of drug discovery-related applications,
                including protein-DNA interactions, immunoassays, protease
                assays, epitope mapping, DNA hybridization and receptor-ligand
                binding studies. Our fluorescence polarization technology
                includes our Beacon(R) fluorescence polarization system and a
                wide range of homogeneous, solution-based high-throughput
                screening assays.

        -       Fluorescent Proteins. Fluorescent proteins are widely used as
                research tools, with over 2,300 related publications to date.
                Drug discovery-related applications of our patented fluorescent
                proteins include various methods of functional genomics, high
                throughput screening assays and gene profiling to assess the
                potential toxicity of compounds. Our issued patents on
                fluorescent proteins, which include over 400 claims, are
                directed toward nucleic acids encoding fluorescent proteins, the
                fluorescent proteins themselves, various fusion proteins and
                methods of use.

        -       Universal G-Proteins. Scientists can use our patented universal
                G-proteins to measure the activity of different kinds of
                receptors in living human cells and to identify the function of
                receptors without previously known function.

        -       Vivid Fluorogenic Substrates. Our patented Vivid fluorogenic
                substrates are useful for the rapid assessment of individual
                compounds and compound libraries to determine whether they may
                have potentially unfavorable interactions with key metabolic
                enzymes known as cytochrome P450 isozymes. Currently, these
                unwanted characteristics are identified later in the drug
                development process, after significant investment has been made
                in chemistry and pharmacology research.

        -       Phosphorylight Technology. Our Phosphorylight technology
                facilitates the development of assays to measure the activity of
                enzymes controlling cellular activity. These enzymes are
                significant therapeutic targets for a wide range of diseases,
                including cancer, inflammation, nervous system conditions and
                metabolic diseases.

ULTRA HIGH THROUGHPUT SCREENING

        -       UHTSS Platform. Our patented UHTSS Platform is designed to
                screen over 100,000 compounds per day. The UHTSS Platform
                combines compound management, plate replication, assay
                preparation, hit identification, selection and re-tests of the
                hits, fluorescence detection and data analysis into one
                fully-integrated and automated system. The ultra-high throughput
                capability is achieved through the use of our NanoWell(R) Assay
                Plate, which contains 3,456 wells in a standard microplate
                footprint. The NanoWell Assay Plate is specifically designed to
                fit the automation of the UHTSS Platform and is engineered to
                minimize fluorescence background and evaporation. The
                combination of assay miniaturization, microfluidics,
                fluorescence detection and automation enables scientists to
                perform assays with a ten-fold increase in efficiency over
                conventional high-throughput screening methods and a
                commensurate reduction in cost.

        -       Automated Master Compound Store. Our patented AMCS Platform is a
                modular compound storage system designed for long-term storage
                of chemical samples under environmental control. The AMCS
                Platform provides global compound inventory monitoring systems
                to track compound location, utilization, expiration and
                availability. Other features of the AMCS Platform include a
                semi-automated weighing subsystem to handle compounds in solid
                or powder form, automated subsystems for handling liquid
                samples, as well as an automated storage and retrieval system.

ION CHANNEL ASSAY DEVELOPMENT AND HIGH THROUGHPUT SCREENING. Our patented ion
channel technology platform, which includes our proprietary voltage sensor
probes and voltage ion probe reader, the VIPR subsystem, was first released in
1997. This platform facilitates the rapid generation of screening assays and the
high throughput screening of ion channel targets by optically measuring changes
in membrane potential in live cells in an automated, microtiter plate format. In
late 2000, we began marketing our second-generation voltage ion probe reader,
the VIPR II subsystem, which has increased functionality and higher screening
capacity. The VIPR II subsystem is capable of screening in 96-well and 384-well
microplate formats, with a significant increase in throughput over the original
VIPR subsystem. Because our ion channel technology platform focuses on changes
in membrane potential, it is a universal platform that is independent of the
particular ion being transported by the target channel. It is applicable to the
majority of ion channel families, including voltage-gated and ligand-gated
potassium, sodium, calcium and chloride channels, as well as other types of
channels. Using this patented



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functional assay and screening technology, we have developed over 35 assays
relating to therapeutic areas, including cardiovascular, metabolic and nervous
system diseases, for our collaborators and ourselves.

ASSAY DEVELOPMENT AND SCREENING SERVICES. We provide assay development and
screening services as part of our drug discovery collaborations. Our performance
of these services provides us with valuable experience working with difficult
drug targets, which we can then apply to our own internal Big Biology
initiative. These projects provide us an additional source of revenue and
differentiate us from our competitors who may not possess similar capabilities
or who may not be willing to provide similar services.

PROTEIN MANUFACTURING, SALES AND SERVICES. We produce and sell proteins and
provide protein cloning, expression and purification services. We have produced
hundreds of recombinant proteins for commercial sale, focusing on protein
families that are of broad interest from a therapeutic perspective, including
nuclear receptors, protein kinases and drug metabolizing enzymes.


CURRENT ALLIANCES AND OTHER AGREEMENTS

DRUG DISCOVERY COLLABORATIONS. Using the technologies and products described
above, our library of over 500,000 compounds, and our scientific expertise, we
are currently engaged in drug discovery collaborations with several partners,
including Allergan, The Cystic Fibrosis Foundation, Families of Spinal Muscular
Atrophy, The Hereditary Disease Foundation and Merck.

        -       Allergan. In December 2000, we entered into a one-year
                Collaborative Research and License Agreement with Allergan
                focused on ion channel drug discovery for ophthalmic
                indications. Under the collaboration, we will develop primary
                and secondary functional cell-based assays using our proprietary
                voltage sensor probes and VIPR technology to pursue a novel ion
                channel target identified by Allergan. We will screen this
                target using the assays developed under the collaboration
                against a diverse subset of our compound library, as well as a
                similarly sized library provided by Allergan. Following primary
                screening, we will prioritize hits through secondary screens and
                assays to evaluate their specificity and mechanisms of action.
                We will then provide the screening and profiling data to
                Allergan for further optimization of the hits. This agreement
                includes an up-front payment to Aurora and additional payments
                upon achievement of certain performance milestones. We will
                receive milestone payments and royalties on products based on
                lead compounds identified using screens generated through the
                collaboration.

        -       The Cystic Fibrosis Foundation. In May 2000, we entered into a
                five-year Collaborative Research and License Agreement with The
                Cystic Fibrosis Foundation to identify drug candidates for the
                treatment of cystic fibrosis. We believe that this collaboration
                represents the largest contract ever awarded by a voluntary
                health organization for drug discovery. Under the terms of our
                agreement, we will employ our assay development and screening
                expertise, chemical library, secondary screening and lead
                optimization capabilities and genomic technologies in this
                therapeutic discovery program. The collaboration includes the
                development of assays for and screening of the cystic fibrosis
                transmembrane conductance regulator, a protein that is defective
                in cystic fibrosis patients, among other molecular targets. The
                Cystic Fibrosis Foundation will fund this initiative through
                technology access fees for non-exclusive access to our assay,
                screening and chemistry technologies and fees for ongoing
                scientific support. In addition, we may receive performance and
                clinical milestone payments. We have also agreed to an
                arrangement that includes co-commercialization of promising
                candidate drugs resulting from the program in the cystic
                fibrosis and pulmonary fields, with revenue sharing on any
                products that arise out of the collaboration.

        -       Families of Spinal Muscular Atrophy. In March 2000, we entered
                into an 18-month Collaborative Research and License Agreement
                with The Families of Spinal Muscular Atrophy to identify novel
                drug candidates for the treatment of spinal muscular atrophy.
                The Families of Spinal Muscular Atrophy is a not-for-profit
                organization that sponsors research on spinal muscular atrophy
                and provides support to families affected by this disease. Under
                this collaboration, we will develop cell-based screening assays
                mimicking a functional defect in cells in spinal muscular
                atrophy patients, and will conduct high-throughput drug
                screening using our instrumentation and library of compounds. We
                will then conduct follow-up work on the hit compounds identified
                using these screens to establish their potency, and collaborate
                with academic researchers to test any drug candidates for
                efficacy in animal models. We receive ongoing research funding
                and may receive milestone payments and royalties on products
                resulting from the collaboration.

        -       The Hereditary Disease Foundation. In August 2000, we entered
                into an 18-month Collaborative Research and License Agreement
                with The Hereditary Disease Foundation, a non-profit
                organization dedicated to the treatment of genetic disease, to
                identify novel drug candidates for the treatment of Huntington's
                disease. Under the collaboration, we will employ our proprietary
                fluorescent proteins and GeneBLAzer technologies to develop
                cell-based and biochemical screening assays, conduct ultra-high
                throughput drug screening using our proprietary instrumentation
                and



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                compound library, pharmacologically profile any hits derived
                from these screens, and collaborate with academic researchers to
                test for efficacy of any potential drug candidates in animal
                models. We receive ongoing research funding and may receive
                milestone payments and royalties on products resulting from the
                collaboration.

        -       Merck. In November 1999, we entered into two one-year
                collaborations with Merck in the area of genomics. Under both
                collaborations, we are utilizing our GenomeScreen technology to
                investigate cell processes and gene function related to selected
                Merck therapeutic programs. We granted a license to Merck to use
                the data and materials resulting from the program for basic
                research and drug discovery. We received up-front payments from
                Merck for each collaboration, with the potential for additional
                research funding, as well as additional revenues in the event
                Merck commercializes compounds identified as a result of the
                collaboration. In March 2000, we amended the original
                collaborative agreement to provide additional services to Merck
                on G-protein coupled receptors. Aurora may receive performance
                milestone payments and royalties on compounds identified under
                the collaboration.

                Separately, in September 2000, we entered into a third
                collaboration with Merck. Under this collaboration, we will work
                with Merck to identify novel chemicals that modulate a
                particular ion channel target. Merck will provide us with a
                specific ion channel target and a selected library of Merck
                compounds. We will develop an assay and then screen the
                compounds provided by Merck to identify hits. We will receive
                research payments, milestones and royalties on marketed products
                based on compounds identified by screens generated through the
                collaboration.

UHTSS AND AMCS COLLABORATIONS. We currently have UHTSS development agreements
with Bristol-Myers Squibb, Merck, Warner Lambert (now part of Pfizer) and
Pfizer, and AMCS development agreements with Warner Lambert and Pfizer. In
general, our UHTSS agreements provide that we will deliver and install three
separate modules of the UHTSS Platform and provide service and support of the
system for a period following acceptance. In return, our UHTSS collaborators are
obligated to make certain payments to us in the form of installation payments
and ongoing research and co-development funding. Some of our UHTSS agreements
restrict our UHTSS consortium to six members for a limited period of time.
Frequently, our UHTSS and AMCS collaborators also access other of our
technologies. Provided below are highlights of our arrangements with our UHTSS
and AMCS collaborators.

        -       Bristol-Myers Squibb. In November 1996, we entered into a
                Collaborative Research and License Agreement with Bristol-Myers
                Squibb for the development and installation of a UHTSS Platform.
                The collaboration includes co-development of high throughput
                screening assays for use by Bristol-Myers Squibb in exchange for
                specified fees. Bristol-Myers Squibb licensed the right to use
                our fluorescence assay technologies for internal research and
                drug development, including the development of assays.
                Bristol-Myers Squibb will make development milestone and royalty
                payments to us for compounds that it develops and commercializes
                which are identified using a screen developed by Aurora under
                the collaboration. In December 2000, we delivered the third and
                final module of the UHTSS Platform to Bristol-Myers Squibb,
                thereby completing delivery of the first fully validated system
                to one of our partners.

        -       Merck. In December 1997, we entered into a Collaborative
                Research and License Agreement with Merck for the development
                and installation of a UHTSS Platform. The collaboration includes
                co-development of high throughput screening assays for use by
                Merck in exchange for specified fees. Merck also licensed the
                right to use our fluorescence assay technologies for internal
                research and drug development, including the development of
                assays. We amended the Collaborative Research and License
                Agreement with Merck in February 2000. Pursuant to the terms of
                this amendment, we agreed to develop additional instrumentation
                and software enhancements to the UHTSS Platform to expand our
                functionality.

        -       Pfizer. In June 1999, we entered into a Collaborative Research
                and License Agreement with Pfizer regarding the development and
                installation of a UHTSS Platform and an AMCS Platform. The
                collaboration includes co-development of high throughput
                screening assays for use by Pfizer. Pfizer also licensed the
                right to use our fluorescence assay technologies for internal
                research and drug development, including the development of
                assays. In August 2000, Pfizer licensed the right to use our
                Vivid fluorogenic substrates for internal research and drug
                development, including the development of assays. In connection
                with this agreement, we will receive annual license fees, as
                well as payments for reagents over several years.

        -       Warner Lambert. In September 1997, we entered into a
                Collaborative Research and License Agreement with Warner Lambert
                for the development and installation of a UHTSS Platform. The
                collaboration includes co-development of



                                       8
<PAGE>   9

                high throughput screening assays for use by Warner Lambert in
                exchange for specified fees. Warner Lambert also licensed the
                right to use our fluorescence assay technologies for internal
                research and drug development, including the development of
                assays. We amended the Collaborative Research and License
                Agreement in January 1999. Pursuant to the terms of this
                amendment, we agreed to provide services to Warner Lambert and
                granted to Warner Lambert licenses to use our GenomeScreen
                technology. Warner Lambert will also make development milestone
                and royalty payments to us for selected compounds it develops
                and commercializes which were identified using an assay
                utilizing the technologies licensed from us. In September 1998,
                we entered into a separate agreement with Warner Lambert for the
                development and installation of an AMCS Platform. All of our
                agreements with Warner-Lambert currently remain in place
                following the acquisition of Warner Lambert by Pfizer in June
                2000.

SERVICES, VIPR SUBSYSTEMS, REAGENTS AND LICENSES. We have entered into
agreements for assay development and in some cases screening services, VIPR
subsystems and reagents, and licenses to selected technologies with a number of
companies, including the following companies:

<TABLE>
<S>                                      <C>
        -   Eli Lilly                     -    Pharmaceutical Division of American Home Products
        -   GlaxoSmithKline               -    R.W. Johnson Pharmaceutical Research Institute and Janssen Research Foundation
        -   Organon                       -    Senomyx
</TABLE>

In general, these companies are obligated to pay us for research funding,
equipment and reagents and license fees. In addition, we are entitled to
milestone payments and royalties on products derived by these third parties from
their use of our licensed technology, services and systems.

In addition, we have successfully completed collaborative research agreements
with Pharmacia & Upjohn, Becton Dickinson, F. Hoffmann-La Roche and Cytovia (now
part of Maxim Pharmaceuticals). While our research under these agreements is
complete, some of these collaborators have ongoing obligations to pay us
milestone payments and royalties on products they develop utilizing our research
or our technology.

LICENSES FOR FLUORESCENT PROTEINS. We have granted Clontech Laboratories, Inc.
the right to sell certain fluorescent proteins to the non-commercial, academic
research market. In return, Clontech pays us a royalty on sales of such
products. In addition, we have licensed certain rights to our fluorescent
proteins to various companies, including:

     -   Acacia Biosciences                         -   Genentech
     -   AntiCancer                                 -   Rigel
     -   Ceres                                      -   Senomyx
     -   Deltagen                                   -   Wyeth-Ayerst
     -   Exelixis Pharmaceuticals                   -   ZymoGenetics

In general, our licensees are obligated to pay us technology access fees, annual
maintenance fees and in some cases milestone payments and royalties.

COMPETITION

The market for drug discovery products and services is highly competitive. There
are a number of companies who compete with us in various aspects of our
business. For instance, companies such as Cellomics, Discovery Partners
International, Evotec and Molecular Devices develop and commercialize
proprietary research tools, reagents, instruments and systems which compete with
our proprietary screening platforms and reagents. There are also a number of
companies, such as Albany Molecular Research, ArQule, Array Biopharma, Cambridge
Drug Discovery, Discovery Partners International, Oxford Asymmetry, Pharmacopeia
and Tripos, that develop and commercialize compound libraries and use their
chemistry capabilities to test, screen and optimize potential drug candidates.
Other companies, such as 3-Dimensional Pharmaceuticals, Vertex, Millennium, HGSI
and OSI, possess broad drug discovery and development capabilities and may
compete with us for large-scale drug discovery collaborations.

Also, in many cases, our pharmaceutical company customers have internal
departments which provide products and services similar to ours, so these
customers may have limited needs for our products and services. Many of our
competitors listed above have significantly greater financial, operational,
sales and marketing resources than we do. In addition, these competitors and
other companies or research or academic institutions may have developed, or
could in the future develop,



                                       9
<PAGE>   10

new technologies that compete with our products and services or that could
render some or all of our products and services obsolete. Any of these
competitors could also broaden their drug discovery offerings through
acquisition, collaboration or internal development to integrate their offerings
and/or compete with us in all phases of drug discovery that we currently serve.

In addition, the success of our current drug discovery collaborations and our
own Big Biology initiative will depend on our ability to discover novel drug
candidates in a timely and cost-effective manner. To accomplish this objective,
we may need to acquire or gain access to medicinal and combinatorial chemistry
capabilities, pharmacology expertise and animal models of diseases. Many of our
potential competitors in these markets, including many biotechnology companies,
large pharmaceutical companies and public and private institutions, have
substantially greater financial, technical and marketing resources than we do.
Our ability to compete successfully will depend on our ability to develop
proprietary products that reach the market in a timely manner and are
technologically superior to and/or are less expensive than other products on the
market. Our technologies and products may be rendered obsolete or uneconomical
by technological advances or entirely different approaches developed by one or
more of our competitors.

MANUFACTURING

We currently manufacture the UHTSS Platform, the AMCS Platform, the sample
distribution system, and the VIPR and VIPR II at our facilities in San Diego,
California, except certain components of the UHTSS Platform and AMCS Platform,
which are purchased from Universal Technologies, Inc., and the enclosures for
the UHTSS Platform and AMCS Platform, which are purchased from Environmental
Specialties, Inc.

In November 2000, we entered into an agreement with Greiner Bio-One, a leading
manufacturer of laboratory disposables. Under the terms of the agreement, we
granted Greiner Bio-One non-exclusive rights to develop, manufacture, market and
distribute microplates and other plastic consumables, including our 3,456-well
NanoWell Assay Plate for use in our UHTSS Platform, and storage plates, tubes
and racks for use in our AMCS Platform. In exchange for such rights, Greiner
Bio-One paid us an up-front technology access fee and is obligated to pay us
royalties on sales of licensed products, including new products developed under
the agreement.

PROPRIETARY RIGHTS

Our intellectual property consists of patents, copyrights, trade secrets and
trademarks. Protection of our intellectual property is a strategic priority for
our business. Our ability to compete effectively depends in large part on our
ability to obtain patents for our technologies and products, maintain trade
secrets and operate without infringing the rights of others, and to prevent
others from infringing our proprietary rights. As of January 1, 2001, we owned
or exclusively licensed 42 issued patents covering our technologies. In
addition, we have received notices of allowance with respect to seven patent
applications and have over 120 patents pending worldwide. Our patent portfolio
covers our UHTSS Platform, NanoWell plates, ion-channel screening platform,
GenomeScreen, GeneBLAzer and Phosphorylight technologies, fluorescent proteins,
Vivid fluorogenic substrates and universal G-proteins. Certain aspects of our
fluorescent protein technology and ion channel technology are exclusively
licensed from the Regents of the University of California. As part of our
acquisition of PanVera in March 2001, we also acquired rights to an additional
four issued patents and over ten pending patent applications.

The patent positions of biotechnology companies, including our patent position,
involve complex legal and factual questions and, therefore, enforceability
cannot be predicted with certainty. Patents, if issued, may be challenged,
invalidated or circumvented. We cannot be sure that relevant patents have not
been issued that could block our ability to obtain patents or to operate our
business. Other parties may develop similar technologies as those developed by
us.

The biotechnology industry is characterized by extensive litigation regarding
patents and other intellectual property rights. Many biotechnology companies
have employed intellectual property litigation as a way to gain a competitive
advantage. Other parties may sue us in the future to challenge our patent rights
or claim infringement of their patents. An adverse determination in litigation
or interference proceedings to which we may become a party could subject us to
significant liabilities to third parties, require us to license disputed rights
from third parties or require us to cease using the disputed technology. We are
aware of patents and patent applications relating to aspects of our technologies
filed by, and issued to, other parties. If any of our competitors have filed
patent applications or obtain patents that claim inventions also claimed by us,
we may have to participate in an interference proceeding declared by the
relevant patent regulatory agency to determine priority of invention and, thus,
the right to a patent for these inventions. Such a proceeding could result in
substantial cost to



                                       10
<PAGE>   11

us even if the outcome is favorable. Even if successful, an interference may
result in loss of claims based on patentability. Although patent and
intellectual property disputes in the biotechnology area are often settled
through licensing or similar arrangements, costs associated with these
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot be certain that the necessary licenses would be available
to us on satisfactory terms, if at all.

We also rely on trade secrets, proprietary know-how and continuing invention to
remain competitive. We have taken measures to protect our trade secrets,
proprietary know-how, technologies and confidential information. Our policy is
to execute confidentiality agreements with our employees and consultants upon
the commencement of an employment or consulting arrangement with us. These
agreements generally require that all confidential information developed or made
known to the individual by us during the course of the individual's relationship
with us to be kept confidential and not disclosed to third parties. These
agreements also generally provide that inventions conceived by the individual in
the course of rendering services to us shall be our exclusive property. There
can be no assurance that our proprietary information will not be disclosed to
other parties or that other parties will not independently develop similar
proprietary information and techniques or otherwise gain access to our trade
secrets.

GOVERNMENT REGULATION

We are subject to various federal, state and local laws and regulations relating
to safe working conditions, laboratory and manufacturing practices, the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with our research.
We have not been required to expend material amounts in connection with our
efforts to comply with such laws and regulations and we do not believe that
compliance with such requirements will have a material adverse effect upon our
capital expenditures, results of operations or competitive position. Because the
requirements imposed by these laws and regulations frequently change, we are
unable to predict the cost of compliance with these requirements in the future,
or the effect of these laws and regulations on our capital expenditures, results
of operations or competitive position.

Any drug candidate that we develop, either independently or under the terms of a
current or future collaboration, or that any of our collaborators develops using
our technology or products will be subject to extensive government regulation by
numerous governmental authorities in the United States and other countries.
Before marketing in the United States, any drug candidate must undergo rigorous
preclinical testing and clinical trials and an extensive regulatory clearance
process administered by the United States Food and Drug Administration. The
regulatory review and approval process is lengthy, expensive and uncertain. The
approval process takes many years, requires the expenditure of substantial
resources and involves post-marketing surveillance. Outside the United States,
the commercialization of any drug candidate will be contingent upon receiving a
marketing authorization from the appropriate foreign regulatory authorities.

We currently anticipate that we will collaborate with third parties to conduct
clinical development and commercialization activities for any drug candidates
that we develop. Similarly, we do not expect to participate in the clinical
development or commercialization of any drug candidate that any of our
collaborators may identify using our technology or systems. Even if our
collaborators are able to successfully complete clinical testing for any drug
candidates they license from us or develop using our technology or systems, if
our collaborators do not obtain necessary regulatory approvals for those drug
candidates, we may not derive any future milestone or royalty payments under our
current or future collaboration agreements.

EMPLOYEES

As of March 1, 2001, we had 344 full-time employees, 67 of which hold Ph.D.
degrees and 54 of which hold other advanced degrees. In addition to full-time
employees, we use the services of contractors, part-time employees, temporary
staff and student interns. As of March 1, 2001, we had a total of 75
contractors, part-time employees and temporary staff and 19 student interns. Our
future success depends in significant part upon the continued service of our key
scientific, technical and senior management personnel and our ability to attract
and retain highly qualified technical and managerial personnel. None of our
employees are represented by a labor union or covered by a collective bargaining
agreement. We have not experienced any work stoppages and consider our relations
with our employees to be good.


                                       11
<PAGE>   12


EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers as of March 1, 2001 are as follows:


<TABLE>
<CAPTION>
        NAME                         AGE         POSITION
        ----                         ---         --------
<S>                                  <C>        <C>
        Stuart J.M. Collinson         41         President, Chief Executive Officer and Chairman of the Board of Directors
        Thomas G. Klopack             49         Senior Vice President and Chief Operating Officer
        Christopher W. Krueger        33         Vice President, Strategic Alliances and General Counsel
        Paul A. Negulescu             38         Senior Vice President, Discovery Biology
        John R. Pashkowsky            44         Vice President, Finance and Treasurer
        Harry Stylli                  39         Senior Vice President, Commercial Development
        Ralph Kauten                  49         President, PanVera Corporation
</TABLE>

Stuart J.M. Collinson joined us in May 1999 as President and a member of the
Board of Directors and was elected to the position of Chief Executive Officer in
November 1999. He was appointed as Chairman of the Board in March 2000. Prior to
joining us, Dr. Collinson served as a consultant to us from December 1998 to May
1999 and as Chief Executive Officer of Andaris, Ltd., a privately held
biopharmaceutical company, from June 1998 to November 1998. Prior to Andaris,
Dr. Collinson held senior management positions with Glaxo Wellcome from December
1994 through June 1998, most recently serving as Co-Chairman, Hospital and
Critical Care Therapy Management Team and Director of Hospital and Critical
Care. Dr. Collinson previously held several positions with Baxter International,
Inc. and the Boston Consulting Group. Dr. Collinson received his Ph.D. in
physical chemistry from the University of Oxford, England and his M.B.A. from
Harvard University.

Thomas G. Klopack joined us in July 1998 and currently serves as our Senior Vice
President and Chief Operating Officer. Prior to joining us, he served for 18
years as an executive with Raychem Corporation in various capacities involving
new product commercialization, strategic planning, operations and logistics,
most recently as Director, Strategic Planning, in the Electronics Division.
Prior to joining Raychem, Mr. Klopack worked at Exxon Corporation in engineering
operations. Mr. Klopack obtained his B.S. in chemical engineering from
Carnegie-Mellon University and his M.B.A. from Harvard University.

Christopher W. Krueger joined us in April 2000 and currently serves as our Vice
President, Strategic Alliances and General Counsel. Prior to joining us, he
served as Corporate Counsel at Science Applications International Corporation
(SAIC), a multi-national technology development company. Prior to joining SAIC,
Mr. Krueger represented both privately-held and public companies in the life
science and information technology industries in a wide range of transactions,
including strategic alliances, technology licensing, mergers and acquisitions,
public offerings and venture capital financings, as an attorney at Cooley
Godward LLP. Mr. Krueger received his Bachelor of Arts degree in Economics from
the University of California, San Diego and his J.D. and M.B.A. from the
University of Southern California.

Paul A. Negulescu joined us in April 1996 and currently serves as our Senior
Vice President, Discovery Biology. Prior to joining us, Dr. Negulescu was a
Post-doctoral Fellow at the University of California at Berkeley from 1988 to
1991, and from 1991 until joining us, he served as a Post-doctoral Researcher at
the University of California at Irvine. Dr. Negulescu received his B.A. in
History and Physiology and his Ph.D. in Physiology from the University of
California at Berkeley, and he completed post-doctoral training at both the
University of California at Berkeley and the University of California at Irvine.

John R. Pashkowsky joined us in December 1997 and currently serves as our Vice
President, Finance and Treasurer. From December 1997 through March 2000, Mr.
Pashkowsky held various financial positions with us. From 1981 to 1997 he served
in various positions at Senior Flexonics, Ketema, Inc. and Ametek, Inc., most
recently as Controller of the Ketema Division of Senior Flexonics, and was
employed by Rohr Industries Inc. from 1979 to 1981. Mr. Pashkowsky received his
B.S. in Business Administration from the State University of New York and his
M.B.A. in Finance from San Diego State University.

Harry Stylli joined us in November 1995 and currently serves as our Senior Vice
President, Commercial Development. Prior to joining us, from 1989 to 1995, Dr.
Stylli held several positions at Glaxo Wellcome, where he was integrally
involved in the International Screening and Technology program. He obtained a
Ph.D. in Pharmaceutical Chemistry from Kings College, London University, an
M.B.A. from Open University, Milton Keynes, U.K. and a B.Sc. in Biochemical
Pharmacology, with honors, from the University of East London.



                                       12
<PAGE>   13
Ralph Kauten joined PanVera in July 1992 as one of the original founders and
currently serves as President of PanVera. Prior to joining PanVera, Mr. Kauten
served from 1986 to 1992 as Vice President of Finance and Chief Financial
Officer of Promega Corporation where he was integrally involved in developing
strategic directions, directing a number of financial and administrative
functions, and establishing subsidiary operations in a number of countries in
Europe and Asia. Mr. Kauten obtained his B.B.A. from the University of Iowa and
his M.B.A. from the University of Wisconsin, Madison.

SCIENTIFIC ADVISORS

Our scientific advisors, who have demonstrated expertise in various fields,
advise us from time to time concerning long-term scientific planning, research
and development. The scientific advisors also evaluate our research programs,
recommend personnel to us, and advise us on specific scientific and technical
issues. The scientific advisors are compensated by retainer and on a time and
expenses basis and have received shares and options to purchase shares of our
common stock. We have consulting agreements with a number of the scientific
advisors.

We do not employ any of the scientific advisors, and they may have other
commitments to or consulting or advisory contracts with their employers or other
entities that may conflict or compete with their obligations to us. Accordingly,
such persons are expected to devote only a small portion of their time to us.
Our scientific advisors are:

Roger Y. Tsien, Ph.D. -- Investigator, Howard Hughes Medical Institute;
Professor, Department of Pharmacology, School of Medicine, University of
California, San Diego; Professor, Department of Chemistry and Biochemistry,
University of California, San Diego

Charles S. Zuker, Ph.D. -- Investigator, Howard Hughes Medical Institute;
Professor, Departments of Biology and Neurosciences, School of Medicine,
University of California, San Diego

Timothy J. Rink -- Independent consultant; former Chairman of the Board,
President and Chief Executive Officer of Aurora Biosciences Corporation; former
President and Chief Technology Officer of Amlyin Pharmaceuticals, Inc.



                                       13
<PAGE>   14

                                  RISK FACTORS


This Form 10-K contains forward-looking statements relating to future events or
our future financial performance. You are cautioned that such statements are
only predictions and that actual events or results may differ materially. In
evaluating such statements, you should specifically consider the various factors
identified in this Form 10-K, including those discussed below, which could cause
actual events or results to differ materially from those indicated by the
forward-looking statements.

BECAUSE WE ARE AN EARLY STAGE COMPANY DEVELOPING AND DEPLOYING NEW TECHNOLOGIES,
WE MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE OUR TECHNOLOGIES OR PRODUCTS,
WHICH COULD CAUSE US TO BE UNPROFITABLE.

You must evaluate our business in light of the uncertainties and complexities
affecting a growing technology and drug discovery company. Our existing
proprietary technologies and products are new and in development. In particular,
our ultra high throughput screening system, known as the UHTSS Platform, and
automated master compound store, known as the AMCS, and our methods of screening
molecular targets incorporate new and unproven approaches to the identification
of drug product candidates, commonly referred to as lead compounds, with
therapeutic potential. Our fluorescence assay technologies, chemical libraries
and instruments have only recently begun to be used in the drug discovery
process and have never been utilized in the discovery of any compound that has
been commercialized. A fluorescence assay is a biochemical or cellular reaction
which provides information about a compound under consideration via the emission
of light. Our UHTSS Platform and AMCS may never be implemented as fully
operational systems. In addition, our UHTSS Platform and AMCS will require
significant additional investment and development prior to commencement of
full-scale commercial operation, including integration of complex
instrumentation and software and testing to validate performance and cost
effectiveness.

IF WE DO NOT SUCCESSFULLY DELIVER, INSTALL AND VALIDATE THE UHTSS PLATFORM OR
AMCS FOR ALL OF OUR COLLABORATORS ON TIME, OR IF THE UHTSS PLATFORM OR AMCS DOES
NOT ACHIEVE COMMERCIAL ACCEPTANCE, OUR RELATIONSHIPS WITH OUR CUSTOMERS COULD BE
HARMED.

Complex instrumentation systems and other drug discovery technologies that
appear to be promising at early stages of development may not become fully
operational for a number of reasons. These systems may:

        -       be found ineffective;

        -       be impossible or uneconomical to produce;

        -       fail to achieve expected performance levels or industry
                acceptance; or

        -       be precluded from commercialization by the proprietary rights
                of third parties.

Some of the instrumentation and software expected to comprise the AMCS are not
now and have not previously been used in commercial applications. The complexity
of both the UHTSS Platform and AMCS has led to unexpected delays in delivering,
installing and validating these platforms that may lead to a financial penalty
with a particular collaborator and contractual disputes regarding the delivery
and acceptance of these platforms by our customers may result in negotiations
with potentially unfavorable outcomes. Contractual disputes with our customers
may not be resolved in our favor and may harm our reputation. The successful
implementation and operation of the UHTSS Platform and AMCS will be a complex
process requiring integration and coordination of a number of factors, including
integration of and successful interface between complex advanced robotics,
microfluidics, automated storage and retrieval systems and software and
information systems. We may not be able to successfully integrate or implement
all of the instrumentation needed for the UHTSS Platform or AMCS. As the UHTSS
platform and AMCS are individually developed, integrated and used, it is
possible that previously unanticipated limitations or defects may emerge.

In addition, operators using our systems may require substantial new technical
skills and training. Unforeseen complications may arise in the development,
delivery and operation of the UHTSS Platform or AMCS that could materially delay
or limit use by us and our customers, substantially increase the anticipated
cost of development of the systems, result in our breach of contractual
obligations to our customers and others, or render the systems unable to perform
at the quality and capacity levels required for success. We may not be able to
successfully deliver, install and validate the UHTSS Platform or AMCS at all
collaborator sites under current delivery timelines, achieve anticipated
throughputs, gain industry acceptance of our approach to the identification of
lead compounds or develop a sustainable profitable business. Any complications
or



                                       14
<PAGE>   15

delays could subject us to litigation and have other material adverse effects on
our business, financial condition or results of operations.

WE DEPEND ON STRATEGIC PARTNERS, AND THE FAILURE TO SUCCESSFULLY MANAGE EXISTING
AND FUTURE CUSTOMERS COULD PREVENT US FROM COMMERCIALIZING MANY OF OUR PRODUCTS
AND SUSTAINING PROFITABILITY OR REVENUE GROWTH.

We have collaborative agreements with Bristol-Myers Squibb, Merck, Pfizer and
Warner-Lambert (now part of Pfizer) to develop and install a UHTSS Platform, to
license our fluorescence assay technologies for their internal discovery
research, and to co-develop high-throughput screening assays. We have entered
into drug discovery collaborations with Allergan, the Cystic Fibrosis
Foundation, Families of Spinal Muscular Atrophy and the Hereditary Disease
Foundation. In addition, we have entered into agreements for assay development
and in some cases screening services, products and licenses to selected
technologies with Eli Lilly, GlaxoSmithKline, Organon, Pharmaceutical Division
of American Home Products, R.W. Johnson Pharmaceutical Research Institute and
Janssen Research Foundation and Senomyx. Moreover, the success of our recently
announced Big Biology initiative will depend to a significant degree on the
willingness of third parties to collaborate with us for the development and
commercialization of any drug candidates that we may identify through our
internal research programs. We have limited or no control over the resources
that any strategic partner may devote to our products or programs or that such
partner may devote to any product developed by us. Our agreements generally may
be terminated by the collaborator without cause upon short notice, which would
result in the loss of anticipated revenue. Our collaborators may not perform
their obligations as expected and we may not derive any additional revenue from
any present or future collaborative or strategic agreements. Termination of our
existing or future collaborative agreements, or the failure to enter into a
sufficient number of additional collaborative agreements on favorable terms,
could have a material adverse effect on our business, financial condition or
results of operations. Our present or future collaborative relationships could
be harmed if:

        -       We do not deliver our services or systems when contractually
                specified;

        -       We do not achieve research and development objectives under our
                collaborative agreements;

        -       We develop products and processes or enter into additional
                collaborative agreements that could conflict with the business
                objectives of our existing collaborative partners;

        -       We disagree with our collaborative partners as to rights to
                intellectual property we develop;

        -       We are unable to manage multiple simultaneous collaborative
                relationships;

        -       Our collaborative partners become competitors of ours or enter
                into agreements with our competitors;

        -       Consolidation in our target markets (including the
                pharmaceutical and life sciences industries) limits the number
                of potential collaborative partners; or

        -       We are unable to negotiate additional agreements on favorable
                terms.

WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE.

We were profitable during the fiscal year ended December 31, 2000 but had an
accumulated deficit of $17.6 million as of December 31, 2000, before accounting
for the acquisition of PanVera in March 2001. Our ability to sustain
profitability will depend in part on our ability to deliver, install and
validate the UHTSS Platform and AMCS for each of our collaborative partners,
sell drug discovery services to pharmaceutical and biotechnology companies, gain
industry acceptance of our products, services and technologies, and rapidly
identify promising drug candidates through our Big Biology initiative. We have
derived substantially all of our revenue from sales of products, services and
technologies, license fees, payments from collaborators and interest income, and
expect to derive substantially all of our future revenue from these sources. We
do not expect to receive royalties or other revenue from commercial sales of
products based upon any compound identified using our technologies for at least
several years, if at all.

We expect to spend significant amounts to fund our expansion of operations,
continued development of products and fluorescence assay and genomics
technologies, as well as our recently announced Big Biology initiative. As a
result, we expect that our operating expenses will increase in the near term
and, consequently, we will need to generate additional revenue to sustain
profitability. Future revenue is uncertain because our ability to generate
revenue will depend upon our ability to enter into new collaborative, service
and license agreements, and to meet research, development and



                                       15
<PAGE>   16

commercialization objectives under new and existing agreements. Even if we
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis.

OUR BUSINESS MODEL IS NOVEL, WHICH MAY DISCOURAGE THIRD PARTIES FROM USING OUR
TECHNOLOGIES AND SERVICES.

We intend to use our screening platforms, chemical libraries and fluorescence
assay technologies to rapidly identify for ourselves and our collaborators as
many compounds with commercial potential as possible. Historically, because of
the highly proprietary nature of these discovery activities, the importance of
these activities to drug discovery and development programs and the desire to
protect the results of these programs, pharmaceutical and biotechnology
companies have conducted target screening and lead compound identification
within their internal research departments. Our ability to succeed will be
dependent, in part, upon the willingness of multiple collaborators to accept our
business model and to use our products, services and technologies as a tool in
the discovery and development of compounds with commercial potential. Because of
the potential overlap of compounds and targets provided to us by our
collaborators, as well as those being developed independently by us, conflicts
may arise among collaborators as to rights to particular products identified
through the use of our technologies. Our failure to successfully manage existing
and future collaborative relationships, maintain confidentiality among such
relationships or prevent the occurrence of such conflicts could lead to disputes
that result in, among other things, a significant strain on management
resources, legal claims involving significant time and expense and a loss of
reputation, a loss of capital or a loss of collaborators, any of which could
have a material adverse effect on our business, financial condition or results
of operations.

WE MAY USE SUBSTANTIAL FUNDS AND MANAGEMENT EFFORTS TO PURSUE ADDITIONAL
COLLABORATIVE ARRANGEMENTS WITH NO ASSURANCE OF SUCCESSFULLY SELLING OUR
PRODUCTS OR SERVICES OR ENTERING INTO A COLLABORATIVE AGREEMENT.

Our ability to enter into agreements with additional collaborators or to expand
our agreements with existing collaborators depends in part upon potential
collaborators being convinced that our technologies can help accelerate their
drug discovery efforts. This may require substantial time and effort on our part
to educate potential collaborators and other users of our products, services and
technologies on the efficiencies and potential benefits presented by our
products, services and technologies. In addition, many of the collaborations
involve the negotiation of customized terms regarding licensing, scope of
agreement and types of products and services required. We may expend substantial
funds and management efforts to pursue collaborative opportunities with no
assurance that a collaboration will result.

COMPETITION IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY RESULT IN
COMPETING PRODUCTS, SERVICES AND TECHNOLOGIES THAT MAKE OUR PRODUCTS, SERVICES
AND TECHNOLOGIES OBSOLETE.

The biotechnology industry is characterized by rapid technological change.
Competition is intense among pharmaceutical and biotechnology companies that
attempt to identify compounds for development or to support drug discovery
efforts.

Because our screening platforms are designed to integrate a number of different
technologies, we compete in many areas, including instrumentation, assay
development, high throughput screening and functional genomics. We compete with
instrumentation companies, the research departments of pharmaceutical and
biotechnology companies, and other commercial enterprises, as well as numerous
academic and research institutions. Other technology providers may develop and
commercialize products, services and technologies which compete with our
screening platforms. Pharmaceutical, biotechnology and instrumentation companies
that currently compete with us may merge or enter into alliances with other
companies and become substantial competitors. Our collaborators may assemble
their own ultra-high throughput screening systems by purchasing components or
contracting for services from competitors. Genomics and combinatorial chemistry
companies may also expand their business to include compound screening or assay
development.

Many of these pharmaceutical and biotechnology companies, which represent the
greatest potential market for our products, services and technologies, have
developed or are developing internal programs and other methodologies to improve
productivity, including major investments in robotics technology to permit the
automated screening of compounds. Our technological approaches, in particular
our screening platforms, may be rendered obsolete or uneconomical by advances in
existing technological approaches or the development of different approaches by
our current or future competitors.

WE MAY NEED TO INITIATE LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS OR OTHER
PROPRIETARY RIGHTS, WHICH WOULD BE EXPENSIVE AND, IF WE LOSE, MAY CAUSE US TO
LOSE SOME OF OUR INTELLECTUAL PROPERTY RIGHTS, WHICH WOULD REDUCE OUR ABILITY TO
COMPETE IN THE MARKET AND MAY CAUSE OUR STOCK PRICE TO DECLINE.



                                       16
<PAGE>   17
We rely on patents to protect a large part of our intellectual property and
competitive position. Our patents, which have been or may be issued, may not
afford meaningful protection for our technologies and products. In addition, our
current and future patent applications may not result in the issuance of patents
in the United States or foreign countries. Our competitors may develop
technologies and products similar to our technologies and products which do not
infringe our patents. In order to protect or enforce our patent rights, we may
initiate patent litigation against third parties, such as infringement suits or
interference proceedings. These lawsuits could be expensive, take significant
time, and could divert management's attention from other business concerns.
These lawsuits would put our patents at risk of being invalidated or interpreted
narrowly and our patent applications at risk of not issuing. Further, these
lawsuits may also provoke these third parties to assert claims against us. The
patent position of biotechnology firms is highly uncertain, involves complex
legal and factual questions, and has recently been the subject of much
litigation. We cannot assure you that we will prevail in any of these suits or
that the damages or other remedies awarded to us, if any, will be commercially
valuable. During the course of these suits, there may be public announcements of
the results of hearings, motions and other interim proceedings or developments
in the litigation. If securities analysts or others perceive any of these
results to be negative, it could cause our stock price to decline.

BECAUSE OUR PRODUCTS AND SERVICES CURRENTLY DEPEND ON COMPONENTS AND
TECHNOLOGIES LICENSED FROM THIRD PARTIES, A BREACH BY US OF ANY OF THE TERMS OF
THESE LICENSES COULD RESULT IN THE LOSS OF ACCESS TO THESE COMPONENTS AND
TECHNOLOGIES AND COULD DELAY OR SUSPEND OUR RESEARCH AND DEVELOPMENT PLANS.

Some aspects of our technologies and products have been licensed from third
parties. A failure by us to maintain the right to use these components and
technologies could have a material adverse effect on our business, financial
condition and results of operation. In particular, we are dependent, in part, on
the patent rights licensed from third parties with respect to our fluorescence
assay and screening technologies.

Patent applications filed by us or our licensors may not result in patents being
issued with respect to intellectual property we have licensed, claims of those
patents may not offer sufficient protection, and any patents licensed by us may
be challenged, narrowed, invalidated or circumvented. We may also be subject to
legal proceedings that result in the revocation of patent rights previously
licensed to us, as a result of which we may be required to obtain licenses from
others to continue to develop or commercialize our products, services or
technologies. We may not be able to obtain such licenses on acceptable terms, if
at all, which would result in delays or a suspension of our research and
development plans.

OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING OR
MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.

We may be sued for infringing or misappropriating the proprietary rights of
others. We may have to pay substantial damages, including treble damages, for
past infringement if it is ultimately determined that our products infringe a
third party's proprietary rights. The drug discovery industry, including
screening technology companies, has a history of patent litigation and will
likely continue to have patent litigation suits concerning drug discovery
technologies. A number of patents have issued and may issue on certain drug
targets or their use in screening assays that could prevent us and our
collaborators from developing screens using such targets, or relate to certain
other aspects of technology that we utilize or expect to utilize. From time to
time, we receive invitations from third parties to license patents owned or
controlled by such parties. We evaluate these requests and intend to obtain
licenses that are compatible with our business objectives. We may not be able to
obtain licenses on acceptable terms, if at all. Our inability to obtain or
maintain patent protection or necessary licenses could have a material adverse
effect on our business, financial condition or results of operations.

OTHER METHODS OF PROTECTING OUR TRADE SECRETS AND OTHER INTELLECTUAL PROPERTY,
INCLUDING CONFIDENTIALITY AGREEMENTS WITH EMPLOYEES AND OTHERS, MAY NOT
ADEQUATELY PREVENT DISCLOSURE OF PROPRIETARY INFORMATION.

In addition to patent protection, we rely on a combination of copyright and
trademark laws, trade secrets, know-how and other contractual provisions and
technical measures to protect our intellectual property rights. In an effort to
maintain the confidentiality and ownership of trade secrets and proprietary
information, we require employees, consultants and collaborators to execute
confidentiality and invention assignment agreements upon commencement of a
relationship with us. These measures may not provide meaningful protection for
our trade secrets or other confidential information and technology. We may not
have adequate remedies in the event of unauthorized use or disclosure of our
confidential or proprietary information. In addition, third parties may
independently discover trade secrets or proprietary information. Costly and
time-consuming litigation could be necessary to enforce and determine the scope
of our proprietary rights.



                                       17
<PAGE>   18

Failure to obtain and maintain trade secret protection could have a material
adverse effect on our business, financial condition or results of operations.

IF OUR CONTRACTORS AND VENDORS FAIL TO PROVIDE US WITH ESSENTIAL COMPONENTS THAT
WE NEED TO CONTINUE RESEARCH AND DEVELOPMENT, WE WOULD EXPERIENCE DELAYS AND
ADDITIONAL EXPENSES.

We rely on a limited number of contractors, suppliers and vendors for the
development, manufacture and supply of certain components in the areas of
informatics, robotics, automated storage and retrieval, liquid handling systems,
microfluidics and detection devices. Although we believe that alternative
sources for these components are available, any interruption in the development,
manufacture or supply of a single-sourced component could have a material
adverse effect on our ability to develop the UHTSS Platform or other screening
platforms until a new source of supply is qualified, could subject it to
penalties for delays in delivery and installation of the UHTSS Platform and, as
a result, could have a material adverse effect on our business, financial
condition or results of operations. In addition, our current or future
technology suppliers may not meet our requirements for quality, quantity or
timeliness. If any of our current or future technology suppliers fails to
deliver components, including mechanical components of our screening platforms,
that meet required specifications in a timely manner, or at all, it could
significantly affect our ability to meet our contractual obligations to our
collaborators and expose us to significant potential liabilities.

IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL, AS NECESSARY, IT COULD HARM OUR RESEARCH AND DEVELOPMENT EFFORTS AND
WOULD IMPAIR OUR ABILITY TO COMPETE.

Our success depends to a significant degree upon the continued contributions of
our executive officers, management and staff. If we lose the services of one or
more of these people, we may be unable to achieve our business objectives or
meet our commitments under existing agreements and our stock price could
decline. We may not be able to attract or retain qualified employees in the
future due to intense competition for qualified personnel among biotechnology
and other technology-based businesses, particularly in the San Diego area. If we
are unable to attract and retain the necessary personnel to accomplish our
business objectives, we may experience resource constraints that will adversely
affect our ability to meet the demands of our strategic partners in a timely
fashion or to support our ability to attract and retain highly skilled
scientists, including individuals holding doctoral degrees in the basic
sciences, and engineers. All of our current employees are at-will employees,
which means that either we or the employee may terminate the employment
relationship at any time.

WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH, WHICH COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.

Our success will depend on our ability to expand and manage operations and
facilities. To be cost-effective and timely in the development and
commercialization of our products, services and technologies, we must coordinate
the integration of multiple technologies in complex systems, both internally and
for our collaborators. We may not be able to manage our growth, to meet the
staffing requirements of additional collaborative relationships or successfully
assimilate and train new employees. If we continue to grow, our existing
management skills and systems may not be adequate and we may not be able to
manage any additional growth effectively. If we fail to achieve any of these
goals, there could be a material adverse effect on our business, financial
condition or results of operations.

IF WE ENGAGE IN ANY MERGER OR ACQUISITION TRANSACTIONS, WE WILL INCUR A VARIETY
OF COSTS AND MAY POTENTIALLY FACE OTHER RISKS THAT COULD ADVERSELY AFFECT OUR
BUSINESS OPERATIONS.

If appropriate opportunities become available, we may consider acquiring
businesses, technologies or products that we believe are a strategic fit with
our business. We currently have no binding commitments or agreements with
respect to any material acquisitions. If we pursue an acquisition strategy, we
could:

        -       issue equity securities which could dilute current stockholders'
                percentage ownership;

        -       incur substantial debt; or

        -       assume contingent liabilities.

We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future without a
significant expenditure of operating, financial and management resources, if at
all. In addition, future acquisitions might negatively impact our business
relations with our collaborators and customers. Further, recent proposed




                                       18
<PAGE>   19

accounting changes could result in a negative impact on our results of
operations, as well as the resulting cost of the acquisition. Any of these
adverse consequences could harm our business.

In March 2001, we completed a merger with PanVera Corporation whereby PanVera
became a wholly-owned subsidiary of ours. Integrating the operations and
personnel of PanVera will be a complex process. We are uncertain that the
integration will be completed rapidly or that we will achieve the anticipated
benefits of the merger. The successful integration of PanVera will require,
among other things, integration of PanVera's and our products and services,
assimilation of sales and marketing groups, integration of the companies'
information and software systems, coordination of employee retention, hiring and
training, and coordination of ongoing and future research and development
efforts. The diversion of the attention of management and any difficulties
encountered in the process of combining the companies could cause the disruption
of, or a loss of momentum in, the activities of the combined company's business.
Further, the process of integrating PanVera's business could negatively affect
employee morale and our ability to retain some of PanVera's key employees after
the merger. Our failure to integrate PanVera's operations smoothly could have a
material adverse effect on our business, financial condition or results of
operations.

IF WE REQUIRE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, WE MAY NEED TO ENTER
INTO FINANCING ARRANGEMENTS WITH UNFAVORABLE TERMS OR WHICH COULD ADVERSELY
AFFECT YOUR OWNERSHIP INTEREST AND RIGHTS AS COMPARED TO OTHER STOCKHOLDERS.

We may be required to raise additional capital over a period of several years in
order to expand our operations or acquire new technology. We may raise this
additional capital through additional public or private equity financings,
borrowings and other available sources. Our business or operations may change in
a manner that would consume available resources more rapidly than anticipated,
or substantial additional funding may be required before we can sustain
profitable operations. If additional financing is required to operate our
business, we cannot assure you that additional financing will be available on
favorable terms, or at all. If adequate funds are not available or are not
available on acceptable terms, our ability to fund our operations, take
advantage of opportunities, develop products or technologies or otherwise
respond to competitive pressures could be significantly limited.

If we raise additional funds through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution or such equity securities may provide for rights,
preferences or privileges senior to those of the holders of our common stock. If
we raise additional funds through the issuance of debt securities, the debt
securities would have rights, preferences and privileges senior to holders of
common stock and the terms of that debt could impose restrictions on our
operations.

OUR TECHNOLOGIES AND PRODUCTS MAY NOT RESULT IN THE DISCOVERY AND
COMMERCIALIZATION OF DRUG CANDIDATES AND WE MAY NOT GENERATE REVENUES FROM
MILESTONES OR ROYALTIES IN THE FUTURE.

Many of our agreements with collaborators and technology licensees provide that
we may receive milestone payments or royalties based on future sales of drug
candidates discovered by those collaborators and licensees through the use of
our products, services and technologies. In addition, we recently announced the
launch of our Big Biology initiative, whereby we intend to rapidly identify drug
candidates. Use of our products, services or technologies either internally or
by collaborators and licensees may not result in the discovery of lead compounds
that will be safe or effective. Our screens may result in developed and
commercialized pharmaceutical products that could generate milestone payments
and royalties only after lengthy and costly pre-clinical and clinical
development efforts, the receipt of necessary regulatory approvals, including
approvals by the Federal Drug Administration and equivalent foreign authorities,
and the integration of manufacturing capabilities and successful marketing
efforts, all of which must be performed by our collaborators. We do not
currently intend to perform any of these activities, other than preclinical
studies. Our collaborators may decide not to develop or commercialize lead
compounds identified through the use of our technologies.

Development and commercialization of lead compounds depends not only on the
achievement of research objectives by us and our collaborators, but also on each
collaborator's own financial, competitive, marketing and strategic
considerations, all of which are outside our control. Our collaborators may not
successfully perform their development, regulatory, compliance, manufacturing or
marketing functions. Products may not be developed and commercialized as a
result of our collaborations and any development or commercialization may not be
successful. If commercialization of lead compounds is successful, disputes may
arise over payments to us. We do not expect to receive royalties or other
revenues from commercial sales of products based upon any compound identified
using our technologies for at least several years, if at all.



                                       19
<PAGE>   20

DRUG PRODUCTS DEVELOPED AND COMMERCIALIZED BY US OR OUR COLLABORATIVE PARTNERS
WILL LIKELY REQUIRE REGULATORY APPROVALS, WHICH MAY REDUCE OUR POTENTIAL REVENUE
FROM MILESTONES OR ROYALTIES.

If we or one of our collaborators successfully identify a drug candidate for
development and commercialization, it will likely be subject to extensive
government regulation. Regulation by the Federal Drug Administration and other
governmental entities in the United States and other countries will be a
significant factor in the production and marketing of any pharmaceutical
products that may be developed by a collaborator. Pharmaceutical products
developed by us or one of our collaborators will require lengthy and costly
pre-clinical and clinical trials and regulatory approval by governmental
agencies prior to commercialization. Approvals may not be granted despite
substantial time and resources required to obtain approvals and comply with
appropriate statutes and regulations. Delays in obtaining regulatory approvals
would adversely affect the marketing of any drugs developed by us or one of our
collaborators, diminish any competitive advantages that our collaborators may
attain and therefore adversely affect our ability to receive royalties or
milestone payments.

WE MAY BE SUED FOR PRODUCT LIABILITY.

We may be held liable if any product we develop, or any product which is made
with the use of any of our technologies, causes injury or is found otherwise
unsuitable during product testing, manufacturing, marketing or sale. Although we
currently maintain product liability insurance, we may not have insurance
coverage sufficient in amount and scope against potential liabilities and we may
not be able to obtain sufficient coverage at a reasonable cost. Furthermore,
product liability insurance is becoming increasingly expensive. As a result, we
may not be able to maintain current amounts of insurance coverage, obtain
additional insurance, or obtain insurance at a reasonable cost, which could
prevent or inhibit the commercialization of products or technologies. If we are
sued for any injury caused by our technology or products, our liability could
exceed our total assets.

OUR ACTIVITIES INVOLVE THE USE OF HAZARDOUS MATERIALS, WHICH SUBJECT IT TO
REGULATION, RELATED COSTS AND DELAYS AND POTENTIAL LIABILITIES.

Our business involves the controlled storage, use and disposal of hazardous
materials, including chemical, biological and radioactive materials. We are
subject to federal, state and local regulations governing the use, manufacture,
storage, handling and disposal of materials and waste products. Although we
believe that our safety procedures for handling and disposing of these hazardous
materials comply with the standards prescribed by law and regulation, we cannot
completely eliminate the risk of accidental contamination or injury from those
hazardous materials. In the event of an accident, we could be held liable for
any damages that result, and any liability could exceed the limits or fall
outside the coverage of our insurance. We may not be able to maintain insurance
on acceptable terms, or at all. We could incur significant costs or impairment
of our research, development or production efforts in order to comply with
current or future environmental laws and regulations.

OUR OPERATING RESULTS FLUCTUATE SIGNIFICANTLY AND ANY FAILURE TO MEET FINANCIAL
EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND RESULT IN A
DECLINE IN OUR STOCK PRICE.

Our quarterly operating results have fluctuated in the past and are likely to do
so in the future as a result of many factors, many of which are out of our
control. For example, our revenue has varied dramatically as a result of the
timing of fees we obtains under our various collaborative, technology licensing
and services agreements, as these payments are frequently comparatively large
and are recognized unevenly over time. In addition, our research and development
expenses may increase significantly as a result of the implementation and future
potential expansion of our recently announced Big Biology initiative. It is
possible that in some future quarter or quarters, our operating results will be
below the expectations of securities analysts or investors. In this event, the
market price of our common stock may fall abruptly and significantly. Because
our revenue and operating results are difficult to predict, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance. Some of the factors that could cause our
operating results to fluctuate include:

        -       termination of collaborative agreements;

        -       implementation and expansion of our Big Biology initiative;

        -       our ability to enter into new agreements with collaborators or
                technology licensees;

        -       our ability to complete delivery requirements under existing
                collaborative agreements;

        -       our acquisition of complimentary businesses or technologies; and


                                       20
<PAGE>   21

        -       general, industry-specific and customer-specific economic
                conditions which may affect our customers' research and
                development expenditures.

If revenue declines in a quarter, whether due to a delay in recognizing expected
revenue or otherwise, our earnings will decline because many of our expenses are
relatively fixed.

In addition, we will incur significant transaction costs as a result of the
merger with PanVera, including investment banking, legal and accounting fees,
that may exceed our current estimates. We also expect to incur consolidation and
integration expenses which we cannot accurately estimate at this time. We expect
that the combined company will charge consolidation and integration expenses to
operations in fiscal year 2001. Actual transaction costs may substantially
exceed our estimates and may adversely affect our financial condition and
results of operations. If the benefits of the merger do not exceed the costs
associated with the merger, including any dilution to our stockholders resulting
from the issuance of shares in connection with the merger, our financial results
could be adversely affected, including increased losses.

OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF THE INDUSTRY IN WHICH WE
OPERATE.

The market prices for securities of comparable technology companies,
particularly life science companies, have been highly volatile and the market
has experienced significant price and volume fluctuations that are often
unrelated to the operating performance of particular companies. Announcements of
technological innovations or new commercial products by us or our competitors,
disputes or other developments concerning proprietary rights, including patents
and litigation matters, publicity regarding actual or potential results with
respect to products, services or technologies under development by us, our
collaborators or our competitors, regulatory developments in both the United
States and foreign countries, public concern as to the efficacy of new
technologies, general market conditions, as well as quarterly fluctuations in
our revenue and financial results and other factors may have a significant
impact on the market price of our common stock. In particular, the realization
of any of the risks described in these "Risk Factors" could have a dramatic and
materially adverse impact on the market price of our common stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class-action litigation has often been instituted against those
companies. This type of litigation, if instituted, could result in substantial
costs and a diversion of management's attention and resources, which could
materially and adversely affect our business, financial condition or results of
operations.

WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW THAT COULD DELAY OR PREVENT AN ACQUISITION OF US, EVEN
IF THE ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Provisions of our certificate of incorporation, bylaws and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders. These provisions could discourage potential
take-over attempts and could adversely affect the market price for our common
stock. Because of these provisions, you may not be able to receive a premium on
your investment.

FUTURE SALES OF OUR COMMON STOCK BY STOCKHOLDERS OR BY US COULD CAUSE OUR STOCK
PRICE TO DECLINE.

Sales by stockholders of a large number of shares of our common stock in the
public market, or the perception that sales could occur, could cause the market
price of our common stock to drop. Likewise, additional equity financings or
other issuances of stock by us could adversely affect the market price of our
common stock.



                                       21
<PAGE>   22

ITEM 2. PROPERTIES

Our principal research and development, manufacturing and administrative
facilities are currently located in approximately 81,204 square feet of leased
space in San Diego, California. The lease for this space will expire on
September 15, 2008. We also sublease an additional 12,523 square feet of space
for our administrative functions in a nearby facility. The sublease for this
additional space will expire on March 31, 2002, subject to a six-month extension
of the sublease upon the mutual agreement of the parties. We also sublease an
additional 19,670 square feet of space for our manufacturing, purchasing,
inventory management and engineering document control functions under a sublease
that will expire on April 30, 2002, subject to options that we may exercise for
up to two extensions of three months each. To meet our expected growth needs, we
are currently in negotiations for the purchase of a parcel of land adjacent to
our current headquarters on which we plan to construct a 67,772 square foot
engineering and manufacturing facility. We also currently occupy 1,236 square
feet of space in Iowa City, Iowa under a lease that expires October 31, 2001,
after which the lease converts to a month-to-month arrangement. Our Iowa
facility houses the operations we acquired from Quorum Sciences in 2000.

As a result of our acquisition of PanVera in March 2001, we also occupy four
sites in Madison, Wisconsin, consisting of approximately 22,000 square feet of
leased space for research and development, manufacturing, marketing and sales
and administrative functions. The leases for this space will expire on June 30,
2001, at which time PanVera will consolidate sites and occupy one building
consisting of approximately 52,000 square feet. PanVera is utilizing the
proceeds of a $6.3 million Variable Rate Industrial Revenue Bond issued by the
City of Madison to finance construction of the new building, which resides on a
parcel of land leased by PanVera, the term of which will expire on December 31,
2048, subject to a twenty-year extension of the land lease at the discretion of
PanVera.

ITEM 3. LEGAL PROCEEDINGS

We are not presently a party to any material legal proceedings.

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

Not Applicable.



                                       22
<PAGE>   23

                                     PART II

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

(a)     Our common stock began trading on the Nasdaq National Market under the
        symbol "ABSC" on June 19, 1997. The following table presents high and
        low sales prices of our common stock, as reported by Nasdaq, for the
        periods indicated:


<TABLE>
<CAPTION>
                                             High                     Low
                                          ---------                --------
<S>                                       <C>                      <C>
         1999
         First Quarter                    $    9.63                $   6.00
         Second Quarter                        7.97                    4.88
         Third Quarter                        17.38                    6.63
         Fourth Quarter                       30.06                    9.88

         2000
         First Quarter                    $  140.00                $  21.50
         Second Quarter                       76.25                   25.13
         Third Quarter                       103.87                   46.38
         Fourth Quarter                       69.50                   27.00
</TABLE>

As of March 1, 2001, there were approximately 233 stockholders of record of our
common stock. We have never declared or paid any cash dividends on our common
stock and do not intend to pay any cash dividends on our common stock in the
foreseeable future.



                                       23
<PAGE>   24

ITEM 6. SELECTED FINANCIAL DATA

The data set forth below should be read in conjunction with the financial
statements and accompanying notes included elsewhere in this document.


<TABLE>
<CAPTION>
                                                                     YEARS ENDED DECEMBER 31,
                                             ------------------------------------------------------------------------
                                               2000            1999            1998            1997            1996
                                             --------        --------        --------        --------        --------
<S>                                          <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:                                  (in thousands, except per share amounts)

Revenue                                      $ 63,791        $ 50,522        $ 26,558        $ 14,908        $  2,217

Operating expenses:
   Cost of revenue                             34,110          27,941          23,814           6,983              --
   Research and development                    14,369          11,594          17,146           5,406           4,396
   Selling, general and administrative         14,923          11,933           6,104           3,679           1,275
                                             --------        --------        --------        --------        --------
      Total operating expenses                 63,402          51,468          47,064          16,068           5,671
                                             --------        --------        --------        --------        --------
Income (loss) from operations                     389            (946)        (20,506)         (1,160)         (3,454)
Interest income                                 5,202           1,545           2,445           1,793             580
Interest expense                                 (659)           (691)           (646)           (346)            (59)
                                             --------        --------        --------        --------        --------
Income (loss) before income taxes               4,932             (92)        (18,707)            287          (2,933)
Income taxes                                     (579)           (117)             --             (20)             --
                                             --------        --------        --------        --------        --------
Net income (loss)                            $  4,353        $   (209)       $(18,707)       $    267        $ (2,933)
                                             ========        ========        ========        ========        ========
Basic income (loss) per share                $   0.22        $  (0.01)       $  (1.15)       $   0.03        $  (3.86)
                                             ========        ========        ========        ========        ========
Diluted income (loss) per share              $   0.20        $  (0.01)       $  (1.15)       $   0.02        $  (3.86)
                                             ========        ========        ========        ========        ========

Shares used in computing:

     Basic income (loss) per share             19,911          17,019          16,336           8,970             760
                                             ========        ========        ========        ========        ========
     Diluted income (loss) per share           22,207          17,019          16,336          15,423             760
                                             ========        ========        ========        ========        ========
</TABLE>


<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                             ------------------------------------------------------------------------
                                               2000            1999            1998            1997            1996
                                             --------        --------        --------        --------        --------
                                                                        (in thousands)
<S>                                          <C>             <C>             <C>             <C>             <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments       $105,161        $ 36,733        $ 28,082        $ 48,906        $ 13,167
Total assets                                  156,302          64,007          51,032          63,036          17,515
Capital lease obligations,
  less current portion                          3,381           4,343           4,788           3,422           1,111
Accumulated deficit                           (17,640)        (21,994)        (21,785)         (3,078)         (3,345)
Total stockholders' equity                    124,663          40,413          37,595          54,364          15,184
</TABLE>



                                       24
<PAGE>   25

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

This Form 10-K contains forward-looking statements within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934. Actual results
could differ materially from those in the forward-looking statements as a result
of a number of factors, including the ability to attract additional
collaborative partners, development or availability of competing systems, the
ability to meet existing collaborative commitments, risks associated with
strategic opportunities, acquisitions or investments, the ability to effectively
manage growth and the risks associated with our dependence on patents and
proprietary rights. You are encouraged to review the risk factors discussed in
"Business - Risk Factors" and elsewhere in this Form 10-K for a more complete
discussion of those risks and uncertainties.

OVERVIEW

Aurora Biosciences Corporation is a drug discovery company that develops and
commercializes technologies, products and services to accelerate the discovery
of new medicines. Our core technologies include a broad portfolio of proprietary
fluorescence assays and screening platforms designed to provide an integrated
solution for drug discovery. Our fluorescence assay technologies include our
GeneBLAzer, GenomeScreen, Vivid and PhosphoryLIGHT technologies, as well as a
broad collection of fluorescent proteins. Our screening platforms include our
ultra-high throughput screening system, the UHTSS Platform, and our automated
master compound store, the AMCS Platform, as well as our ion channel screening
platform, which includes our proprietary voltage sensor probes and voltage ion
probe reader, the VIPR subsystem. We also provide assay development and
screening services as part of our drug discovery collaborations.

We believe that we are a leading provider of proprietary drug discovery
solutions for all major classes of gene targets, including receptors, ion
channels and enzymes. To capture more value from our technologies and drug
discovery capabilities, we are currently launching our Big Biology
initiative, an internal drug discovery program designed to rapidly identify
promising drug candidates within all major classes of gene targets. Our
technologies and drug discovery capabilities have been commercially validated
by over 20 major life sciences companies and research organizations.

In October 2000, we acquired Quorum Sciences, Inc. in a combination accounted
for as a pooling-of-interests. Accordingly, Management's Discussion and Analysis
of Financial Condition and Results of Operations reflects the financial
condition and results of operations for the merged entity for the periods
presented. In March 2001, we acquired PanVera Corporation, a biotechnology
company engaged in manufacturing and marketing protein drug targets and drug
screening assays for high-throughput screening. The historical financial
statements included in this Form 10-K do not reflect the consolidation of
PanVera financial statements with those of Aurora.

We had an accumulated deficit of $17.6 million as of December 31, 2000. We may
encounter significant fluctuations in our quarterly financial performance
depending on factors such as revenue from existing and future contracts and
collaborations, timing of the delivery of technologies and systems, completion
of contracted service commitments to our customers and integration of acquired
businesses. We may also continue to enter into strategic transactions and
programs which could include acquisitions of other companies, joint ventures,
collaborations, divestitures, reorganizations and research and development
undertakings. Accordingly, our results of operations for any period may not be
comparable to, or predictive of, the results of operations for any other period.

Revenue is predominately derived from sales of services, technology and
instruments and intellectual property licenses. Revenue to date has been
generated from a limited number of customers in the life sciences industry in
the United States and Europe. Many of our agreements provide for future
milestone payments from drug development achievements and royalties from the
sale of products derived from certain of our technologies. However, customers
may not ever generate products from technology provided by us and thus we may
not ever receive milestone payments or royalties. We believe our ability to
maintain profitability is not dependent on receipt of milestone payments or
royalties.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

Revenue

Revenue increased 26% to $63.8 million in 2000 from $50.5 million in 1999, which
was an increase of 90% from $26.6 million in 1998. The increase in 2000 resulted
primarily from progress under a five-year services, systems and technology
access collaborative agreement with Pfizer executed in 1999 and new agreements
executed in late 1999 or 2000, including a collaborative research agreement with
the Cystic Fibrosis Foundation and ion channel technology agreements with
American Home Products, GlaxoSmithKline, R.W. Johnson Pharmaceutical Research
Institute, N.V. Organon and Senomyx. The increase in 1999 resulted primarily
from new agreements executed during the year, including the Pfizer agreement,
drug



                                       25
<PAGE>   26
discovery services agreements with Pharmacia & Upjohn and F.Hoffmann-LaRoche,
and licensing agreements with Clontech Laboratories and ZymoGenetics. Increased
revenue under a collaborative agreement with Bristol-Myers Squibb executed in
1996 also contributed to the overall increase in revenue in 1999.

Expenses

Total operating expenses increased 23% to $63.4 million in 2000 from $51.5
million in 1999, which was an increase of 9% from $47.1 million in 1998. The
increases in operating expenses resulted primarily from our growth, our product
development efforts, drug discovery services offerings, research and development
programs, including our Big Biology initiative, and mergers and acquisition
activity. Our growth was reflected by the increase to 252 employees at December
31, 2000 from 187 at December 31, 1999 and 150 at December 31, 1998.

Cost of revenue increased 22% to $34.1 million in 2000 from $27.9 million in
1999, which was an increase of 17% from $23.8 million in 1998. In addition to
the growth of operations as noted above, the increases in cost of revenue were
primarily a result of increased purchases of materials and increased technology
development expenses related to the development of the UHTSS Platform, the AMCS
and screening subsystems for our collaborators, as well as costs related to the
completion of contracted service commitments under new drug discovery services
agreements.

Research and development expenses increased 24% to $14.4 million in 2000 from
$11.6 million in 1999, which was a 32% decrease from $17.1 million in 1998. The
increase in 2000 is due to the growth of operations during the year and the
initiation of the Big Biology internal drug discovery effort. The decrease in
1999 reflects a shift in drug discovery services resources from internal
research and development to external customer-funded activities to support new
as well as ongoing drug discovery services agreements in 1999. In addition,
non-recurring items in 1998, such as licensing of technology from OSI
Pharmaceuticals and Xenometrix and the costs of initiating a collaboration with
SIDDCO to produce a large library of compounds for our UHTSS Platform,
contributed to the decrease in 1999.

Selling, general and administrative expenses increased 25% to $14.9 million in
2000 from $11.9 million in 1999, which was a 95% increase from $6.1 million in
1998. The increases were primarily attributable to the growth of operations as
noted above, including increases in staffing of the legal and commercial
development functions, and increased professional services expenses related to
merger and acquisition activity.

Interest and Other Income

Net interest and other income increased 432% to $4.5 million in 2000 from $0.9
million in 1999, which was a 53% decrease from $1.8 million in 1998. The
increase in 2000 resulted from interest income from higher average cash and
investment balances primarily due to net proceeds of $71 million from our
private placement of common stock in February 2000. Partially offsetting the
increase in interest income was the $1.4 million net write-down of our
investment in Maxim Pharmaceuticals as of December 31, 2000 due to management's
assessment that the decline in value was other-than-temporary. The decrease in
1999 primarily reflected interest income from lower average cash and investment
balances than in 1998.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2000, we held cash, cash equivalents and investment securities
available-for-sale of $105 million and working capital of $103 million. We have
funded operations since inception primarily through receipts from corporate
collaborations and strategic technology alliances of $149 million, the issuance
of equity securities with aggregate net proceeds of $137 million, capital
equipment lease and loan financing of $13 million and interest income of $13
million.

We have entered into certain contractual commitments, subject to satisfactory
performance by third parties, which obligate expenditures totaling approximately
$5.5 million over the next four years.

Our strategy for the development of the UHTSS Platform includes the
establishment of a syndicate of collaborators to provide us with funding for
development, technology and personnel resources and payments for system
validation. The UHTSS Platform co-development syndicate currently includes
Bristol-Myers, Merck, Pfizer and Warner-Lambert (acquired by Pfizer in June
2000). We have also entered into agreements with Pfizer and Warner-Lambert to
develop AMCS systems. In addition, we have entered into collaborations with the
Cystic Fibrosis Foundation, Families of Spinal Muscular Atrophy and the
Hereditary Disease Foundation to provide screen development and/or screening
services, and with Warner-Lambert, Merck, Becton Dickinson, the National Cancer
Institute and Pfizer for functional genomics programs. We have entered into



                                       26
<PAGE>   27


ion channel technology agreements with Bristol-Myers, Eli Lilly,
GlaxoSmithKline, American Home Products, Merck, N.V. Organon, R.W. Johnson
Pharmaceutical Research Institute, Senomyx and Allergan. Other collaborations
include a combinatorial chemistry agreement with SIDDCO (acquired by Discovery
Partners International in January 2001) to synthesize large libraries of
chemical compounds for us.

Our ability to achieve sustained profitability will be dependent upon our
ability to deliver and obtain acceptance of equipment by collaborators, perform
contracted screening services, sell or license new products and services, and
increase market share of existing discovery services and technologies by
agreements with new collaborators and expansion of agreements with existing
collaborators. We may not be able to meet our revenue goals or sustain
profitability on a quarterly or annual basis. Although we are actively seeking
to enter into additional collaborations, we may not be able to negotiate
additional collaborative agreements on acceptable terms, if at all. Some of our
current collaborative agreements may be terminated by the collaborator without
cause upon short notice, which would result in loss of anticipated revenue.
Although certain of our collaborators would be required to pay some penalties in
the event they terminate their agreements without cause, any of our
collaborators may elect to terminate their agreements with us. In addition,
collaborators may terminate their agreements for cause if we cannot deliver the
technology in accordance with the agreements. Our collaborators may not perform
their obligations as expected and we may not derive any additional revenue from
the agreements. Current or future collaborative agreements may not be successful
and provide us with expected benefits. Termination of our existing or future
collaborative agreements, or the failure to enter into a sufficient number of
additional collaborative agreements on favorable terms or generate sufficient
revenues from our services and technologies could have a material adverse effect
on our business, financial condition or results of operations.

An important element of our strategy includes entering into strategic
transactions and evaluating strategic programs in order to maximize our business
opportunities and enhance stockholder value. These transactions and programs
could include acquisitions of other companies, joint ventures, collaborations,
divestitures, reorganizations and research and development undertakings. We
cannot assure you, however, that such transactions or programs will ultimately
take place on terms favorable to us or at all, or will ultimately maximize the
company's business opportunities or enhance stockholder value. Such transactions
and programs could have a number of adverse effects on us, including significant
diversions of management resources, substantial write-offs or other accounting
charges, requiring us to raise substantial additional capital, dilution to
stockholders from the issuance of additional shares, significant variances
between analysts projections and actual financial results, and volatility in our
stock price.

The complexity of both the UHTSS and the AMCS has led to delays in developing
these platforms that may lead to contractual disputes regarding the delivery and
acceptance of these platforms by our customers. Because we are also dependent in
part on the performance of our customers and suppliers in order to deliver these
platforms, our ability to timely deliver these platforms may be outside of our
control. Our agreement with Warner-Lambert provides for a penalty payment up to
a maximum of $888,300 if we fail to deliver the completed AMCS according to a
specified development schedule. Failing to meet the development schedules under
any of our UHTSS and AMCS agreements could have a material adverse effect on our
business, financial condition or results of operations.

To meet our expected growth needs, we are currently in negotiations for the
purchase of a parcel of land adjacent to our current headquarters in San Diego,
California, on which we plan to construct a 67,772 square foot engineering and
manufacturing facility. Construction is anticipated to commence during the
second half of 2001 at a total cost of approximately $20 million. Funding for
the construction, which is expected to be approximately $17 million in 2001,
will occur through the use of available funds and through construction
financing. As a result of our acquisition of PanVera in March 2001, we will also
incur building construction activity in Madison, Wisconsin as PanVera completes
its site consolidation efforts. Construction of PanVera's new building is
expected to conclude in June 2001. PanVera is utilizing the proceeds of a $6.3
million Variable Rate Industrial Revenue Bond issued by the City of Madison to
finance construction of the building. Funding in 2001 for the building is
expected to be approximately $5.2 million, while funding for the related
equipment and furniture of approximately $0.6 million will be obtained through
lease financing arrangements.

We may be required to raise additional capital over the next several years in
order to expand our operations or acquire new technology. This capital may be
raised through additional public or private equity financings, borrowings and
other available sources. Our business or operations may change in a manner that
would consume available resources more rapidly than anticipated and substantial
additional funding may be required before we can sustain profitable operations.
We may not continue to generate sales from and receive payments under existing
collaborative agreements and existing or potential



                                       27
<PAGE>   28

revenue may not be adequate to fund our operations. If additional funding
becomes necessary, it may not be available on favorable terms, if at all. If
adequate funds are not available, we may be required to curtail operations
significantly or to obtain funds by entering into arrangements with others that
may have a material adverse effect on our business, financial condition or
results of operations. We believe that our available capital resources will be
sufficient to satisfy our funding needs for at least the next twelve months.



                                       28
<PAGE>   29

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We invest our excess cash in interest-bearing investment-grade securities that
we hold for the duration of the term of the respective instrument. We do not
utilize derivative financial instruments, derivative commodity instruments or
other market risk sensitive instruments, positions or transactions in any
material fashion. Accordingly, we believe that, while the investment-grade
securities we hold are subject to changes in the financial standing of the
issuer of such securities, we are not subject to any material risks arising from
changes in interest rates, foreign currency exchange rates, commodity prices,
equity prices or other market changes that affect market risk sensitive
instruments. A hypothetical 1% adverse move in interest rates along the entire
interest rate yield curve would not materially affect the fair value of our
financial instruments that are exposed to changes in interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Supplementary interim financial information is presented below. The financial
statements and other supplementary data required by this item are set forth at
the pages indicated in Item 14(a)(1).

Selected Quarterly Financial Data (Unaudited):


<TABLE>
<CAPTION>
                                                                  Quarters ended
                                      ----------------------------------------------------------------------
                                        March 31             June 30         September 30        December 31
                                      ------------        ------------       ------------       ------------
<S>                                   <C>                 <C>                <C>                <C>
2000:

Revenue                               $ 12,805,875        $ 17,681,342       $ 16,799,919       $ 16,503,475
Cost of revenue                          7,839,884           9,222,739          8,880,632          8,166,900
Net income (loss)                          (39,266)          4,217,578          1,093,607           (918,493)
Basic income (loss) per share                 0.00                0.21               0.05              (0.04)
Diluted income (loss) per share               0.00                0.19               0.05              (0.04)

1999:

Revenue                               $  6,573,289        $ 13,175,319       $ 10,886,701       $ 19,886,152
Cost of revenue                          5,954,888           7,268,062          6,610,063          8,108,499
Net income (loss)                       (4,431,145)           (403,504)        (1,903,385)         6,528,717
Basic income (loss) per share                (0.26)              (0.02)             (0.11)              0.38
Diluted income (loss) per share              (0.26)              (0.02)             (0.11)              0.34
</TABLE>

The quarterly information for the quarters ended March 31, June 30 and September
30, 2000 have been restated from the information presented in Aurora's quarterly
filings on Form 10-Q for each of those periods to reflect the acquisition of
Quorum Sciences, which was completed in October 2000, as if the companies had
been combined for all quarters presented.

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

Not Applicable.


                                       29
<PAGE>   30

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item with respect to directors is incorporated
by reference from the information under the caption "Election of Directors"
contained in our proxy statement to be filed in connection with the solicitation
of proxies for our 2001 Annual Meeting of Stockholders (the "Proxy Statement").
The required information concerning our executive officers is contained in Item
1 of Part I of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
information under the caption "Executive Compensation" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" contained in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
information contained under the caption "Certain Transactions" in the Proxy
Statement.



                                       30
<PAGE>   31

                                     PART IV


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

(a)        (1)       Financial Statements

                     The financial statements required by this item are
                     submitted in a separate section beginning on page F-1 of
                     this report.

           (2)       Financial Statement Schedules

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

           (3)       Exhibits

                     See Item 14(c) below. Each management contract or
                     compensatory plan or arrangement is identified separately
                     in Item 14(c).

(b)        Reports on Form 8-K

           Form 8-K dated November 3, 2000 and Form 8-K/A dated December 14,
           2000 were filed disclosing the acquisition of Quorum Sciences, Inc.
           on October 4, 2000 and providing required financial statements.

           Form 8-K dated November 21, 2000 was filed disclosing that we entered
           into a merger agreement with PanVera Corporation on November 16,
           2000.

           No other reports on Form 8-K were filed during the quarter ended
           December 31, 2000.

(c)        Exhibits



<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER         DESCRIPTION OF DOCUMENT
          -------        -----------------------
<S>                     <C>
          2.1(13)        Agreement and Plan of Merger and Reorganization dated
                         as of November 16, 2000, by and among the Registrant,
                         Aurora Acquisition Corp. and PanVera Corporation.

          3.4(1)         Restated Certificate of Incorporation.

          3.5(1)         Restated Bylaws.

          4.1            Reference is made to Exhibits 3.4 and 3.5.

          4.2(1)         Form of Common Stock Certificate.

          4.3(1)         Amended and Restated Investors' Rights Agreement dated
                         as of December 27, 1996 between the Registrant and the
                         individuals and entities listed in the signature pages
                         thereto.

          10.1(1)        Form of Indemnity Agreement entered into between
                         Registrant and our directors and officers.

          10.2(8)#       Registrant's 1996 Stock Plan, as amended and restated
                         (the "1996 Stock Plan").

          10.3(1)#       Form of Incentive Stock Option Agreement under the 1996
                         Stock Plan.

          10.4(1)#       Form of Nonstatutory Stock Option Agreement under the
                         1996 Stock Plan.

          10.5(1)#       Form of Restricted Stock Purchase Agreement under the
                         1996 Stock Plan.

          10.6(9)#       Registrant's Employee Stock Purchase Plan and related
                         offering document.

          10.7(1)#       Registrant's Non-Employee Directors' Stock Option Plan.

          10.8(1)#       Form of Nonstatutory Stock Option under Registrant's
                         Non-Employee Directors' Stock Option Plan.

          10.9(1)        Preferred Stock Purchase Agreement dated as of March 8,
                         1996 between the Registrant and the individuals and
                         entities listed in the signature pages thereto.

          10.10(1)       Series D Preferred Stock Purchase Agreement dated as of
                         December 27, 1996 between the Registrant and the
                         individual and entities listed in the signature pages
                         thereto.

          10.11(1)       Master Lease Agreement dated May 17, 1996 between the
                         Registrant and Lease Management Services Incorporated.

          10.12(1)       Equipment Financing Agreement dated May 17, 1996
                         between the Registrant and Lease Management Services
                         Incorporated.
</TABLE>


                                       31
<PAGE>   32


<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER         DESCRIPTION OF DOCUMENT
          -------        -----------------------
<S>                     <C>
          10.13(1)       Security Deposit Pledge Agreement dated May 17, 1996
                         between the Registrant and Lease Management Services
                         Incorporated.

          10.14(1)*      Exclusive License Agreement for Fluorescent Assay
                         Technologies dated June 17, 1996 between the Registrant
                         and The Regents of the University of California.

          10.15(1)*      License Agreement dated August 2, 1996 between the
                         Registrant and California Institute of Technology.

          10.16(1)*      License Agreement dated October 4, 1996 between the
                         Registrant and the State of Oregon, acting by and
                         through the State Board of Higher Education on behalf
                         of the University of Oregon.

          10.17(1)*      Collaborative Research and License Agreement dated
                         November 26, 1996 between the Registrant and
                         Bristol-Myers Squibb Pharmaceutical Research Institute.

          10.18(1)*      Collaborative Research and License Agreement dated
                         December 18, 1996 between the Registrant and Eli Lilly
                         and Company.

          10.19(1)*      Collaboration Agreement effective as of February 1,
                         1997 between the Registrant and Allelix
                         Biopharmaceuticals Inc.

          10.20(1)       Multi-Tenant Industrial Lease dated April 7, 1997
                         between the Registrant and AEW/LBA Acquisition Co. II,
                         LLC., as subsequently amended on June 12, 1997.

          10.21(2)       First Amendment dated September 1, 1997, to
                         Multi-Tenant Industrial Lease between the Registrant
                         and AEW/LBA Acquisition Co. II, LLC.

          10.22(2)*      Collaborative Research and License Agreement dated
                         September 22, 1997 between the Registrant and
                         Warner-Lambert Company.

          10.23(3)*      Collaborative Research and License Agreement dated
                         December 18, 1997 between the Registrant and Merck &
                         Co., Inc.

          10.24(3)       Negative Covenant Pledge Agreement dated September 29,
                         1997 between the Registrant and Lease Management
                         Services Incorporated.

          10.25(3)       Collateral Security Agreement dated December 16, 1997
                         between the Registrant and Lease Management Services
                         Incorporated.

          10.26(3)*      Packard Aurora Supply Agreement dated February 5, 1998
                         between the Registrant and Packard Instrument Company,
                         Inc.

          10.27(3)*      Amendment to Collaboration and License Agreement dated
                         February 7, 1998, to Collaboration and License
                         Agreement effective as of April 24, 1996 between the
                         Registrant and Packard Instrument Company, Inc.

          10.28(4)*      Combinatorial Chemistry Agreement dated April 25, 1998
                         between the Registrant and SIDDCO, Inc.

          10.29(5)*      Collaborative Research Agreement dated July 16, 1998
                         between the Registrant and Cytovia, Inc.

          10.30(5)*      AMCS Development Agreement dated August 21, 1998
                         between the Registrant and Warner-Lambert Company.

          10.31(6)#      Promissory Note dated February 18, 1997 between the
                         Registrant and Harry Stylli.

          10.32(6)#      Terms of employment dated December 3, 1997 between the
                         Registrant and Paul J. England.

          10.33(6)#      Terms of employment dated June 9, 1998 between the
                         Registrant and Thomas G. Klopack.

          10.34(6)*      Termination Agreement between the Registrant and
                         Packard Instrument Company, Inc.

          10.35(6)#      Loan Agreement and Promissory Note dated December 23,
                         1998 between the Registrant and Thomas G. Klopack.

          10.36(7)*      Collaborative Research and License Agreement effective
                         as of February 5, 1999 between the Registrant and The
                         Pharmacia & Upjohn Company.

          10.37(7)*      Collaborative Research and License Agreement effective
                         as of February 16, 1999 between the Registrant,
                         F.Hoffmann-LaRoche Ltd. and Hoffmann-LaRoche, Inc.

          10.38(7)       Loan and Security Agreement dated February 26, 1999
                         between the Registrant and General Electric Capital
                         Business Asset Funding Corporation.

          10.39(7)*      License Agreement effective as of March 10, 1999
                         between the Registrant and Clontech Laboratories, Inc.

          10.40(10)*     Collaborative Research and License Agreement effective
                         as of June 15, 1999 between the Registrant and Pfizer
                         Incorporated.

          10.41(11)*     Collaborative Research and License Agreement (Second
                         Amendment) effective as of July 29, 1999 between the
                         Registrant and Bristol-Myers Squibb Pharmaceuticals
                         Research Institute.

          10.42(11)#     Agreement dated November 2, 1999 between the Registrant
                         and Timothy J. Rink, M.D., Sc.D.
</TABLE>



                                       32
<PAGE>   33

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER         DESCRIPTION OF DOCUMENT
          -------        -----------------------
<S>                     <C>
          10.43(12)#     Agreement dated December 7, 1999 between the Registrant
                         and Stuart J.M. Collinson, Ph.D.

          10.44(12)*     Third Amendment to Collaborative Research and License
                         Agreement effective as of November 22, 1999 between the
                         Registrant and Eli Lilly and Company.

          10.45(12)*     Instrument, Assay Development and License Agreement
                         effective as of December 15, 1999 between the
                         Registrant and Glaxo Research and Development Ltd. and
                         Glaxo Group Ltd.

          10.46(12)*     Instrument, Assay Development and License Agreement
                         effective as of December 16, 1999 between the
                         Registrant and Wyeth-Ayerst.

          10.47(12)*     License Agreement effective as of December 17, 1999
                         between the Registrant and ZymoGenetics, Inc.

          10.48(12)#     Agreement effective as of January 1, 2000 between the
                         Registrant and Timothy J. Rink, M.D., Sc.D.

          10.49(14)*     Collaborative Research, Purchase and License Agreement
                         effective as of March 31, 2000 between the Registrant
                         and N.V. Organon.

          10.50(15)*     Cystic Fibrosis Research Alliance and Commercialization
                         Agreement effective as of May 19, 2000 between the
                         Registrant and the Cystic Fibrosis Foundation.

          23.1           Consent of Ernst & Young LLP, Independent Auditors.
</TABLE>

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

          (1)            Previously filed with the Registrant's Registration
                         Statement on Form S-1 (No. 333-23407) or amendments
                         thereof, and incorporated herein by reference.

          (2)            Previously filed with the Registrant's Quarterly Report
                         on Form 10-Q for the quarter ended September 30, 1997
                         (No. 0-22669) and incorporated herein by reference.

          (3)            Previously filed with the Registrant's Annual Report on
                         Form 10-K for the fiscal year ended December 31, 1997
                         (No. 0-22669) and incorporated herein by reference.

          (4)            Previously filed with the Registrant's Quarterly Report
                         on Form 10-Q for the quarter ended June 30, 1998 (No.
                         0-22669) and incorporated herein by reference.

          (5)            Previously filed with the Registrant's Quarterly Report
                         on Form 10-Q for the quarter ended September 30, 1998
                         (No. 0-22669) and incorporated herein by reference.

          (6)            Previously filed with the Registrant's Annual Report on
                         Form 10-K for the fiscal year ended December 31, 1998
                         (No. 0-22669) and incorporated herein by reference.

          (7)            Previously filed with the Registrant's Quarterly Report
                         on Form 10-Q for the quarter ended March 31, 1999 (No.
                         0-22669) and incorporated herein by reference.

          (8)            Previously filed with the Registrant's Form S-8 filed
                         on June 21, 2000 and incorporated herein by reference.

          (9)            Previously filed with the Registrant's Form S-8 filed
                         on May 21, 1999 and incorporated herein by reference.

          (10)           Previously filed with the Registrant's Quarterly Report
                         on Form 10-Q for the quarter ended June 30, 1999 (No.
                         0-22669) and incorporated herein by reference.

          (11)           Previously filed with the Registrant's Quarterly Report
                         on Form 10-Q for the quarter ended September 30, 1999
                         (No. 0-22669) and incorporated herein by reference.

          (12)           Previously filed with the Registrant's Annual Report on
                         Form 10-K for the fiscal year ended December 31, 1999
                         (No. 0-22669) and incorporated herein by reference.

          (13)           Previously filed with the Registrant's Current Report
                         on Form 8-K filed on November 21, 2000 and incorporated
                         herein by reference.

          (14)           Previously filed with the Registrant's Quarterly Report
                         on Form 10-Q for the quarter ended March 31, 2000 (No.
                         0-22669) and incorporated herein by reference.

          (15)           Previously filed with the Registrant's Quarterly Report
                         on Form 10-Q for the quarter ended June 30, 2000 (No.
                         0-22669) and incorporated herein by reference.

          *              The Registrant has been granted confidential treatment
                         with respect to certain portions of this exhibit.
                         Omitted portions have been filed separately with the
                         Securities and Exchange Commission.

          #              Indicates management contract or compensatory plan or
                         arrangement.

(d)     Financial Statement Schedules See Item 14 (a) (2).



                                       33
<PAGE>   34

                                   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 our
behalf by the undersigned, thereunto duly authorized, on March 15, 2001.

                                      By: /s/ STUART J.M. COLLINSON
                                          -------------------------------------
                                          Stuart J.M. Collinson
                                          President and Chief Executive Officer

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


<TABLE>
<CAPTION>
                SIGNATURE                                            TITLE                                DATE
                ---------                                            -----                                ----
<S>                                                                 <C>                                  <C>
        /s/ STUART J.M. COLLINSON                    President, Chief Executive Officer               March 15, 2001
-----------------------------------------                 and Chairman of the Board
      Stuart J.M. Collinson, Ph.D.                     (Principal Executive Officer)


         /s/ JOHN R. PASHKOWKSY                     Vice President, Finance and Treasurer             March 15, 2001
-----------------------------------------                  (Principal Financial and
           John R. Pashkowsky                                   Accounting Officer)



           /s/ JAMES C. BLAIR                                        Director                         March 15, 2001
-----------------------------------------
          James C. Blair, Ph.D.



          /s/ JOHN D. MENDLEIN                                       Director                         March 15, 2001
-----------------------------------------
      John D. Mendlein, Ph.D., J.D.



        /s/ HUGH Y. RIENHOFF, JR.                                    Director                         March 15, 2001
-----------------------------------------
       Hugh Y. Rienhoff, Jr., M.D.



           /s/ ROY A. WHITFIELD                                       Director                        March 15, 2001
-----------------------------------------
            Roy A. Whitfield


          /s/ WENDELL WIERENGA                                       Director                         March 15, 2001
-----------------------------------------
         Wendell Wierenga, Ph.D.


        /s/ TIMOTHY J. WOLLAEGER                                     Director                         March 15, 2001
-----------------------------------------
          Timothy J. Wollaeger
</TABLE>



                                       34
<PAGE>   35


                         AURORA BIOSCIENCES CORPORATION

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>                                                                                                            <C>
Report of Ernst & Young LLP, Independent Auditors ..........................................................    F-2

Consolidated Balance Sheets as of December 31, 2000 and 1999 ...............................................    F-3

Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 .................    F-4

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 .......    F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 .................    F-6

Notes to Consolidated Financial Statements .................................................................    F-7
</TABLE>


                                      F-1
<PAGE>   36

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Aurora Biosciences Corporation

We have audited the accompanying consolidated balance sheets of Aurora
Biosciences Corporation as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aurora Biosciences
Corporation at December 31, 2000 and 1999, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.


                                                   ERNST & YOUNG LLP

San Diego, California

January 26, 2001, except for
paragraph 3 of Note 1 and
Note 12, as to which the date is
March 1, 2001


                                      F-2
<PAGE>   37

                         AURORA BIOSCIENCES CORPORATION

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                    --------------------------------
                                                                                         2000                1999
                                                                                    -------------      -------------
<S>                                                                                 <C>                <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                        $  23,093,206      $  16,049,590
   Investment securities, available-for-sale                                           82,067,909         20,683,696
   Accounts receivable                                                                 20,296,917          5,284,135
   Notes receivable from officers and employees                                            50,000             50,000
   Prepaid expenses                                                                       855,259          1,443,840
   Other current assets                                                                 4,893,472          1,629,801
                                                                                    -------------      -------------
      Total current assets                                                            131,256,763         45,141,062
Equipment, furniture and leaseholds, net                                               13,110,123         11,902,464
Notes receivable from officers and employees                                              262,000            115,000
Restricted cash                                                                           333,333            669,810
Other assets                                                                           11,339,703          6,178,840
                                                                                    -------------      -------------
      Total assets                                                                  $ 156,301,922      $  64,007,176
                                                                                    =============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                                $   4,665,862      $   3,872,176
    Accrued compensation                                                                3,318,969          2,222,167
    Other current liabilities                                                           2,294,342            445,464
    Unearned revenue                                                                   15,603,201         10,214,848
    Capital lease and loan obligations, current portion                                 2,375,563          2,497,046
                                                                                    -------------      -------------
      Total current liabilities                                                        28,257,937         19,251,701

Capital lease and loan obligations, less current portion                                3,381,484          4,342,726

Commitments

Stockholders' equity:
    Preferred stock, $.001 par value; 7,500,000 shares authorized and no shares
     issued and outstanding                                                                    --                 --
    Common stock, $.001 par value; 50,000,000 shares authorized, 20,716,841 and
     17,499,723 shares issued and outstanding at December 31, 2000 and 1999,
     respectively                                                                          20,717             17,500
   Additional paid-in capital                                                         141,849,282         63,267,793
   Accumulated other comprehensive income (loss)                                          546,274            (48,567)
   Deferred compensation                                                                 (113,333)          (830,112)
   Accumulated deficit                                                                (17,640,439)       (21,993,865)
                                                                                    -------------      -------------
      Total stockholders' equity                                                      124,662,501         40,412,749
                                                                                    =============      =============
      Total liabilities and stockholders' equity                                    $ 156,301,922      $  64,007,176
                                                                                    =============      =============
</TABLE>


                             See accompanying notes.


                                      F-3
<PAGE>   38

                         AURORA BIOSCIENCES CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                      ------------------------------------------------
                                                          2000              1999              1998
                                                      ------------      ------------      ------------
<S>                                                   <C>               <C>               <C>
Revenue                                               $ 63,790,611      $ 50,521,461      $ 26,557,888

Operating expenses:

    Cost of revenue                                     34,110,155        27,941,512        23,814,409
    Research and development                            14,368,497        11,593,538        17,145,787
    Selling, general and administrative                 14,923,327        11,932,950         6,103,808
                                                      ------------      ------------      ------------
       Total operating expenses                         63,401,979        51,468,000        47,064,004
                                                      ------------      ------------      ------------

Income (loss) from operations                              388,632          (946,539)      (20,506,116)

Interest income                                          6,571,332         1,545,091         2,444,836
Interest expense                                          (658,402)         (690,869)         (645,395)
Loss on investment due to decline in value deemed
   other-than-temporary                                 (1,369,136)               --                --
                                                      ------------      ------------      ------------
Income (loss) before income taxes                        4,932,426           (92,317)      (18,706,675)
Income taxes                                              (579,000)         (117,000)               --
                                                      ------------      ------------      ------------
Net income (loss)                                     $  4,353,426      $   (209,317)     $(18,706,675)
                                                      ============      ============      ============

Basic income (loss) per share                         $       0.22      $      (0.01)     $      (1.15)
                                                      ============      ============      ============
Diluted income (loss) per share                       $       0.20      $      (0.01)     $      (1.15)
                                                      ============      ============      ============

Shares used in computing:

   Basic income (loss) per share                        19,911,001        17,019,195        16,336,286
                                                      ============      ============      ============
   Diluted income (loss) per share                      22,206,792        17,019,195        16,336,286
                                                      ============      ============      ============
</TABLE>


                             See accompanying notes.


                                      F-4
<PAGE>   39

                         AURORA BIOSCIENCES CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                       THREE YEARS ENDED DECEMBER 31, 2000



<TABLE>
<CAPTION>
                                                                                                                    ACCUMULATED
                                                              COMMON STOCK                      ADDITIONAL             OTHER
                                                    ----------------------------------           PAID-IN           COMPREHENSIVE
                                                       SHARES               AMOUNT                CAPITAL          INCOME (LOSS)
                                                    -------------        -------------        -------------        -------------
<S>                                                   <C>                <C>                  <C>                  <C>
Balance at December 31, 1997                           17,032,885        $      17,033        $  60,497,472        $          --
   Issuance of common stock, net                          173,450                  173              617,962                   --
   Issuance of common stock for acquired
     technology                                            75,000                   75              569,456                   --
   Repurchases of common stock                           (208,335)                (208)             (24,436)                  --
   Compensation related to stock and
     stock options                                             --                   --              (57,160)                  --
   Amortization of deferred compensation                       --                   --                   --                   --
   Net loss                                                    --                   --                   --                   --
                                                    -------------        -------------        -------------        -------------
Balance at December 31, 1998                           17,073,000               17,073           61,603,294                   --
   Issuance of common stock, net                          448,416                  449            2,243,932                   --
   Repurchases of common stock                            (21,693)                 (22)              (2,671)                  --
   Compensation related to stock and
     stock options                                             --                   --             (576,762)                  --
   Amortization of deferred compensation                       --                   --                   --                   --
   Net loss                                                    --                   --                   --                   --
   Unrealized loss from investments                            --                   --                   --              (48,567)

     Comprehensive income
                                                    -------------        -------------        -------------        -------------
Balance at December 31, 1999                           17,499,723               17,500           63,267,793              (48,567)
   Issuance of common stock, net                        3,218,513                3,218           78,715,199                   --
   Repurchases of common stock                             (1,395)                  (1)                (286)                  --
   Compensation related to stock and stock
     options                                                   --                   --             (133,424)                  --
   Amortization of deferred compensation                       --                   --                   --                   --
   Net income                                                  --                   --                   --                   --
   Unrealized gain from investments                            --                   --                   --              594,841

     Comprehensive income
                                                    -------------        -------------        -------------        -------------
Balance at December 31, 2000                           20,716,841        $      20,717        $ 141,849,282        $     546,274
                                                    =============        =============        =============        =============

<CAPTION>

                                                                                                    TOTAL
                                                        DEFERRED             ACCUMULATED         STOCKHOLDERS'
                                                      COMPENSATION            DEFICIT           EQUITY (DEFICIT)
                                                      -------------        -------------       ----------------
<S>                                                   <C>                  <C>                  <C>
Balance at December 31, 1997                          $  (3,072,560)       $  (3,077,873)       $  54,364,072
   Issuance of common stock, net                                 --                   --              618,135
   Issuance of common stock for acquired
     technology                                                  --                   --              569,531
   Repurchases of common stock                                   --                   --              (24,644)
   Compensation related to stock and
     stock options                                           57,160                   --                   --
   Amortization of deferred compensation                    774,794                   --              774,794
   Net loss                                                      --          (18,706,675)         (18,706,675)
                                                      -------------        -------------        -------------
Balance at December 31, 1998                             (2,240,606)         (21,784,548)          37,595,213
   Issuance of common stock, net                                 --                   --            2,244,381
   Repurchases of common stock                                   --                   --               (2,693)
   Compensation related to stock and
     stock options                                          576,762                   --                   --
   Amortization of deferred compensation                    833,732                   --              833,732
   Net loss                                                      --             (209,317)            (209,317)
   Unrealized loss from investments                              --                   --              (48,567)
                                                                                                -------------
     Comprehensive income                                                                            (257,884)
                                                      -------------        -------------        -------------
Balance at December 31, 1999                               (830,112)         (21,993,865)          40,412,749
   Issuance of common stock, net                                 --                   --           78,718,417
   Repurchases of common stock                                   --                   --                 (287)
   Compensation related to stock and stock
     options                                                133,424                   --                   --
   Amortization of deferred compensation                    583,355                   --              583,355
   Net income                                                    --            4,353,426            4,353,426
   Unrealized gain from investments                              --                   --              594,841
                                                                                                -------------
     Comprehensive income                                                                           4,948,267
                                                      -------------        -------------        -------------
Balance at December 31, 2000                          $    (113,333)       $ (17,640,439)       $ 124,662,501
                                                      =============        =============        =============
</TABLE>



                             See accompanying notes.



                                      F-5
<PAGE>   40

                         AURORA BIOSCIENCES CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                  ----------------------------------------------------
                                                                      2000                1999                 1998
                                                                  ------------        ------------        ------------
<S>                                                               <C>                 <C>                 <C>
Operating activities:

Net income (loss)                                                 $  4,353,426        $   (209,317)       $(18,706,675)
Adjustments to reconcile net income (loss)
   to net cash provided by
   (used in) operating activities:

   Depreciation and amortization                                     3,412,641           3,236,028           2,421,986
   Amortization of deferred compensation                               583,355             833,732             774,794
   Other non-cash items, net                                           377,549            (184,000)            569,531
   Changes in operating assets and liabilities:

     Accounts receivable                                           (15,012,782)         (1,533,844)           (543,125)
     Prepaid expenses and other current assets                      (2,675,090)         (1,186,965)           (260,329)
     Other assets                                                   (1,860,865)         (1,931,787)         (1,492,645)
     Accounts payable and accrued compensation                       1,890,488           2,302,457           2,401,088
     Other current liabilities                                       1,848,878              53,770             163,916
     Unearned revenue                                                5,388,353           7,774,015             116,832
     Other noncurrent liabilities                                           --                  --            (154,346)
                                                                  ------------        ------------        ------------
Net cash provided by (used in) operating activities                 (1,694,047)          9,154,089         (14,708,973)
Investing activities:
   Purchases of short-term investments                             (90,772,401)        (10,893,919)        (23,015,257)
   Sales and maturities of short-term investments                   29,783,030           8,709,647          30,205,000
   Purchases of property and equipment                              (4,044,483)         (1,587,219)         (2,840,514)
   Notes receivable from officers and employees                       (232,000)            235,000            (130,000)
   Restricted cash                                                     336,477             426,224             215,889
   Other assets                                                     (3,099,997)                 --          (2,436,279)
                                                                  ------------        ------------        ------------
Net cash provided by (used in) investing activities                (68,029,374)         (3,110,267)          1,998,839
Financing activities:
   Issuance of common stock, net                                    78,440,714           2,145,688             593,491
   Proceeds from capital lease and loan obligations                  1,129,887             619,225                  --
   Principal payments on capital lease and loan obligations         (2,803,564)         (2,293,395)         (1,517,797)
                                                                  ------------        ------------        ------------
Net cash provided by (used in) financing activities                 76,767,037             471,518            (924,306)
                                                                  ------------        ------------        ------------
Net increase (decrease) in cash and cash equivalents                 7,043,616           6,515,340         (13,634,440)
Cash and cash equivalents at beginning of year                      16,049,590           9,534,250          23,168,690
                                                                  ============        ============        ============
Cash and cash equivalents at end of year                          $ 23,093,206        $ 16,049,590        $  9,534,250
                                                                  ============        ============        ============

Supplemental disclosure of cash flow information:

  Interest paid                                                   $    658,402        $    690,869        $    645,395
                                                                  ============        ============        ============

  Income taxes paid                                               $    141,530        $         --        $         --
                                                                  ============        ============        ============


Supplemental schedule of non-cash investing and
  financing activities:

   Property and equipment acquired under
    capital leases and loans                                      $    590,952        $  1,701,489        $  3,755,413
                                                                  ============        ============        ============
</TABLE>


                             See accompanying notes.



                                      F-6
<PAGE>   41

                         AURORA BIOSCIENCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS ACTIVITY

Aurora Biosciences Corporation ("Aurora" or the "Company") was incorporated in
California on May 8, 1995 and subsequently re-incorporated in Delaware on
January 22, 1996. The Company combines innovative biotechnology with its novel,
high technology, automation and software to provide solutions to challenges in
drug discovery for the pharmaceutical and biotechnology industries. Aurora's
core technologies include a broad portfolio of proprietary fluorescence assay
technologies; its functional genomics GenomeScreen(TM) program; as well as its
ultra-high throughput screening system ("UHTSS(TM) Platform") and subsystems to
miniaturize and automate assays derived from those technologies within a
computer-controlled integrated system, capable of searching through expansive
libraries of compounds to identify those that might lead to new medicines.

To date, the Company's revenue has been generated from a limited number of
customers in the biotechnology and pharmaceutical industries in the U.S. and
Europe. In 2000, greater than 10% of the Company's revenue resulted from
transactions with each of the following customers: Pfizer, Inc. ("Pfizer")
(40%), including Warner-Lambert, which Pfizer acquired in 2000, and Merck & Co.,
Inc. ("Merck") (18%). The loss of such customers could have a material adverse
impact on the Company.

BASIS OF PRESENTATION

These consolidated financial statements include the accounts of Aurora and its
wholly-owned subsidiary, Quorum Sciences, Inc. (see Note 11). The acquisition of
Quorum Sciences constituted a tax-free reorganization and has been accounted for
as a pooling of interests under Accounting Principles Board Opinion No. 16,
"Business Combinations." Accordingly, all prior period consolidated financial
statements presented have been restated to include the combined results of
operations, financial position and cash flows of Quorum Sciences as though it
had been a part of Aurora since Quorum Sciences' inception on April 6, 1998.
There were no transactions between Aurora and Quorum Sciences prior to the
combination. Certain reclassifications were made to the Quorum Sciences
financial statements to conform to Aurora's presentations. All significant
intercompany accounts and transactions have been eliminated. The financial
statements do not reflect the consolidation of PanVera Corporation with those of
the Company as such acquisition, which was accounted for as a
pooling-of-interests, was completed subsequent to December 31, 2000.

CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES

The Company considers all highly liquid investments with maturities of three
months or less from the date of purchase to be cash equivalents. Management
determines the appropriate classification of its cash equivalents and investment
securities at the time of purchase and reevaluates such determination as of each
balance sheet date. Management has classified the Company's cash equivalents and
investment securities as available-for-sale securities in the accompanying
financial statements. Available-for-sale securities are carried at fair value,
with unrealized gains and losses reported in other comprehensive income (loss).
The cost of debt securities classified as available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion, as well as interest and dividends, are included in
interest income. Realized gains and losses are also included in interest income.
Declines in value judged to be other-than-temporary are identified separately
from interest income. The cost of securities sold is based on the specific
identification method.

The Company invests its excess cash in U.S. government and agency securities,
debt instruments of financial institutions and corporations and money market
funds with strong credit ratings. The Company has established guidelines
regarding diversification of its investments and their maturities which are
designed to maintain safety and liquidity.

EQUIPMENT, FURNITURE AND LEASEHOLDS

Equipment, including capitalized leased equipment, furniture and leaseholds, is
stated at cost less accumulated depreciation and amortization. Depreciation and
amortization is calculated using the straight-line method over the shorter of
the estimated useful lives of the respective assets (generally three to five
years) or the term of the applicable lease.



                                      F-7
<PAGE>   42

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



OTHER ASSETS

Equity investments in closely-held companies, in which the Company maintains an
ownership interest of less than twenty percent, are carried at cost and are
reviewed quarterly for impairment. Patents are carried at cost and amortized
using the straight-line method over the expected useful lives, which are
estimated to be four to eight years. Chemical compounds are carried at cost and
amortized over the expected useful lives, which are estimated to be five years
from the date of first usage of the compound.

LONG-LIVED ASSETS

The Company investigates potential impairments of its long-lived assets when
there is evidence that events or changes in circumstances may have made recovery
of an asset's carrying value unlikely. An impairment loss is recognized when the
sum of the expected undiscounted future cash flows is less than the carrying
amount of the asset. The Company has not identified any such losses to date.

WARRANTY RESERVE

Estimated expenses for warranty obligations are accrued as revenue is
recognized. Reserve estimates are adjusted periodically to reflect actual
experience.

STOCK OPTIONS

In accordance with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to follow Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related Interpretations in accounting
for its employee stock options. Under APB 25, if the purchase price of
restricted stock or the exercise price of the Company's employee stock options
equals or exceeds the fair value of the underlying stock on the date of issuance
or grant, no compensation expense is recognized. Option grants to non-employees
are valued in accordance with SFAS 123 and EITF 96-18 and are periodically
re-measured and expensed at fair value as services are performed.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transaction Involving Stock
Compensation", an interpretation of APB 25 ("FIN 44" or the "Interpretation").
The Interpretation, which has been adopted prospectively as of July 1, 2000,
requires that stock options that have been modified to reduce the exercise price
be accounted for as variable. Management believes the Company's accounting for
its stock options is in compliance with the guidelines provided in FIN 44 and,
therefore, the adoption of FIN 44 did not affect the Company's results of
operations.

REVENUE RECOGNITION

The Company's revenue recognition policies are in accordance with the Securities
and Exchange Commission Staff Accounting Bulletin (SAB) 101, Revenue Recognition
in Financial Statements. SAB 101 provides guidance related to revenue
recognition based on the interpretations and practices developed by the
Securities and Exchange Commission. The Company generates revenue through its
UHTSS syndicate customers, licensing agreements, equipment sales, collaborative
research and development agreements and screening services. Many of the
Company's agreements contain multiple elements, including downstream milestone
and royalty obligations.

Certain of the Company's multiple element agreements, which include the sale of
products, licenses and services, may be combined with the purchase by the
Company of stock in the collaborator. The Company believes that the value
assigned to each of the elements in such agreements represent the fair value of
each element at the date of the agreement, and the amounts charged by the
Company for the products, licenses and services are comparable to what the
Company would have charged had it not purchased stock in the collaborator.

Revenue from milestones is recognized when earned, as evidenced by written
acknowledgment from the collaborator, provided that (i) the milestone event is
substantive and its achievability was not reasonably assured at the inception of
the agreement, and (ii) the Company's performance obligations after the
milestone achievement will continue to be funded by the collaborator at a
comparable level to before the milestone achievement. If both of these criteria
are not met, the milestone payment is recognized over the remaining minimum
period of the Company's performance obligations under the agreement.



                                      F-8
<PAGE>   43

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Revenue generated by UHTSS syndicate customer agreements, which the Company
entered into during 1996 and 1997, consist primarily of funded research and
development, licenses and milestones relating to the development of the UHTSS
and screening services. The Company recognizes each of these components in
accordance with the appropriate methodology described below. The Company also
uses this same revenue recognition methodology for all other contract
agreements.

Revenue from funded research and development is recognized ratably over the term
of the agreement, and the Company believes that such recognition approximates
the costs incurred to perform the research and development. The Company does not
have an obligation to refund, nor does there exist the presumption of an
obligation to refund research and development payments.

Revenue from licenses are recognized over the period of the license. If the
license is perpetual and the payment is nonrefundable and non-creditable, the
fee is recognized when the license is issued, unless the license pertains to
ongoing collaborative efforts, in which case the license revenue is amortized
over the collaborative period.

Revenue from assay development, screening and other services is recognized as
the services are performed or ratably over the service period if the Company
believes such method will approximate the expense being incurred. Revenue from
upfront fees is deferred and recognized over the service period. Advance
payments received in excess of amounts earned through performance are classified
as unearned revenue and totaled $15.6 million and $10.2 million at December 31,
2000 and 1999, respectively.

Revenue from equipment sales under short-term production contracts is recognized
upon shipment of the equipment. Revenue from equipment sales under long-term
production contracts is recognized using the percentage of completion method,
measured based on costs incurred to-date compared to estimated costs at
completion. As of December 31, 2000, revenue recognized exceeded billings on
long-term production contracts by $10.1 million and such amount is included in
accounts receivable in the accompanying balance sheet.

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

RESEARCH AND DEVELOPMENT EXPENSE

All research and development costs are expensed in the period incurred.
Customer-sponsored research and development expenses totaled approximately $6.8
million, $4.6 million and $5.7 million in 2000, 1999 and 1998, respectively.
Revenue from customer-sponsored research and development totaled approximately
$20.4 million, $24.8 million and $11.1 million in 2000, 1999 and 1998,
respectively. Company-sponsored research and development expenses totaled
approximately $7.6 million, $7.0 million and $11.4 million in 2000, 1999 and
1998, respectively.

INCOME (LOSS) PER SHARE

In accordance with Statement of Financial Accounting Standards No. 128, Earnings
Per Share ("SFAS 128"), basic income (loss) per share is calculated based upon
the weighted average shares of common stock outstanding during the period, and
excludes any dilutive effects of options, warrants and convertible securities.
In 2000, diluted income per share also gives effect to all potential dilutive
common shares outstanding during the period. In 1999 and 1998, all potential
dilutive common shares have been excluded from the calculation of diluted loss
per share as their inclusion would be anti-dilutive.

SEGMENT INFORMATION

Statement of Financial Accounting Standards No. 131, Segment Information ("SFAS
131"), requires disclosure of certain financial information about operating
segments, products, services and geographic areas in which they operate. The
Company has not reported segment information because the Company operates in
only one business segment.


                                      F-9
<PAGE>   44

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


USE OF ESTIMATES

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

2. CASH EQUIVALENTS AND INVESTMENT SECURITIES

A summary of cash equivalents and available-for-sale investment securities is
shown below:


<TABLE>
<CAPTION>
                                                                               GROSS            GROSS
                                                                            UNREALIZED        UNREALIZED      ESTIMATED FAIR
DECEMBER 31, 2000                                           COST               GAINS            LOSSES            VALUE
                                                        ------------       ------------      ------------     --------------
<S>                                                     <C>                <C>               <C>               <C>
Money market funds                                      $  2,689,644       $         --      $         --      $  2,689,644
U.S. government and agency securities                     18,342,723             29,390             2,723        18,369,390
U.S. corporate securities                                 77,075,426            408,544            88,936        77,395,034
                                                        ------------       ------------      ------------      ------------
   Total debt securities                                  98,107,793            437,934            91,659        98,454,068
Equity securities                                            630,864                 --                --           630,864
                                                        ------------       ------------      ------------      ------------
   Total debt and equity securities                       98,738,657            437,934            91,659        99,084,932
Less amounts classified as cash equivalents              (17,017,023)                --                --       (17,017,023)
                                                        ============       ============      ============      ============
   Total investment securities, available-for-sale      $ 81,721,634       $    437,934      $     91,659      $ 82,067,909
                                                        ============       ============      ============      ============

DECEMBER 31, 1999

Money market funds                                      $  4,622,220       $         --      $         --      $  4,622,220
U.S. government and agency securities                      9,934,933                220             3,096         9,932,057
U.S. corporate securities                                 15,944,345                203            45,894        15,898,654
                                                        ------------       ------------      ------------      ------------
   Total debt securities                                  30,501,498                423            48,990        30,452,931
Less amounts classified as cash equivalents               (9,769,235)                --                --        (9,769,235)
                                                        ============       ============      ============      ============
   Total investment securities, available-for-sale      $ 20,732,263       $        423      $     48,990      $ 20,683,696
                                                        ============       ============      ============      ============
</TABLE>

Realized gains or losses on sales of available-for-sale securities were not
significant in 2000, 1999 and 1998. The Company recognized a loss of $1,369,000
in 2000 related to a net write-down of its investment in Maxim Pharmaceuticals
to its fair market value as of December 31, 2000. The net adjustment to
unrealized holding gains (losses) on available-for-sale securities included in
comprehensive income totaled $346,275, net of tax, in 2000. The estimated fair
value of available-for-sale debt securities as of December 31, 2000 by
contractual maturity is as follows: $24.0 million due within one year and $74.5
million due in one to two years.

3. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES

Notes receivable from officers and employees generally consist of relocation and
housing loans to assist in the relocation of new employees. These notes are
generally secured by a deed of trust on the individual's principal residence.
Notes receivable as of December 31, 2000 include two separate loans to officers
of the Company of $132,000 and $30,000. The $132,000 note is interest-free and
is due in 2003. The $30,000 note is interest-free and is due in 2003, but will
be forgiven in $15,000 increments during 2001 and 2002 provided that such
officer remains an employee of the Company.

4. BALANCE SHEET DETAILS

Accounts receivable includes unbilled amounts totaling $11,665,935 and
$3,465,264 at December 31, 2000 and 1999, respectively. Unbilled receivables
represent amounts due from customers that will be billed at future dates in
accordance with contract terms. The unbilled receivables at December 31, 2000
are expected to be billed and collected within one year.



                                      F-10
<PAGE>   45

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Equipment, furniture and leaseholds consists of the following:


<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                ----------------------------------
                                                                   2000                   1999
                                                                ------------          ------------
<S>                                                             <C>                   <C>
         Scientific equipment                                   $  7,516,211          $  6,312,246
         Office furniture, computers and equipment                 6,861,585             5,135,901
         Leasehold improvements                                    5,688,521             5,335,996
         Construction in process                                   2,974,375             1,636,249
                                                                ------------          ------------
                                                                  23,040,692            18,420,392
         Less accumulated depreciation and amortization           (9,930,569)           (6,517,928)
                                                                ============          ============
                                                                $ 13,110,123          $ 11,902,464
                                                                ============          ============
</TABLE>

The cost of equipment, furniture and leaseholds under capital leases and loans
at December 31, 2000 and 1999 was $13,190,547 and $11,469,708, respectively. The
accumulated depreciation and amortization of equipment, furniture and leaseholds
under capital leases and loans at December 31, 2000 and 1999 was $7,197,961 and
$5,283,909, respectively.

Other assets consist of the following:

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                -------------------------------
                                                   2000                1999
                                                -----------         -----------
<S>                                             <C>                 <C>
         Chemical compounds                     $ 3,570,112         $ 2,862,494
         Equity investments                       5,700,000           2,400,003
         Patents and licenses                     1,229,303             905,081
         Deposits and other, noncurrent             840,288              11,262
                                                -----------         -----------
                                                $11,339,703         $ 6,178,840
                                                ===========         ===========
</TABLE>

The above amounts are net of accumulated amortization of patents, licenses and
compounds of $819,601 and $297,173 at December 31, 2000 and 1999, respectively.

5. COMMITMENTS

CONSULTING AGREEMENTS

The Company has entered into various consulting agreements with its Scientific
Advisors and others for aggregate minimum annual fees of approximately $140,000
over the next three years. The agreements are cancelable by either party upon 60
or 90 days written notice. During the years ended December 31, 2000, 1999 and
1998, the Company expensed approximately $170,000, $190,000 and $250,000,
respectively, of fees and expense reimbursements related to these agreements.

TECHNOLOGY AND LICENSE AGREEMENTS

The Company has entered into various strategic technology and license agreements
with third parties pursuant to the development of its screening systems and the
synthesis of chemical compounds. These agreements contain varying terms and
provisions which require the Company to make payments to the third parties,
subject to satisfactory performance by the third parties. Pursuant to these
agreements, the Company paid approximately $900,000, $1,700,000 and $1,400,000
in 2000, 1999 and 1998, respectively, and is obligated to pay a total of
approximately $4.2 million over the next four years.

The Company has also entered into various license agreements with corporations
and academic institutions regarding rights to certain inventions and
technologies. Most such agreements may be terminated by the Company with 60 days
written notice without significant financial penalty. Pursuant to these
agreements, the Company paid approximately $740,000, $520,000 and $1,070,000 in
2000, 1999 and 1998, respectively, and is obligated to pay a total of
approximately $1.3 million over the next four years.



                                      F-11
<PAGE>   46

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


LEASES AND LOANS

The Company leases its facilities and certain equipment under operating lease
agreements which expire at various dates through September 2008. One of the
facility lease agreements is secured by a letter of credit totaling $333,333,
which is secured by a certificate of deposit. At December 31, 2000, such
restricted cash totaling $333,333 was included in noncurrent assets. The letter
of credit will be reduced in January 2001 to $148,664 based on a predetermined
schedule. Rent expense totaled approximately $1,825,000, $1,595,000 and
$1,593,000 in 2000, 1999 and 1998, respectively.

In November 1997, the Company subleased certain of its facilities to a third
party under an operating lease which expired in October 1999. Total sublease
income in 1999 and 1998 included as a credit to rent expense was $763,000 and
$935,000, respectively.

The Company leases certain equipment and improvements under capital lease and
loan agreements which expire at various dates through June 2004.

Annual future minimum lease payments for operating and capital leases and loans
as of December 31, 2000 are as follows:


<TABLE>
<CAPTION>
                                                                                       CAPITAL LEASES
                                                                OPERATING LEASES          AND LOANS
                                                                ----------------       --------------
         Years ended December 31,
<S>                                                               <C>                   <C>
         2001                                                     $  2,307,035          $  2,808,764
         2002                                                        1,983,262             2,519,473
         2003                                                        1,907,633             1,028,069
         2004                                                        1,963,818               100,590
         2005                                                        2,022,801                    --
         Thereafter                                                  5,877,057                    --
                                                                  ------------          ------------
         Total minimum lease and loan payments                    $ 16,061,606             6,456,896
                                                                  ============
         Less amounts representing interest                                                 (699,849)
                                                                                        ------------
         Present value of capital lease and loan payments                                  5,757,047
         Less current portion                                                             (2,375,563)
                                                                                        ------------
         Capital lease and loan obligations, noncurrent                                 $  3,381,484
                                                                                        ============
</TABLE>


6. STOCKHOLDERS' EQUITY

COMMON STOCK

Certain shares of common stock have been issued to founders, directors and
employees of, and consultants to, the Company. In connection with certain stock
purchase agreements, the Company has the option to repurchase, at the original
issue price, any unvested shares in the event of termination of employment or
engagement. Shares issued under these agreements generally vest over four years.
At December 31, 2000, 2,197 shares of common stock were subject to repurchase by
the Company.

In February 2000, the Company completed a private placement of 1.8 million
shares of newly issued common stock to selected institutional and other
accredited investors. The purchase price was $42.00 per share, resulting in net
proceeds of approximately $71 million.

DEFERRED COMPENSATION

The Company records and amortizes over the related vesting periods deferred
compensation representing the difference between the price per share of
restricted stock issued or the exercise price of stock options granted and the
fair value of the Company's common stock at the date of issuance or grant.

STOCK OPTION AND PURCHASE PLANS

In 1996, the Company adopted the 1996 Stock Plan (the "Stock Plan"), under
which, as amended, 8,000,000 shares of the Company's common stock were reserved
for future issuance. The Stock Plan provides for the grant of incentive stock
options and stock appreciation rights to employees and nonstatutory stock
options and stock



                                      F-12
<PAGE>   47

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


purchase rights to employees, directors and consultants. All options granted
under the Stock Plan expire not later than ten years from the date of grant and
vest and become fully exercisable after not more than five years of continued
employment or engagement. Options generally vest over four years, with
one-fourth of the shares vesting after one year and the remainder vesting
monthly over the next thirty-six months. The exercise price of incentive stock
options must be equal to at least the fair market value of the Company's common
stock on the date of grant, and the exercise price of nonstatutory options may
be no less than 85% of the fair market value of the Company's common stock on
the date of grant.

In 1997, the Company adopted a Non-Employee Directors' Stock Option Plan (the
"Directors' Plan"), under which 240,000 shares of the Company's common stock
were reserved for future issuance. All options granted under the Directors' Plan
expire no later than ten years from the date of grant and vest and become fully
exercisable after not more than four years of continued service. Initial grants
of options issued to date generally vest monthly over four years and annual
grants of options issued to date generally vest monthly over one year. The
exercise price of each option must be equal to the fair market value of the
Company's common stock on the date of grant.

In 1997, the Company adopted an Employee Stock Purchase Plan (the "Purchase
Plan"), under which, as amended, 700,000 shares of the Company's common stock
were reserved for future issuance. The Purchase Plan provides for all eligible
employees to purchase the Company's common stock through payroll deductions at a
price equal to 85% of the lesser of the fair market value per share of the
Company's common stock on the start date of each overlapping two-year offering
period or on the date on which each semi-annual purchase period ends. At
December 31, 2000, 644,179 shares of common stock have been issued pursuant to
the Purchase Plan.

Pro forma information regarding net income (loss) and income (loss) per share is
required by SFAS 123, and has been determined as set forth below as if the
Company had accounted for stock options and shares issued under the Purchase
Plan under the fair value method of SFAS 123. The fair value of stock options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions for 2000, 1999 and 1998:
risk-free interest rates of 4.69%, 6.57% and 4.59%, respectively; no annual
dividends; volatility factor of 100%, 60% and 60%, respectively; and an expected
option life of five years. The weighted-average fair value of stock options
granted during 2000, 1999 and 1998 was $34.32, $4.44 and $4.15, respectively.

Shares issued under the Purchase Plan were valued based upon the difference, if
any, between the market value of the stock and the purchase price of the shares
on the date of purchase. The weighted-average fair value on the date of purchase
for stock purchased under this plan was $3.64, $5.32 and $5.32 in 2000, 1999 and
1998, respectively.

For purposes of pro forma disclosures, the estimated fair value of stock options
is amortized to expense over the options' respective vesting periods and the
estimated fair value of shares issued under the Purchase Plan are amortized to
expense over the respective offering periods. If compensation cost for the
Company's Stock and Purchase plans had been determined based on the fair value
at the grant date as defined by SFAS 123, the Company's pro forma results for
2000, 1999 and 1998 would have been as follows:

<TABLE>
<CAPTION>
                                                              2000               1999                1998
                                                        --------------      --------------      --------------
<S>                                                     <C>                 <C>                 <C>
         Pro forma loss                                 $   (8,992,321)     $   (4,392,250)     $  (19,640,557)

         Pro forma basic and diluted loss per share     $        (0.45)     $        (0.26)     $        (1.20)
</TABLE>


The following table summarizes stock option activity under the Stock Plan and
Directors' Plan and related information through December 31, 2000:


<TABLE>
<CAPTION>
                                                                               WEIGHTED-AVERAGE
                                                     NUMBER OF OPTIONS          EXERCISE PRICE
                                                     -----------------         ----------------
<S>                                                      <C>                      <C>
         Outstanding at December 31, 1997                1,106,420                $     5.90
         Granted                                         2,945,830                $     7.33
         Exercised                                         (30,409)               $     1.40
         Cancelled                                      (1,277,351)               $    10.78
                                                        ----------
         Outstanding at December 31, 1998                2,744,490                $     5.23
         Granted                                         1,350,070                $     8.20
</TABLE>



                                      F-13
<PAGE>   48

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<S>                                                     <C>                       <C>
         Exercised                                        (237,994)               $     3.57
         Cancelled                                        (334,754)               $     6.36
                                                        ----------
         Outstanding at December 31, 1999                3,521,812                $     6.38
         Granted                                         1,498,706                $    46.51
         Exercised                                      (1,058,027)               $     5.24
         Cancelled                                        (319,237)               $    11.29
                                                        ==========
         Outstanding at December 31, 2000                3,643,254                $    22.40
                                                        ==========
</TABLE>

At December 31, 2000, 2,919,435 shares remain available for grant under the
Stock and Directors' Plans.

In November 1998, the Board of Directors authorized a plan whereby employee
option holders could have exchanged all of his or her current vested and
unvested options on a one-for-one basis for new options priced at the market
value as of November 19, 1998. This plan was not available to members of the
Board of Directors and executive officers were not permitted to exchange options
with an exercise price of $10.00 or below, with the exception of one officer who
did not meet the criteria to be included as a "Named Executive Officer" in the
Company's Proxy Statement. Under this plan, an aggregate of 1,099,430 options
with an average exercise price of $11.04 per share were exchanged for options
with an exercise price of $5.25 per share. The replacement options vest and
expire based on the original grant date. The replacement options were not
exercisable until November 20, 1999. All replacement options are included in
grants and cancellations in the above summary of stock option activity.

The following table summarizes information about stock options outstanding under
the Company's Stock and Directors' Plans at December 31, 2000:


<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING                                OPTIONS EXERCISABLE
                      -----------------------------------------------------------     ------------------------------------
                                           WEIGHTED-AVERAGE
                                               REMAINING
RANGE OF EXERCISE                             CONTRACTUAL        WEIGHTED-AVERAGE                         WEIGHTED-AVERAGE
     PRICES           NUMBER OF OPTIONS           LIFE            EXERCISE PRICE      NUMBER OF OPTIONS    EXERCISE PRICE
-----------------     -----------------   -------------------    ----------------     -----------------   ----------------
<S>                       <C>                    <C>                <C>                  <C>                  <C>
$ 0.09 - $ 5.25             646,110               7.03               $    4.35             335,429            $    3.84
$ 5.34 - $ 6.72             785,299               8.20               $    6.13             278,117            $    6.14
$ 7.13 - $23.06             818,103               8.33               $   10.28             245,710            $    9.32
$26.50 - $36.50             722,750               9.20               $   34.78                  --                   --
$36.88 - $122.50            670,992               9.46               $   60.28              10,835            $   38.19
                         ----------                                                     ----------
$ 0.09 - $122.50          3,643,254               8.45               $   22.40             870,091            $    6.55
                         ==========                                                     ==========
</TABLE>


COMMON STOCK RESERVED FOR FUTURE ISSUANCE

At December 31, 2000, the Company has reserved shares of common stock for future
issuance as follows:


<TABLE>
<S>                                                                   <C>
         Common stock and stock options under 1996 Stock Plan          6,388,167
         Common stock under Employee Stock Purchase Plan                  55,821
         Stock options under Directors' Plan                             170,168
         Other                                                               417
                                                                       ---------
                                                                       6,614,573
                                                                       =========
</TABLE>


7. INCOME TAXES

The provision for income taxes on earnings subject to income taxes differs from
the statutory federal rate due to the following:


<TABLE>
<CAPTION>
                                                                                      YEARS ENDED DECEMBER 31,
                                                                          2000                  1999                  1998
                                                                       -----------           -----------           -----------
<S>                                                                    <C>                   <C>                   <C>
         Federal income taxes (benefit)                                $ 2,780,000           $    94,000           $(6,528,000)
         State income tax, net of federal benefit                          255,000                 1,000                    --
         Tax effect of permanent differences                                54,000               330,000               414,000
         Alternative minimum taxes                                         274,000               116,000                    --
         Increase (decrease) in valuation allowance and other           (2,784,000)             (424,000)            6,114,000
                                                                       -----------           -----------           -----------
                                                                       $   579,000           $   117,000           $        --
                                                                       ===========           ===========           ===========
</TABLE>



                                      F-14
<PAGE>   49

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The provision for income taxes attributable to continuing operations consisted
of current federal income taxes of $230,000 and $116,000 in 2000 and 1999,
respectively, and current state income taxes of $349,000 and $1,000 in 2000 and
1999, respectively.

The Company had federal and California tax net operating loss carryforwards at
December 31, 2000 of approximately $53.8 million and $41.1 million,
respectively. The net operating loss carryforwards are a result of stock option
deductions and the benefit of these net operating loss carryforwards will be
credited to equity when realized. The federal and California tax loss
carryforwards will begin to expire in 2018 and 2004, respectively. The Company
also had federal and California research tax credit carryforwards of
approximately $670,000 and $431,000, respectively, which will begin to expire in
2011 unless previously utilized. The Company also had a California
manufacturer's investment tax credit carryforward of approximately $351,000,
which will begin to expire in 2005 unless previously utilized. The Company has
federal and California alternative minimum tax credit carryforwards of
approximately $101,000 and $8,200, respectively, which may be carried forward
indefinitely.

Pursuant to Sections 382 and 383 of the Internal Revenue Code, use of these net
operating loss and credit carryforwards may be substantially limited because of
cumulative changes in the Company's ownership of more than 50%. However, the
Company does not believe such limitations will have a material impact upon the
utilization of these carryforwards.

Significant components of the Company's net deferred tax assets as of December
31, 2000 and 1999 are shown below. Valuation allowances of $27,995,000 and
$9,039,000 at December 31, 2000 and 1999, respectively, have been recognized to
offset the net deferred tax assets as realization of such assets is uncertain.


<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                  -----------------------------------
                                                                      2000                   1999
                                                                  ------------           ------------
<S>                                                               <C>                    <C>
         Deferred tax assets:
            Net operating loss carryforwards                      $ 21,208,000           $  4,571,000
            Deferred revenue                                         4,128,000              2,402,000
            Tax credit carryforwards                                 1,222,000              1,154,000
            Capitalized research and development                       682,000                779,000
            Other, net                                               1,430,000                865,000
                                                                  ------------           ------------
            Total deferred tax assets                               28,670,000              9,771,000
         Deferred tax liability:
            Depreciation                                              (675,000)              (732,000)
                                                                  ------------           ------------
         Net deferred tax assets                                    27,995,000              9,039,000
         Valuation allowance for net deferred tax assets           (27,995,000)            (9,039,000)
                                                                  ------------           ------------
         Net deferred taxes                                       $         --           $         --
                                                                  ============           ============
</TABLE>


8. INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted income
(loss) per share:


<TABLE>
<CAPTION>
                                                                           YEARS ENDED DECEMBER 31,
                                                               -----------------------------------------------
                                                                   2000              1999             1998
                                                               ------------     ------------      ------------
<S>                                                            <C>              <C>               <C>
         Numerator:

           Net income (loss)                                   $  4,353,426     $   (209,317)     $(18,706,675)
                                                               ============     ============      ============

         Denominator:
           Shares used in basic income (loss) per share
             computations - weighted average common shares
             outstanding                                         19,911,001       17,019,195        16,336,286
           Effect of dilutive securities:
</TABLE>



                                      F-15
<PAGE>   50

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<S>                                                            <C>              <C>               <C>

              Nonvested common stock                                 30,482               --                --
              Common stock options                                2,265,309               --                --
                                                               ------------     ------------      ------------

           Shares used in diluted income (loss) per share
             computations                                        22,206,792       17,019,195        16,336,286
                                                               ============     ============      ============
</TABLE>

For additional disclosures regarding nonvested common stock and common stock
options, see Note 6.

Basic income (loss) per share excludes the weighted average effects of the
Company's nonvested common stock totaling 30,482, 184,628 and 693,861 shares for
the years ended December 31, 2000, 1999 and 1998, respectively. Nonvested common
stock is not included in basic income (loss) per share until the time-based
vesting restrictions have lapsed.

Options to purchase 3,519,003 and 2,744,490 shares of common stock and 84,666
and 349,428 shares of nonvested common stock were outstanding at December 31,
1999 and 1998, respectively, but were not included in the computation of diluted
earnings per share because the effect would be anti-dilutive.

9. 401(K) RETIREMENT SAVINGS PLAN

In 1996, the Company adopted a 401(k) Retirement Savings Plan (the "Plan")
covering substantially all employees who have completed certain service
requirements. Participants may contribute a portion of their compensation to the
Plan through payroll deductions. The Company paid Plan expenses totaling $6,700,
$7,000 and $6,000 in 2000, 1999 and 1998, respectively. Company matching
contributions, if any, are determined by the Company at its sole discretion.
Company contributions under the Plan totaled $270,000, $167,000 and $120,000 in
2000, 1999 and 1998, respectively.

10. COLLABORATIVE AGREEMENTS

The Company has entered into the following collaborative agreements:

ULTRA-HIGH THROUGHPUT SCREENING SYSTEM AND SCREEN DEVELOPMENT AGREEMENTS

The Company entered into collaborative agreements (the "Agreements") with BMS
and Eli Lilly and Company, Inc. ("Lilly") in 1996, Warner-Lambert (acquired by
Pfizer in 2000), Merck in 1997, and Pfizer in 1999 (collectively, the
"Collaborators") regarding the development and installation of the Company's
UHTSS Platform at each of the Collaborators. Under the terms of each of the
Agreements, the Company is required to develop and separately install three
modules to be integrated into one complete UHTSS Platform. In return, the
Collaborators are obligated to make certain payments to the Company in the form
of delivery or installation payments, and ongoing research and co-development
funding. The Company is obligated to provide service and support for each
installed UHTSS Platform for a limited period of time. Installation of the UHTSS
Platform at BMS was completed in December 2000. The UHTSS Platforms for the
remaining Collaborators are expected to be installed in 2001.

The Company and the Collaborators will also co-develop high throughput screening
assays for use by the Collaborators. In addition to certain payments to be made
by the Collaborators for the use of these assays and assay technologies, the
Collaborators will also make certain milestone and royalty payments to the
Company if the Collaborators develop and commercialize certain compounds
identified using a screen developed by the Company.

In November 1999, the Company and Lilly agreed to amend their collaborative
research and license agreement and discontinue further development of Lilly's
UHTSS Platform. The companies continued their collaborative screen development
program and Lilly extended its license to certain of the Company's technologies
as part of the amendment.

The Company entered into agreements with Warner-Lambert in 1998 and Pfizer in
1999 to develop an automated master compound storage ("AMCS") system for
long-term housing of chemical and biological compounds.



                                      F-16
<PAGE>   51

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


SCREENING SERVICES AGREEMENTS

Aurora has entered into drug discovery collaborations with Allergan, the Cystic
Fibrosis Foundation, Families of Spinal Muscular Atrophy and the Hereditary
Disease Foundation. The Company has also entered into agreements with
Warner-Lambert, Becton Dickinson and Company and Merck to provide functional
genomics services using the Company's GenomeScreen technology. In addition,
Aurora has entered into agreements in the area of ion channel drug discovery
with certain UHTSS Collaborators, GlaxoSmithKline, the Pharmaceutical Division
of American Home Products, R.W. Johnson Pharmaceutical Research Institute and
Janssen Research Foundation, Organon and Senomyx. Under these agreements, the
Company will develop assays, deliver instrumentation and provide ongoing
scientific and technical support related to ion channels.

The Company intends to continue to enter into such agreements to provide
services. Such agreements vary in length and size, however, under these
agreements, the Company is required to develop screening assays and to perform
screening services. The customer is obligated to make certain payments to the
Company in the form of development payments and fees for screening services.
Generally, the customer is also required to make certain milestones and royalty
payments to Aurora in the event of development and commercialization of a
compound identified using a screen developed by Aurora.

11. BUSINESS COMBINATIONS

In October 2000, Aurora acquired Quorum Sciences, Inc., a development stage
biotechnology company incorporated in April 1998. Quorum Sciences is developing
anti-infective technology based upon the disruption of chemical signaling
between bacteria cells. The merger was effected by exchanging 76,924 shares of
Aurora common stock for all of the outstanding common stock of Quorum Sciences.
Each share of Quorum Sciences was exchanged for approximately 0.028 of one share
of Aurora common stock. In addition, outstanding Quorum Sciences stock options
were converted at the same exchange factor into options to purchase 4,354 shares
of Aurora common stock.

The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements follow:


<TABLE>
<CAPTION>
                                                             Years ended December 31,
                                                 ------------------------------------------------
                                                     2000              1999              1998
                                                 ------------      ------------      ------------
<S>                                              <C>               <C>               <C>
         Revenue:

            Aurora                               $ 63,364,614      $ 50,324,301      $ 26,537,888
            Quorum Sciences                           425,997           197,160            20,000
                                                 ------------      ------------      ------------
              Combined                           $ 63,790,611      $ 50,521,461      $ 26,557,888
                                                 ============      ============      ============

         Net income (loss):

            Aurora                               $  4,653,387      $    151,919      $(18,653,118)
            Quorum Sciences                          (299,961)         (361,236)          (53,557)
                                                 ------------      ------------      ------------
            Combined                             $  4,353,426      $   (209,317)     $(18,706,675)
                                                 ============      ============      ============

         Basic net income (loss) per share
            Aurora                               $       0.23      $       0.01      $      (1.14)
            Quorum Sciences                      $      (6.40)     $      (6.94)     $      (2.22)

         Diluted net income (loss) per share
            Aurora                               $       0.21      $       0.01      $      (1.14)
            Quorum Sciences                      $      (6.40)     $      (6.94)     $      (2.22)
</TABLE>

12. SUBSEQUENT EVENT

In March 2001, Aurora completed a merger with PanVera Corporation, a
biotechnology company based in Madison, Wisconsin, engaged in manufacturing and
marketing protein drug targets and drug screening assays for high-throughput
screening. Aurora acquired all of PanVera's outstanding common stock in a
tax-free, stock for stock transaction, for 1,900,000 shares of Aurora common
stock. The transaction will be accounted for using the pooling-



                                      F-17
<PAGE>   52

                         AURORA BIOSCIENCES CORPORATION
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


of-interests method. The unaudited pro forma combined historical results of
operations, including the results of Aurora for fiscal years ended December 31
and PanVera for fiscal years ended September 30, are as follows:


<TABLE>
<CAPTION>
                                                           Fiscal years ended December 31,
                                                 -----------------------------------------------------
                                                      2000               1999                1998
                                                 --------------     --------------      --------------
<S>                                              <C>                <C>                 <C>
         Revenue                                 $   75,155,509     $   58,327,071      $   33,510,804
         Net income (loss)                       $    4,917,916     $     (188,168)     $  (17,920,945)
         Basic net income (loss) per share       $         0.23     $        (0.01)     $        (1.00)
         Diluted net income (loss) per share     $         0.20     $        (0.01)     $        (1.00)
</TABLE>



                                      F-18