<PAGE>

                                  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, 1998

                                       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 its 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)

                                 (619) 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 19, 
1999, was approximately $90.6 million*.

The number of shares of registrant's Common Stock outstanding as of March 19, 
1999 was 17,042,549.

DOCUMENTS INCORPORATED BY REFERENCE:

Registrant's proxy statement filed in connection with the solicitation of 
proxies for its 1999 Annual Meeting of Stockholders is incorporated by 
reference into Part III of this Form 10-K. Certain Exhibits filed with the 
Registrant's Registration Statement Form S-1 (333-23407), Form 10-Q for the 
quarter ended September 30, 1997, Form 10-K for the year ended December 
31, 1997, Form 10-Q for the quarter ended June 30, 1998 and Form 10-Q for the 
quarter ended September 30, 1998 are incorporated by reference into Part IV 
of this Form 10-K.

-------------------
*Excludes 4,763,513 shares of Common Stock held by directors, executive 
officers and stockholders whose ownership exceeds ten percent of the shares 
outstanding on March 19, 1999. 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.

<PAGE>

                                  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 THE COMPANY'S UHTSS-TM- PLATFORM, UTILIZATION AND 
CAPABILITIES OF THE COMPANY'S TECHNOLOGIES AND THE COMPANY'S ABILITY TO 
INCREASE REVENUE AND ACHIEVE PROFITABILITY. THESE STATEMENTS, WHICH SOMETIMES 
INCLUDE WORDS SUCH AS "EXPECT", "GOAL" OR "WILL", REFLECT THE COMPANY'S 
EXPECTATIONS AND ASSUMPTIONS AS OF THE DATE OF THIS ANNUAL REPORT BASED ON 
CURRENTLY AVAILABLE OPERATING, FINANCIAL AND COMPETITIVE INFORMATION. THE 
COMPANY'S ACTUAL RESULTS AND FINANCIAL PERFORMANCE MAY DIFFER MATERIALLY. 
FACTORS THAT COULD CONTRIBUTE TO DIFFERENCES INCLUDE RISKS INVOLVED WITH THE 
COMPANY'S NEW AND UNCERTAIN TECHNOLOGY, RISKS ASSOCIATED WITH THE DEPENDENCE 
ON PATENTS AND PROPRIETARY RIGHTS, THE ABILITY TO ATTRACT ADDITIONAL 
COLLABORATIVE PARTNERS, DEPENDENCE ON EXISTING PHARMACEUTICAL AND 
BIOTECHNOLOGY COLLABORATIONS AND THE DEVELOPMENT OR AVAILABILITY OF COMPETING 
SYSTEMS. THESE FACTORS AND OTHERS ARE MORE FULLY DESCRIBED IN "RISK FACTORS" 
AND ELSEWHERE IN THIS FORM 10-K.  THE COMPANY ASSUMES NO OBLIGATION TO UPDATE 
ANY FORWARD-LOOKING STATEMENTS.

ITEM 1.      BUSINESS

OVERVIEW

Aurora Biosciences Corporation ("Aurora" or the "Company") designs, develops 
and sells proprietary drug discovery systems, services and technologies to 
accelerate and enhance the discovery of new medicines by the pharmaceutical 
and biopharmaceutical industries. Aurora is developing an integrated 
technology platform comprised of a portfolio of proprietary fluorescent assay 
technologies and its highly automated ultra-high throughput screening system 
(the "UHTSS" Platform) applicable to Aurora's miniaturized NanoWell-TM- Assay 
Plate format. The Company believes that this platform will enable Aurora and 
its collaborators to take advantage of the opportunities created by recent 
advances in genomics and combinatorial chemistry that have generated many new 
therapeutic targets and an abundance of new small molecule compounds. 
Aurora's integrated platform is designed to accelerate the drug discovery 
process by shortening the time required to identify high quality lead 
compounds and to optimize those compounds into drug development candidates.

Aurora's fluorescent assays are currently being used to facilitate the drug 
discovery process through the development of screens for its collaborators. 
These screens have either been delivered to the collaborator or have been 
screened against hundreds of thousands of compounds on Aurora's existing high 
throughput screening system. To significantly advance current high throughput 
screening capabilities, Aurora is developing the UHTSS Platform which is 
expected to be operational by the end of 1999. The system has been designed 
to screen over 100,000 discrete compounds per day utilizing Aurora's 
miniaturized fluorescent assays. If realized, this throughput would be 
approximately ten times faster than conventional high throughput screening 
systems and would conserve expensive and scarce compounds.

Aurora's goal is to become the leader in the development and 
commercialization of technologies to accelerate and enhance the discovery of 
new medicines. The Company's strategy is to diversify business risk by 
generating revenue from multiple collaborators seeking to exploit Aurora's 
fluorescent assay technologies and UHTSS Platform in many different drug 
discovery programs. The Company generates revenue by developing screens, 
providing screening services, providing functional genomics services, 
developing and providing the UHTSS Platform to syndicate members, licensing 
its proprietary technologies, and may ultimately realize royalty and 
milestone payments from the development and commercialization of drug 
candidates identified by its collaborators using Aurora's technologies. The 
Company believes its ability to achieve profitability is not dependent on 
receipt of milestone payments or royalties. To date, the Company has entered 
into collaborative agreements with Bristol-Myers Squibb Pharmaceutical 
Research Institute ("BMS"), Eli Lilly and Company ("Lilly"), Warner-Lambert 
Company ("Warner-Lambert") and Merck & Co., Inc. ("Merck") to license the 
Company's fluorescent assay technologies for their internal discovery 
research, to collaborate on screen development and as initial members of a 
syndicate to co-develop the UHTSS Platform for collaborative research and for 
installation of the UHTSS Platform in their own research facilities. In 
addition, Aurora has developed screens for and/or has provided screening 
services to Allelix Biopharmaceuticals, Inc. ("Allelix"), Roche Bioscience, 
Cytovia, Inc. ("Cytovia"), Pharmacia & Upjohn, Inc. ("P&U") and 
F.Hoffmann-LaRoche Ltd. ("Roche").

THE NEED TO IMPROVE THE DRUG DISCOVERY PROCESS

Drug discovery methods generally involve the synthesis and testing of large 
libraries of different compounds in relatively simple assays, or tests, 
containing targets designed to mimic aspects of a disease process. Assays are 
employed to determine 


                                       2

<PAGE>

the effect of a compound upon a particular target. When applied methodically, 
assays can be used as screens to identify active chemicals, referred to as 
"hits," that may produce a desired effect upon a target's function. Lead 
compounds can be identified by additional screening and profiling of hits and 
may then be optimized to generate candidate compounds for development as 
potential medicines. Secondary testing may be performed to identify potential 
side effects or undesirable pharmaceutical properties of the compounds.

The discovery and development of new medicines remains an expensive, 
time-consuming and often unsuccessful process. Although many pharmaceutical, 
biotechnology and clinical research organizations have significantly improved 
the efficiency of the drug development phase, only about ten percent of 
candidate compounds entering development will ultimately be approved for 
marketing. Candidate compounds that are identified in discovery frequently 
fail in the development phase due to insufficient therapeutic benefit or 
unexpected side effects. To date, efforts to improve the initial discovery 
process have not been adequate to reduce development risks and bottlenecks.

The rapid increases in the number of potential targets and the size of 
compound libraries resulting from advances in genomics and combinatorial 
chemistry, respectively, have created a significant opportunity to discover 
greater numbers of higher quality lead compounds for development into 
medicines. However, the increasing numbers of targets and compounds have 
created severe bottlenecks in the drug discovery process. These bottlenecks 
result from the difficulty of quickly analyzing function and disease 
relevance of newly discovered targets, the complexity of incorporating the 
many different types of targets into screens, and the inability to screen 
extensive compound libraries quickly and at a reasonable cost.

If the discovery process were sufficiently improved, pharmaceutical and 
biotechnology companies could more quickly and efficiently discover larger 
numbers of higher quality candidate compounds that have a greater chance of 
development into medicines that meet significant unmet needs.

BUSINESS STRATEGY

Aurora's goal is to become the leader in the development and 
commercialization of technologies, services, systems and information to 
accelerate and enhance the discovery of new medicines by the pharmaceutical 
and biopharmaceutical industries. The Company intends to continue to 
diversify business risk by exploiting Aurora's fluorescent assay technologies 
and UHTSS Platform in many different drug discovery programs with multiple 
collaborators. To implement this strategy, the Company intends to:

    GENERATE REVENUE FROM SCREEN DEVELOPMENT AND SCREENING SERVICES. Aurora
    generates revenue from multiple collaborators by developing screens for
    diverse targets, primarily on a non-exclusive basis, and providing screening
    services. The Company develops screens with respect to specific targets
    independent of therapeutic area. The developed screen is then either
    transferred to the collaborator for internal research or is utilized by
    Aurora to provide screening services. Currently, Aurora provides such
    screening services using its high throughput screening system to screen the
    compounds for and provide information and potential lead candidates to its
    collaborators. Aurora expects revenue from screening services to increase as
    its own UHTSS Platform is brought on-line by the end of 1999 and additional 
    compounds become available for use in screening customers' targets. 
    Additionally, the Company may receive milestone payments and royalties with 
    respect to compounds, discovered through such screening services, that are 
    developed and commercialized.

    SUPPORT AND ENHANCE THE SYNDICATE FOR THE CO-DEVELOPMENT OF AURORA'S UHTSS 
    PLATFORM.  Aurora established a syndicate to co-develop Aurora's UHTSS 
    Platform. Each member is scheduled to receive its own UHTSS Platform over 
    a specified period for use in its internal drug discovery programs. Through 
    the syndicate, Aurora is able to fund the development of the UHTSS Platform 
    and offer to its syndicate members co-exclusive access to the system. The 
    Company believes that the payments made by each syndicate member will be 
    significantly lower than the cost for any one company to develop a similar 
    system on its own. The existing syndicate agreements provide that certain 
    collaborators may purchase additional systems or components. The Company 
    believes that these agreements represent a customer base that may provide 
    an opportunity for significant further revenue generation as Aurora expands 
    the UHTSS technology platform or develops enhancements to the system.

    FORM FUNCTIONAL GENOMICS COLLABORATIONS. The Company is establishing
    corporate collaborations based on its novel program for functional genomics
    in human cells. This program is based primarily on the Company's
    beta-lactamase ("beta-lactamase") reporter system and utilizes human cell
    lines. The technology also allows for target identification and pathway
    elucidation. These collaborations may generate significant revenues for
    research services in analyzing gene function and rapidly generating novel
    cell-based assays for high throughput screening and lead identification in
    multiple 


                                       3

<PAGE>

    therapeutic areas. Collaborations based on this technology were
    established with Warner-Lambert in January 1999 and Beckton-Dickinson in
    March 1999. The Company plans to continue to negotiate milestones and
    royalties on compounds identified and developed through such collaborations.
    In addition, two SBIR grants have been awarded to Aurora from the National
    Cancer Institute for research using the technology.

    INTELLECTUAL PROPERTY. Aurora has a broad portfolio of intellectual property
    that has been developed by Aurora, licensed non-exclusively or licensed on
    an exclusive basis with rights to sublicense. Aurora expanded the portfolio
    during 1998 and plans to increase its license and sublicense activity to
    provide additional revenue, as exemplified by the recent agreements with
    Acacia, Inc. and Clontech Laboratories, Inc.

    EXPAND COMPOUND LIBRARIES. In providing screening services, Aurora will
    utilize compounds that are either supplied by its collaborators or from
    compound libraries provided by Aurora. In addition to compounds Aurora has
    purchased or licensed to date, the Company has entered into a collaboration
    with SIDDCO, Inc., a company specializing in combinatorial chemistry, to
    synthesize large numbers of compounds for Aurora's own use and to provide to
    collaborators.

    DEVELOP INFORMATION TOOLS AND DATABASES. Utilizing the fluorescent assay
    technologies and the UHTSS Platform, the Company expects to have the ability
    to generate and analyze large amounts of complex information on molecular 
    and genomic targets and large numbers of chemical structures. Aurora intends
    to exploit these applications of its technology either directly or in
    collaborations with leaders in the areas of informatics, genomics and drug
    discovery. Ultimately, the Company plans to leverage this information to
    create new revenue opportunities in the future.

    MAINTAIN TECHNOLOGY LEADERSHIP. The Company has assembled a unique
    multi-disciplinary team of scientists from leading companies in the biology,
    chemistry, instrumentation, automation and computer science industries.
    Aurora intends to continue investing significantly in research and
    development in order to make advances in its core technologies and expand
    its technology platform in order to maintain its technology leadership. The
    Company also intends to continue to form strategic technology alliances with
    leading companies from each of these industries and with leading academic
    institutions to provide the Company with access to those parties'
    technologies and expertise.

AURORA'S TECHNOLOGY

The principal components of Aurora's integrated technology platform are its 
proprietary fluorescent assay technologies, its human cell functional 
genomics and GenomeScreen-TM- technology and its highly automated UHTSS Platform
that is being developed for screening miniaturized assays. This unique platform 
results from the Company's innovative integration of many different 
disciplines, including fluorescence chemistry, biophysics, molecular biology, 
protein engineering, automation, process control, optics, microfluidics, 
informatics and software development.

AURORA'S PROPRIETARY FLUORESCENT ASSAY TECHNOLOGIES

The Company has internally developed or licensed a broad range of proprietary 
fluorescent assay technologies that the Company believes exhibit significant 
advantages over existing screening assays. The Company's fluorescent assay 
technologies utilize light glowing from fluorescent molecules to reveal 
molecular and cellular activity with precision and sensitivity, generally 
indicated by a change in color. Aurora's fluorescent assay technologies allow 
monitoring of the function of tiny amounts of biomolecules in a 
non-destructive manner. Therefore, many aspects of cell function can now be 
observed in single living cells.

Aurora's portfolio of fluorescent assay technologies is designed to enable 
screening of compounds against nearly all major classes of human drug 
targets, including receptors, ion channels, proteases, kinases and other 
enzymes, in most therapeutic areas. The Company has developed numerous assays 
in several target classes utilizing the Company's fluorescent assay 
technologies. The following chart summarizes several of Aurora's key 
fluorescent assay technologies, together with examples of the classes of 
targets and therapeutic areas to which they may be applicable:


                                       4

<PAGE>

<TABLE>
<CAPTION>
        ASSAY TECHNOLOGY                   TARGET CLASSES                    THERAPEUTIC AREA
        ----------------                   --------------                    ----------------
      <S>                                  <C>                               <C>
       BETA-LACTAMASE REPORTER GENE        cell surface receptors,           Most areas, including cardiovascular
       SYSTEM                              intra-cellular receptors,         diseases, inflammation, cancer, central
       (cell-based assays)                 signaling proteins and proteases  nervous system diseases, endocrine
                                                                             diseases and viral infection

       MEMBRANE VOLTAGE REPORTERS          ion channels                      Cardiac diseases, central nervous
       (cell-based assays)                                                   system conditions and gastro-intestinal
                                                                             diseases

       GFP REPORTERS (biochemical and      proteases, kinases and            Cardiovascular diseases, inflammation,
       cell-based assays)                  protein-protein interactions      degenerative brain diseases and cancer

       PROMISCUOUS G-PROTEINS              G-protein coupled receptors       Most areas, including cardiovascular
       (cell-based assays)                                                   diseases, inflammation, cancer, central
                                                                             nervous system diseases and endocrine
                                                                             diseases

       FLASH                               signaling pathways, proteases     Most areas, including cardiovascular
       (biochemical and cell-based         and protein-protein interactions  diseases, inflammation, cancer, central
       assays)                                                               nervous system diseases and endocrine
                                                                             diseases

       FLUORESCENT PROBES                  Cytochrome P450,                  Compound profiling for metabolism and
                                           drug-metabolizing enzymes         drug interactions
</TABLE>

BETA-LACTAMASE REPORTER GENE SYSTEM

The Company has successfully utilized an engineered bacterial enzyme, 
beta-lactamase, as a reporter gene in mammalian cells in assays suitable for 
high throughput screening. The beta-lactamase reporter system is an important 
advance in reporter gene technology that can be used to design drug screens 
for a number of major classes of drug targets as noted in the chart above. 
Functional cell-based assays have a number of advantages over the commonly 
used binding assays that detect interaction of test compounds with targets 
isolated from their natural cellular environment. The Company's 
beta-lactamase reporter system allows drug screens to be constructed in the 
more physiological environment of mammalian cells, does not require the use 
of radioactivity and can readily distinguish between agonists and 
antagonists. In addition, the beta-lactamase reporter system can facilitate 
the search for compounds acting on newly discovered target receptors where no 
natural ligands have been identified, also known as orphan receptors. Certain 
aspects of the beta-lactamase reporter system were exclusively licensed from 
the Regents of the University of California.

The beta-lactamase reporter system has demonstrated the potential to 
greatly reduce both the time and cost of developing cell-based screens based 
on the ability to measure activation responses in single living cells. Even 
with modern techniques for making genetically engineered cells, cell line 
development is an unpredictable process. Making cell lines for reporter gene 
assays with current methods usually takes many months and involves testing 
hundreds or even thousands of individual cell "clones" to generate a usable 
screening assay. In contrast, the beta-lactamase reporter system employs 
the power of fluorescence-activated cell sorting, which can rapidly isolate 
the living cells in which the reporter gene is connected to the right 
signaling elements. Thus, with the Company's beta-lactamase reporter 
system, development time for a target into a cell-based assay can be reduced 
to weeks instead of months. The Company has developed numerous screens using 
beta-lactamase.

MEMBRANE VOLTAGE REPORTERS

Membrane proteins control membrane voltage, a fundamental property of cells. 
Unregulated membrane voltage can cause serious medical conditions. Thus, 
membrane proteins, particularly ion channels, help regulate membrane voltage 
and can be targets for drug discovery in major disease areas such as 
neurology and cardiology. Important medicines acting on ion channels include 
certain anti-epileptic and anti-arrhythmic medicines. However, screening in 
this area is typically limited to testing compounds with an electrical 
measuring apparatus, which requires skilled scientists and has a low 
throughput of only tens of compounds per day. There has been some success in 
adapting an existing type of fluorescent probe of membrane voltage for 
semi-automated screening. The Company believes that this approach is likely 
to have too slow of a response to report on many relevant ion channel 
targets, and can be susceptible to artifacts which limit assay performance.


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Aurora's proprietary membrane voltage reporters incorporate fluorescence 
technology to permit more reliable detection of changes in membrane voltage 
and should provide faster responses. The Company believes that assays 
incorporating its membrane voltage reporters will be adaptable for sub-types 
of ion channels, several of which are currently the targets of screening 
programs in pharmaceutical company research departments and in certain 
specialized biotechnology companies. The Company's scientists have developed 
19 assays using Aurora's membrane voltage reporters. The Company has also 
developed a proprietary ion probe reader that works in conjunction with this 
assay technology called the VIPR-TM- voltage ion probe reader.

The Company is utilizing the VIPR, which is designed to permit the use of the 
Company's fluorescent voltage sensor technology for high throughput screening 
of ion channel targets in 96-well plates, at its own facilities to perform 
high throughput screening services for customers and has provided the VIPR to 
three collaborators.

PROPRIETARY ENHANCED FLUORESCENCE VARIANTS OF GREEN FLUORESCENT PROTEIN

Green Fluorescent Protein ("GFP") is a naturally fluorescent protein 
discovered in light-producing jellyfish. The fluorescence of GFP is an 
intrinsic property of the protein and, therefore, the protein requires no 
additional chemicals to make it fluoresce. This feature of GFP allows it to 
be expressed within genetically engineered mammalian cells and to provide an 
intracellular reporter with its own fluorescence. Using various techniques of 
protein engineering, Aurora has developed several mutants, or variants, of 
the naturally occurring type of GFP, which are readily expressed in mammalian 
cells and provide much brighter fluorescence than that of the naturally 
occurring GFP protein. Certain aspects of Aurora's technology related to GFP 
reporters are exclusively licensed from the Regents of the University of 
California and from the University of Oregon. The Company has also engineered 
variants that have significantly different excitation and emission 
wavelengths and hence they fluoresce with different colors. At present, the 
Company utilizes four main proprietary GFP variants: cyan, blue, green and 
yellow, and has a co-exclusive licensing agreement with Clontech Laboratories 
to commercialize certain technology related to GFP reporters.

The Company believes that the main application for GFP in drug discovery 
requires the further engineering of GFP variants to produce reporters of 
important biologic modifications to proteins, such as protein cleavage by 
proteases and protein phosphorylation by protein kinases. The Company has 
developed certain tandem GFP protease assays that can be used to monitor 
protease activity in intact cells. 

Additionally, the Company has obtained an exclusive worldwide license from 
the University of California for the cameleon indicators reported in NATURE 
Vol. 388, pages 882-887, August 1997. These indicators consist of fusion of 
pairs of differently colored mutants of GFP, together with calmodulin and a 
calmodulin binding peptide. The Company believes that the cameleon reporters 
demonstrate how GFP mutants can report changes in protein structure and 
protein-protein interactions from within living cells.

PROMISCUOUS G-PROTEINS (G-PROTEIN COUPLED RECEPTORS)

The Company has an exclusive license from the California Institute of 
Technology to the use of "promiscuous" G-proteins, which are "universal 
adapters" that couple to a wide range of receptors of this family of targets 
to a signaling pathway that is well suited to certain of the Company's 
fluorescent assays. Thus, the Company believes that its proprietary 
promiscuous G-protein methods can be helpful in developing screens containing 
G-protein coupled receptors previously difficult to incorporate into 
mammalian cell-based assays. The promiscuous G-proteins may also be useful in 
constructing screens for orphan receptors that can be used to search for 
compounds that activate such receptors as tools to help analyze the function 
of these newly discovered genes. The Company has established a strong 
G-protein coupled receptor ("GPCR") platform by developing a number of assays 
for itself and others in several target classes and announced a collaboration 
in February 1999 with Pharmacia & Upjohn, Inc. involving the development of 
assays for a number of "orphan" GPCRs.

FLASH

The FLASH system provides a means of singling out a chosen protein from the 
many others inside live cells by fluorescently staining it with small 
non-fluorescent dye molecules added from outside the cells. Modification of 
the target protein may be 


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<PAGE>

as subtle as changing only four of its amino acids. The new fluorescent label 
is much smaller and thus potentially less perturbing of biological activity 
than other labels, such as GFP, which have been widely used to genetically 
tag proteins. Aurora has obtained an exclusive license to the FLASH 
technology from the Regents of the University of California.

FLUORESCENT PROBES

Aurora scientists have invented novel fluorescent substrates that allow 
sensitive assays suitable for miniaturization for the major classes of human 
cytochrome P450 liver enzymes. Cytochrome P450 enzymes are responsible for 
clearing foreign substances from the body, and are often involved in 
restricting the amount of a drug within the body. Drug substances that 
interact strongly with cytochrome P450 enzymes have the potential to either 
require multiple daily dosing or to cause adverse effects or interactions 
with other drugs being given concurrently. Currently available assays for 
cytochrome P450 enzymes are relatively insensitive and are not suitable for 
miniaturized assay formats. Aurora's new substrates should allow inexpensive 
profiling of large libraries of compounds to help in the selection of 
superior candidates for development as new medicines.

FUNCTIONAL GENOMICS

During 1998, the Company continued to build its functional genomics program 
featuring the company's proprietary GenomeScreen-TM- technology. This program 
relies on the proprietary beta-lactamase gene reporter systems that enables 
quantitation of transcription and clonal selection of single living cells 
without apparent adverse effects (SCIENCE 279, 84-88, 1998). For functional 
analysis, beta-lactamase can be introduced into the genome in a range of 
immortalized human cell types, with one copy of the beta-lactamase gene per 
cell and with a sufficient number of cells so that nearly every gene in the 
genome is tagged with beta-lactamase. This results in a living library of 
millions of individually tagged clones that can be used to monitor real-time 
transcriptional responses to physiologic or pharmacologic stimulation of 
human cells, and for sequence identification and molecular cloning of the 
tagged genes.

This technology allows generation of information that can be used to 
elucidate the signaling pathway(s) used by a specific target or molecule of 
interest including: known or orphan GPCRs, cytokine receptors, transcription 
factors, oncogenes, tumor suppressors genes, kinases, secreted proteins, 
ligands, viruses, drugs or any other molecules that modulate signal 
transudation pathways in human cells. A key advantage of this approach is 
that their sensitive and reliable fluorescent readouts enable ultra-high 
throughput sorting, at rates greater than 10 million cells per hour, of any 
desired clones by flow cytometry. This "target set" of responsive cell clones 
can then be used for functional analysis and cell-based high throughput 
screening.

The first collaboration using the GenomeScreen technology was initiated in 
January 1999 with one of Aurora's UHTSS syndicate members, Warner-Lambert. 
The technology was highlighted in the cover article for NATURE BIOTECHNOLOGY, 
Vol. 16, Number 13, December 1998, and is the focus of two SBIR grants 
awarded to the Company by the National Cancer Institute. In March 1999, the 
Company entered into a collaboration with Becton Dickinson to utilize the 
GenomeScreen technology for identification of genes useful as drug screening 
targets.

UHTSS PLATFORM

The Company believes that, because most current high throughput screening 
systems have been developed without an adequately integrated design concept, 
it can be challenging to improve performance at certain rate-limiting steps 
without creating almost equally limiting bottlenecks elsewhere in the 
process. To overcome these limitations and to exploit the power of its 
fluorescent assay technologies, Aurora's UHTSS Platform is being designed 
using an integrated approach that combines a wide array of expertise and 
technologies. The first UHTSS Platform is expected to be operational at 
Aurora by the end of 1999.

AUTOMATED STORAGE AND RETRIEVAL SYSTEM

The UHTSS Compound Store is an automated storage and retrieval system 
designed to house over 1,500,000 compounds in solution for rapid access. The 
robotic systems for storage and retrieval of compounds have been adapted from 
other industrial settings where automated, rapid access to very large stores 
of small items has been reliably deployed. Aurora's own proprietary 
innovations have been added to adapt these advanced technologies to the UHTSS 
Platform. The system is designed to deliver and return over 100,000 selected 
compounds per day for primary screening and over 2,000 hits for re-test 

                                      7

<PAGE>

and potency determination as well as allow ready replenishment of the 
compound store from libraries in the master store. The ability to deliver 
selected compounds to the screen at ultra-high rates under computer control 
is a key advance offered by the Aurora platform. The automated storage and 
retrieval system can facilitate high throughput screening in conventional 
96-well and 384-well plates today. This system, along with certain plate 
handling and plate replication components such as the UHTSS High Capacity 
Stacker System and the UHTSS Automated Plate Replication System, is referred 
to as UHTSS Module 1 and has been delivered to BMS, Lilly and Warner-Lambert.

NANOWELL-TM- ASSAY PLATES FOR MINIATURIZED SCREENING ASSAYS

Another key component of Aurora's UHTSS Platform is the NanoWell Assay Plate 
which has 3,456 miniaturized wells in which fluorescent assay screens may be 
performed. The Company has developed a manufacturing system for disposable 
NanoWell Assay Plates with external collaborators. A key feature is the small 
assay volume, approximately 100 times smaller than in conventional screening 
assays. This volume reduction is critical for reducing the cost per test and 
conserving compound libraries that often consist of only very small amounts 
of each test compound. The NanoWell Assay Plates have been demonstrated to be 
compatible with most of Aurora's fluorescent assay technologies.

MICROFLUIDICS: COMPOUND AND ASSAY COMPONENT DISPENSING

The Company has developed novel microfluidic technologies to accurately 
transfer microscopic volumes of the compounds into the miniature assay wells 
of the NanoWell Assay Plates, at rates of up to 10,000 wells per hour. While 
current screening systems can dispense volumes down to a microliter (one 
millionth of a liter), Aurora's miniaturized screening dispensers are capable 
of volumes less than one billionth of a liter. These dispensers are designed 
to remove compounds from the storage plates and dispense precise 
sub-nanoliter volumes into the appropriate wells of the NanoWell Plates at 
high speed. The Company is incorporating these devices into proprietary 
robotic platforms designed to enable the precise location of the various 
components in a manner superior to available compound dispensing technology. 
To date, the Company has used prototype nanoliter dispensing devices to 
perform test assays in prototype NanoWell Plates. Major components include 
the NanoPlate Piezo Sample Distribution Robot for dispensing selected 
compounds into microplates, the NanoPlate Reagent Dispensing Robot for 
dispensing reagents into microplates and the UHTSS Hit Profiling Robot for 
retrieving and reformatting selected wells of multiple source microplates 
into a single microplate for re-testing.

NANOPLATE FLUORESCENCE PLATE READER

Aurora has developed highly sensitive fluorescence detectors capable of 
measuring miniaturized fluorescent assays in NanoWell Assay Plates. The 
Company believes that other existing fluorescence plate readers would not 
have the necessary sensitivity and precision to enable ultra-high throughput 
miniaturized screens. The Aurora detector is designed to record and process, 
in real time, data from more than 25,000 assays per hour. The Company 
believes that the resulting quality of the fluorescent assays should minimize 
the number of replicates required compared to traditional screening, thereby 
increasing throughput and decreasing costs.

The previous three sections describe the miniaturization components of the 
UHTSS Platform and are collectively referred to as Module 2. The Company is 
currently manufacturing Module 2 components for shipment to BMS and Lilly in 
the first half of 1999.

INFORMATICS AND SYSTEM INTEGRATION

The UHTSS Platform is being designed to link the automated storage and 
retrieval system to existing chemistry information databases and master 
compound store inventories through a user-friendly computer control system. 
The integrated UHTSS Platform will be designed to efficiently capture, 
process and deposit in a centralized database the large amount of screening 
data from the UHTSS Platform using advanced software tools and systems from 
leading providers. While some of the basic software and hardware components 
for the UHTSS informatics system are being acquired from leading suppliers, 
the supervisory control systems, the subsystem controllers for the 
instruments, the data analysis tools and overall system architecture and 
database structure for the UHTSS Platform are being developed by the 
Company's in-house informatics team. This portion of the UHTSS Platform is 
referred to as Module 3.

AMCS


                                       8

<PAGE>

The Company is developing an automated master compound store ("AMCS") for its 
own use and pursuant to an agreement with Warner-Lambert. The AMCS is a 
modular storage assemblage designed for long-term frozen and solid storage of 
chemical libraries under environmental control for over 9 million samples. 
The design provides for monitoring systems to track compound utilization, 
expiration and availability. The system will also handle and store various 
types of containers such as vials, tubes, 96 and 384 well plates, and the 
NanoWell Assay Plate. Other features of the AMCS will include a 
semi-automated weighing subsystem to handle compounds in solid, powder and 
frozen form, and automated subsystems for handling liquid samples, as well as 
an automated storage and retrieval system.

CORPORATE COLLABORATIONS

Aurora has entered into a number of corporate collaborations for the 
co-development of the Company's UHTSS Platform and for screen development and 
screening services. Customer-sponsored research and development expenses 
totaled approximately $5.7 million and $1.8 million in 1998 and 1997, 
respectively. Company-sponsored research and development expenses totaled 
approximately $11.4 million, $3.6 million and $4.4 million in 1998, 1997 and 
1996, respectively.  The Company's material collaborations and their major 
features are summarized below:

BRISTOL-MYERS SQUIBB. In November 1996, the Company and BMS entered into a 
Collaborative Research and License Agreement (the "BMS Agreement") regarding 
the development of the Company's UHTSS Platform and the installation of the 
UHTSS Platform at BMS. Under the terms of the BMS Agreement, the Company is 
required to develop and separately install three components to be integrated 
into one complete UHTSS Platform. In return, BMS is obligated to make certain 
payments to the Company in the form of non-refundable upfront fees, 
installation payments and ongoing research and co-development funding. The 
Company is obligated to service and support the UHTSS Platform in accordance 
with the BMS Agreement for twelve months following acceptance of the 
operational UHTSS Platform. The UHTSS Module 1 was accepted by BMS in 
November 1997, and individual microfluidics and miniaturization components of 
the Module 2 were successfully demonstrated to BMS in December 1998. Those 
components are scheduled for shipment in the first half of 1999.

The Company and BMS also co-develop high throughput screening assays for use 
by BMS in exchange for specified fees from BMS. Certain target screens 
developed by the Company for BMS will be exclusive for a limited period of 
time. In exchange for certain additional payments to Aurora, BMS also has the 
right to use the Company's fluorescent assay technologies for internal 
research and drug development, including the development of screening assays. 
BMS will also make certain milestone and royalty payments to Aurora 
principally for compounds developed and commercialized by BMS which were 
identified using a screen developed by Aurora.

Under the terms of the BMS Agreement, subject to certain conditions, the 
UHTSS syndicate is restricted to six members for a limited period. BMS may 
withdraw from the development of the UHTSS at any time without cause, 
provided that certain withdrawal payments have been made. BMS may also 
withdraw from the development of the UHTSS Platform for "good cause," as 
defined in the agreement, without obligation to make further payments 
relating to development of the UHTSS Platform. Each party also has the right 
to terminate the agreement upon the material breach by the other party of its 
obligations under the agreement. The BMS Agreement also provides for 
penalties payable by the Company if it fails to deliver the completed UHTSS 
Platform by a specified time. As of December 31, 1998, the Company expects to 
meet the specified delivery dates.

ELI LILLY AND COMPANY. In December 1996, the Company and Lilly entered into a 
Collaborative Research and License Agreement (the "Lilly Agreement") 
regarding the development of the Company's UHTSS Platform and the 
installation of the UHTSS Platform at Lilly. Under the terms of the Lilly 
Agreement, the Company is required to develop and separately install three 
components to be integrated into one complete UHTSS Platform. In return, 
Lilly is obligated to make certain payments to the Company in the form of 
non-refundable upfront fees, delivery payments and ongoing co-development 
funding. The Company is obligated to service and support the UHTSS Platform
in accordance with the Lilly Agreement for twelve months following acceptance 
of the operational UHTSS Platform. The UHTSS Module 1 was accepted by Lilly 
in December 1997, and individual microfluidics and miniaturization components 
of the Module 2 were successfully demonstrated to Lilly in December 1998. 
Those components are scheduled for shipment in the first half of 1999.

The Company and Lilly also co-develop high throughput screening assays for 
use by Lilly in exchange for specified fees from Lilly. In exchange for 
certain additional payments to Aurora, Lilly also has the right to use the 
Company's fluorescent assay technologies for internal research and drug 
development, including the development of screening assays. Lilly will also 
make certain milestone and royalty payments to Aurora principally for 
compounds developed and commercialized by Lilly which were identified using a 
screen developed by Aurora, subject to certain limitations on the royalties.


                                       9

<PAGE>

Under the terms of the Lilly Agreement, subject to certain conditions, the 
UHTSS syndicate is restricted to six members for a limited period of time. 
Lilly may terminate the agreement at any time without cause upon 45 days 
written notice to Aurora, provided that certain withdrawal payments are made. 
Each party has the right to terminate the agreement upon the material breach 
by the other party of its obligations under the agreement. The Lilly 
Agreement also provides for penalties payable by the Company if it fails to 
deliver the completed UHTSS by a specified time. As of December 31, 1998, the 
Company expects to meet the specified delivery dates.

WARNER-LAMBERT COMPANY. In September 1997, the Company and Warner-Lambert 
entered into a Collaborative Research and License Agreement (the 
"Warner-Lambert Agreement") regarding the development of the Company's UHTSS 
Platform and the installation of the UHTSS Platform at Warner-Lambert. Under 
the terms of the Warner-Lambert Agreement, the Company is required to develop 
and separately install three components to be integrated into one complete 
UHTSS Platform. In return, Warner-Lambert is obligated to make certain 
payments to the Company in the form of non-refundable upfront fees, milestone 
payments, delivery payments and ongoing co-development funding. The Company 
is obligated to service and support the UHTSS Platform in accordance with the 
Warner-Lambert Agreement for twelve months following acceptance of the 
operational UHTSS Platform. The UHTSS Module 1 was accepted by Warner-Lambert 
in September 1998.

The Company and Warner-Lambert also co-develop high throughput screening 
assays for use by the Company on its current high throughput screening system 
and for use by Warner-Lambert in exchange for specified fees from 
Warner-Lambert. In exchange for certain additional payments to Aurora, 
Warner-Lambert also has the right to use the Company's fluorescent assay 
technologies for internal research and drug development, including the 
development of screening assays. Warner-Lambert will also make certain 
milestone and royalty payments to Aurora for certain compounds developed and 
commercialized by Warner-Lambert which were identified using a screen 
developed by Aurora.

Under the terms of the Warner-Lambert Agreement, subject to certain 
conditions, the UHTSS syndicate is restricted to six members for a limited 
period. Warner-Lambert may terminate the agreement at any time without cause 
upon 45 days written notice to Aurora, provided that certain withdrawal 
payments are made. Each party has the right to terminate the agreement upon 
the material breach by the other party of its obligations under the agreement.

Two additional agreements have been signed with Warner-Lambert. The first, 
signed in September 1998, is for the development of an automated master 
compound store for long-term storage of the company-wide sample inventory 
under environmental control and in various formats. Under the second 
agreement, signed in January 1999, Aurora and Warner-Lambert will utilize 
aspects of Aurora's functional genomics GenomeScreen program to characterize 
and profile effects of a number of compounds on gene expression in a human 
cell line. Aurora will receive research funding, payment upon isolation and 
delivery of cell clones with identified genes, and, potentially, milestones 
and royalty payments if compounds for development are discovered as a result 
of this work.

MERCK & CO., INC. In December 1997, the Company and Merck entered into a 
Collaborative Research and License Agreement (the "Merck Agreement") 
regarding the development of the Company's UHTSS Platform and the 
installation of the UHTSS Platform at Merck. Under the terms of the Merck 
Agreement, the Company is required to develop and separately install three 
components to be integrated into one complete UHTSS Platform. In return, 
Merck is obligated to make certain payments to the Company in the form of 
non-refundable upfront fees, delivery payments and ongoing co-development 
funding. The Company is obligated to service and support the UHTSS Platform 
in accordance with the Merck Agreement for twelve months following acceptance 
of the operational UHTSS Platform.

The Company and Merck also co-develop high throughput screening assays for 
use by Merck in exchange for specified fees from Merck. In exchange for 
certain additional payments to Aurora, Merck also has the right to use the 
Company's fluorescent assay technologies for internal research and drug 
development, including the development of screening assays. Merck will also 
make certain milestone and royalty payments to Aurora for certain compounds 
developed and commercialized by Merck using a screen developed by Aurora.

Under the terms of the Merck Agreement, subject to certain conditions, the 
UHTSS syndicate is restricted to six members for a limited period. Merck may 
terminate the agreement at any time without cause upon 90 days written notice 
to Aurora, provided that certain withdrawal payments are made. Each party has 
the right to terminate the agreement upon the material breach by the other 
party of its obligations under the agreement.


                                      10

<PAGE>

CYTOVIA, INC. In July 1998, Aurora and Cytovia entered into a collaboration 
under which Aurora will provide its high throughput screening services, 
compound library and informatics capabilities and Cytovia will provide its 
proprietary fluorogenic protease substrates and live-cell screening 
technology. The two companies will conduct screening programs to identify new 
drug leads for cancer and degenerative diseases. Cytovia will receive rights 
to develop and commercialize any new drug leads identified as a result of the 
collaboration. Aurora receives fees from Cytovia for compound access and 
screening services, and could receive development milestones as well as 
royalties if compounds identified under the collaboration are developed and 
commercialized.

PHARMACIA & UPJOHN, INC. In February 1999, the Company and Pharmacia & Upjohn 
entered into an agreement for Aurora to provide assay development and 
screening services to Pharmacia & Upjohn. Pharmacia & Upjohn will fund a 
dedicated assay development team at Aurora that will utilize Aurora's high 
sensitivity fluorescent assay technology to develop assays for a number of 
orphan G-protein coupled receptors identified by Pharmacia & Upjohn's 
genomics program. Aurora will also screen compound libraries provided by 
Pharmacia & Upjohn to identify "hit" molecules, using Aurora's proprietary 
screening systems, at a predetermined minimum level and for a separate fee. 
Aurora could receive research and development milestones, as well as 
royalties, on compounds identified by screens generated through the 
collaboration.

F.HOFFMAN-LAROCHE. In February 1999, the Company and Roche entered into an 
agreement for Aurora to provide a dedicated screen development and technology 
transfer resource to Roche which will develop screens for up to 12 Roche 
targets in the first year. Aurora will provide screen development and 
technology transfer support for a team at Aurora and at Roche's research 
facilities globally. In addition to the payments for screen development, 
technology transfer services and licenses, Roche will make research and 
development payments to Aurora for compounds identified through screens 
generated under the collaboration, and royalties if compounds are 
commercialized.

BECKTON DICKINSON. In March 1999, the Company entered into an agreement with 
Becton Dickinson to utilize Aurora's GenomeScreen technology for the 
identification of genes useful as drug screening targets. Aurora will receive 
research funding in support of the collaborative effort, and the parties will 
evaluate opportunities for future commercialization.

UHTSS TECHNOLOGY ALLIANCES

In 1996, the Company entered into strategic technology alliances with Packard 
Instrument Company ("Packard") and Carl Creative Systems to design, develop 
and implement certain instrumentation components of Aurora's UHTSS Platform, 
including microfluidics devices and fluorescence detectors. In February 1998, 
Packard and the Company amended the agreement to redefine certain aspects of 
market exclusivity for piezo-electric microfluidic devices and fluorescent 
detection and to transfer responsibility for and manufacture of NanoWell 
Plates to Aurora. In October 1998, the collaboration and license agreement 
with Packard was concluded by mutual consent of the two companies. Aurora 
assumed responsibility for development and production of the instrumentation 
required for its UHTSS platform. The work conducted under the Company's 
agreement with Carl Creative Systems is substantially completed.

In 1996, the Company entered into a technology alliance with Universal 
Technologies, Inc. ("UTI") relating principally to automated storage and 
retrieval systems which are significant components of the Company's UHTSS 
platform and the AMCS project. Such storage and retrieval instrumentation has 
been incorporated into the storage and retrieval components of the UHTSS 
Platform that have been accepted by BMS, Lilly and Warner-Lambert.

PATENTS AND PROPRIETARY RIGHTS

The Company's patent portfolio includes over 110 patent applications filed in 
the United States and foreign patent jurisdictions. The Company is either the 
assignee or exclusive licensee of these patent rights, including issued 
patents on the Company's GFP technology and beta-lactamase technology as 
well as six allowed applications on other technologies. The Company is the 
exclusive licensee of four issued U.S. patents. Certain aspects of the 
Company's technology related to GFP reporters, beta-lactamase based 
reporters, protease reporters, kinase reporters, and membrane voltage 
reporters are exclusively licensed from The Regents of the University of 
California ("The Regents"). Pursuant to the terms of the Exclusive License 
Agreement between the Company and The Regents, the Company is obligated to 
pay expenses associated with patent prosecution and maintenance, certain 
license issue fees and royalties to the Regents. Certain aspects of the 
Company's technology related to GFP reporters are exclusively licensed from 
the University of Oregon ("UO"). Pursuant to the terms of the License 
Agreement between the Company and UO, the Company is obligated to pay to UO 
expenses associated with 


                                      11

<PAGE>

patent prosecution and maintenance, certain annual payments and, upon the 
issuance of a patent related to the subject technology, to issue shares of 
the Company's Common Stock to UO. Certain aspects of the Company's technology 
related to G-protein coupled receptor reporters are exclusively licensed from 
the California Institute of Technology ("Cal Tech"). In connection with the 
execution of the License Agreement between the Company and Cal Tech, the 
Company became obligated to pay certain expenses associated with patent 
prosecution and maintenance, and the Company issued shares of its Common 
Stock to Cal Tech.

The Company has obtained a non-exclusive license from SIBIA Neurosciences, 
Inc. ("SIBIA"), with certain rights to sublicense, under patent rights 
covering certain transcription-based assay technology (which relates to 
certain uses of reporter genes) for screening. Pursuant to the terms of the 
Non-Exclusive Cross-License Agreement between the Company and SIBIA, the 
Company granted SIBIA a non-exclusive license to certain of Aurora's 
technologies, and the Company issued to SIBIA shares of the Company's Common 
Stock. The Company and SIBIA are also obligated to pay each other certain 
royalties.

In May 1998, the Company obtained a non-exclusive license and certain 
sub-licensing rights to OSI Pharmaceuticals, Inc.'s ("OSI") issued reporter 
gene patent and options to OSI's Methods of Modulation patent, for which the 
U.S. Patent Office has allowed claims. Pursuant to the terms of the 
agreement, OSI received Aurora common stock and cash and OSI will also 
receive revenues from any sub-licenses granted by Aurora to its 
pharmaceutical partners, plus annual fees and milestone and royalty payments 
under pre-agreed terms from any option taken by Aurora or its partners to 
develop small molecule gene transcription modulators encompassed by the 
Methods of Modulation claims.

In June 1998, the Company obtained a non-exclusive license to Xenometrix, 
Inc.'s ("Xenometrix") gene expression profiling patents, giving Aurora 
license to an issued European patent and a pending U.S. patent, and certain 
rights of sub-license. The license covers gene expression profiling utilizing 
methods other than high-density olligonucleotide microarrays.

The Company is dependent on the rights licensed from such parties. Any 
challenge to, invalidation or loss of such rights could have a material 
adverse effect on the business, financial condition and results of operation 
of the Company.

EMPLOYEES

As of March 19, 1999, the Company had 167 full-time employees, 38 of whom 
hold M.D. or Ph.D. degrees and 24 of whom hold other advanced degrees. The 
Company's future success depends in significant part upon the continued 
service of its key scientific, technical and senior management personnel and 
its continuing ability to attract and retain highly qualified technical and 
managerial personnel. None of the Company's employees is represented by a 
labor union or covered by a collective bargaining agreement. The Company has 
not experienced any work stoppages and considers its relations with its 
employees to be good.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company are as follows:

<TABLE>
<CAPTION>
       NAME                            AGE    POSITION
       ----                            ---    --------
       <S>                             <C>    <S>
       Timothy J. Rink                  52    Chairman of the Board, President
                                              and Chief Executive Officer
       Paul J. England                  55    Senior Vice President, Research
       Paul A. Grayson                  34    Senior Vice President, Corporate
                                              Development
       Thomas G. Klopack                47    Chief Operating Officer
       John D. Mendlein                 39    General Counsel and Vice
                                              President, Intellectual Property
       John R. Pashkowsky               42    Director, Finance and Treasurer
       Harry Stylli                     37    Senior Vice President, Screen
                                              Technology and New Technology
                                              Ventures
</TABLE>

TIMOTHY J. RINK has served as Chairman of the Board, President and Chief 
Executive Officer of the Company since February 1996. From 1990 through 1995, 
Dr. Rink served as President and Chief Technical Officer of Amylin 
Pharmaceuticals, Inc., a publicly held biopharmaceutical company. Dr. Rink 
was Vice President, Research at SmithKline Beecham in the U.K. from 1984 to 
1989, and previously was Lecturer in Physiology at the University of 
Cambridge. Dr. Rink currently is a director of CoCensys, Inc., a publicly 
held biopharmaceutical company. Dr. Rink received his M.A., M.D., and Sc.D. 
from the University of Cambridge, England.

                                       12

<PAGE>

PAUL J. ENGLAND joined Aurora in February 1998 and currently serves as Senior 
Vice President, Research. From 1984 to 1997, he served in various capacities 
at SmithKline Beecham in the U.K., most recently serving as Vice President, 
Molecular Screening Technologies, with worldwide responsibility for high 
throughput screening. Dr. England received his B.S., Ph.D. and D.Sc. degrees 
in biochemistry from the University of Bristol. After postdoctoral work at 
the University of California, he held a lectureship in biochemistry at the 
University of Bristol from 1973 to 1984.

PAUL A. GRAYSON joined the Company in April 1996 and currently serves as 
Senior Vice President, Corporate Development. From 1994 to 1996, Mr. Grayson 
served as Director of Business Development for Advanced Tissue Sciences, Inc. 
From 1987 to 1994, Mr. Grayson held various research, marketing and business 
development positions at Allergan Pharmaceuticals and Gensia Inc. Mr. Grayson 
received his B.S. in Biocemistry and Computer Science from the University of 
California, Los Angeles, and his M.B.A. from the University of California, 
Irvine.

THOMAS G. KLOPACK joined the Company in July 1998 and currently serves as 
Chief Operating Officer. He served the past 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 at 
Carnegie-Mellon University and his M.B.A. at Harvard University.

JOHN D. MENDLEIN joined Aurora in August 1996 and currently serves as General 
Counsel and Vice President, Intellectual Property. Prior to joining Aurora, 
Dr. Mendlein worked with the law firm of Cooley Godward LLP in Palo Alto from 
1990 to 1996, focusing on patent prosecution and litigation, and technology 
licensing for a variety of biotechnology, medical device and diagnostic 
companies. He received his Ph.D. from the University of California, Los 
Angeles and his J.D. from the University of California, Hastings College of 
the Law.

JOHN R. PASHKOWSKY joined the Company in December 1997 and currently serves 
as Director, Finance and Treasurer. Prior to joining Aurora, he served from 
1981 to 1997 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 the Company in November 1995 and was appointed Senior 
Vice President, Screen Technology and New Technology Ventures in August 1998. 
From 1989 to 1995, Dr. Stylli held several positions at Glaxo Wellcome plc, 
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, UK and a B.Sc. in Biochemical Pharmacology, with honors, from the 
University of East London.

SCIENTIFIC ADVISORS

The Company's scientific advisors, who have demonstrated expertise in various 
fields, advise the Company from time to time concerning long-term scientific 
planning, research and development. The scientific advisors also evaluate the 
Company's research programs, recommend personnel to the Company, and advise 
the Company on specific scientific and technical issues. The scientific 
advisors are compensated by retainer and on a time and expenses basis and 
have received shares of Common Stock of the Company. The Company has entered 
into consulting agreements with a number of the scientific advisors.

The Company does 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 the 
Company. Accordingly, such persons are expected to devote only a small 
portion of their time to the Company. The Company's scientific advisors are:

TOM CURRAN, PH.D. -- Chairman, Department of Developmental Neurobiology, St. 
Jude's Hospital Medical Center, Memphis; formerly Associate Director, Roche 
Institute of Molecular Biology

MICHAEL GEOFFREY ROSENFELD, M.D. -- Investigator, Howard Hughes Medical 
Institute; Professor of Medicine, University of California, San Diego


                                      13

<PAGE>

MELVIN I. SIMON, PH.D. -- Professor of Biological Sciences and Chairman of 
the Biology Division, California Institute of Technology

LUBERT STRYER, M.D. -- Winzer Professor in the School of Medicine and 
Professor of Neurobiology, Stanford University

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


                                      14

<PAGE>

RISK FACTORS

THIS FORM 10-K CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE 
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. 
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS 
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH 
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS 
FACTORS IDENTIFIED IN THIS FORM 10-K, INCLUDING THE MATTERS SET FORTH BELOW, 
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY 
SUCH FORWARD-LOOKING STATEMENTS.

LIMITED OPERATING HISTORY; UNCERTAINTY OF FUTURE PROFITABILITY. As of 
December 31, 1998, the Company had an accumulated deficit of $21.7 million. 
The Company's expansion of its operations and continued development of its 
UHTSS Platform and fluorescent assay technologies will require continued 
substantial expenditures and the Company does not expect revenue to exceed 
such expenses until 2000. The Company's ability to achieve sustained 
profitability will depend in part on its ability to successfully develop and 
install its UHTSS Platform, successfully market and sell its screen 
development and screening services to pharmaceutical and biotechnology 
companies, achieve acceptable performance specifications for its UHTSS 
Platform and gain industry acceptance of its systems, services and 
technologies. Accordingly, the extent of future losses and the time required 
to achieve sustained profitability is uncertain. The Company is subject to 
the risks inherent in the operation of a new business, such as the 
difficulties and delays often encountered in the development and production 
of new, complex technologies. There can be no assurance that the Company will 
be able to address these risks. Sales of services and technologies, license 
fees, payments from its collaborators and interest income are expected to be 
the only sources of revenue for the foreseeable future. Royalties or other 
revenues from commercial sales of products based upon any compound identified 
by using the Company's technologies are not expected for at least several 
years, if at all. The time required to reach or sustain profitability is 
uncertain, and there can be no assurance that the Company will be able to 
achieve or maintain profitability. Moreover, if profitability is achieved, 
the level of such profitability cannot be predicted and may vary 
significantly from quarter to quarter.

NEW AND UNCERTAIN TECHNOLOGY. The Company's UHTSS technology and its methods 
of screening molecular targets incorporate new and unproven approaches to the 
identification of lead compounds with therapeutic potential. The Company 
intends to use its UHTSS Platform and fluorescent assay technologies to 
rapidly identify for itself and its collaborators as many compounds with 
commercial potential as possible. Historically, because of the highly 
proprietary nature of such activities, the importance of these activities to 
drug discovery and development efforts and the desire to obtain maximum 
patent and other proprietary protection on the results of their programs, 
pharmaceutical and biotechnology companies have conducted molecular target 
screening and lead compound identification within their own internal research 
departments. The Company's ability to succeed will be dependent, in part, 
upon the willingness of potential collaborators to use the Company's systems, 
services and technologies as a tool in the discovery and development of 
compounds with commercial potential.

The Company's fluorescent assay technologies 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. There can be no 
assurance that the Company's fluorescent assay technologies will result in 
the discovery of lead compounds that will be safe or efficacious. 
Furthermore, there can be no assurance that the Company can consistently 
develop, validate or reproduce its biochemical and cell-based assays or 
reagents or substrates required for their use in volumes sufficient to 
fulfill the requirements of its collaborative agreements or to meet the 
Company's needs for internal use. Development of new pharmaceutical products 
is highly uncertain, and no assurance can be given that the Company's drug 
discovery technology will result in any commercially successful compound.

The Company's UHTSS technology has never been implemented as a fully 
operational system. The UHTSS Platform is not expected to be integrated and 
operational until the end of 1999. The UHTSS Platform will require 
significant additional investment and research 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, and is subject to substantial risks. Complex 
instrumentation systems 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 difficult 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 UHTSS 
Platform are not now and have not previously been used in commercial 
applications. Many of these technologies have not been validated or developed 
at levels necessary to screen miniaturized assays, and there can be no 
assurance that UHTSS technologies, if developed, will achieve expected 
performance levels at these scales. The successful implementation and 
operation of the UHTSS Platform will be a complex process requiring 
integration and coordination of a number of factors, including 


                                      15

<PAGE>

integration of and successful interface between complex advanced robotics, 
microfluidics, automated storage and retrieval systems, fluorescence detector 
technologies and software and information systems. The liquid dispensing 
requirements for the NanoWell Assay Plates designed for the UHTSS Platform 
are far beyond current high throughput screening practices for dispensing 
small volumes. The development of microfluidics to accurately and rapidly 
aspirate and dispense the microscopic volumes necessary for the UHTSS 
Platform is particularly challenging. There can be no assurance that the 
Company and its suppliers will be able to successfully integrate or implement 
this microfluidics technology or all of the other instrumentation needed for 
the UHTSS Platform.

As the UHTSS Platform is developed, integrated and used, it is possible that 
previously unanticipated limitations or defects may emerge. In addition, 
operators using the system may require substantial new technical skills and 
training. There can be no assurance that unforeseen complications will not 
arise in the development, delivery and operation of the UHTSS Platform that 
could materially delay or limit its use by the Company and its corporate 
collaborators, substantially increase the anticipated cost of development of 
the system, result in the breach by the Company of its contractual 
obligations to its collaborators and others, or render the system unable to 
perform at the quality and capacity levels required for success. Such 
complications or delays could subject the Company to litigation and have 
other material adverse effects on the Company's business, financial condition 
and results of operations. There can be no assurance that the Company will be 
able to successfully complete the development of its UHTSS Platform, achieve 
anticipated throughputs, gain industry acceptance of the Company's approach 
to the identification of lead compounds or develop a sustainable profitable 
business.

DEPENDENCE ON PHARMACEUTICAL AND BIOTECHNOLOGY COLLABORATIONS. The Company's 
strategy for the development and commercialization of its integrated 
technology platform involves the formation of multiple corporate 
collaborations. To date, all revenue received by the Company has been from 
sales to corporate collaborators of services, technology, instruments and 
intellectual property licenses. The Company expects that substantially all 
revenue for the foreseeable future will come from such sales to existing and 
new customers. Furthermore, the Company's ability to achieve profitability 
will be dependent upon the ability of the Company to enter into additional 
corporate collaborations for development of screens, for screening services 
and for its functional genomics program. Because pharmaceutical and 
biotechnology companies engaged in drug discovery activities have 
historically conducted drug discovery and screening activities through their 
own internal research departments, these companies must be convinced that the 
Company's UHTSS technologies justify entering into collaborative agreements 
with the Company. There can be no assurance that the Company will be able to 
negotiate additional collaborative agreements in the future on acceptable 
terms, if at all, that such current or future collaborative agreements will 
be successful and provide the Company with expected benefits, or that current 
or future collaborators will not pursue or develop alternative technologies 
either on their own or in collaboration with others, including the Company's 
competitors, as a means for identifying lead compounds or targets.

The Company's ability to enter into agreements with additional collaborators 
depends in part upon potential collaborators being convinced that Aurora's 
technologies can help accelerate drug discovery efforts. This may require 
substantial time and effort on the part of Aurora to educate potential 
collaborators on the efficiencies presented by Aurora's services and 
technologies. In addition, many of the collaborations involve the negotiation 
of customized terms regarding licensing, scope of agreement and types of 
services required. The Company may expend substantial funds and management 
effort with no assurance that a collaboration will result.

The Company's strategy for the development of the UHTSS Platform includes the 
establishment of a syndicate of collaborators to provide the Company with 
development funding, technology and personnel resources and system 
validation. To date, the Company's UHTSS co-development syndicate includes 
BMS, Lilly, Warner-Lambert and Merck. The Company's agreements provide that 
the agreement generally may be terminated by the collaborator without cause 
upon short notice, which would result in loss of anticipated revenue. In 
addition, the amount and timing of resources that current and future 
collaborators, if any, devote to collaborations with the Company are not 
within the control of the Company. There can be no assurance that such 
collaborators will perform their obligations as expected or that the Company 
will derive any additional revenue from such agreements. There can be no 
assurance that any one or more of the Company's collaborators will not elect 
to terminate their agreements with the Company. Termination of the Company's 
existing or future collaboration agreements, or the failure to enter into a 
sufficient number of additional collaborative agreements on favorable terms, 
could have a material adverse effect on the Company's business, financial 
condition and results of operations.

The Company's strategy involves expanding its functional genomics programs 
and obtaining access to libraries of compounds from third parties to be 
screened against multiple targets. Because of the potential overlap of 
compounds and targets provided by the Company's collaborators, there can be 
no assurance that conflicts will not arise among collaborators as to rights to 


                                      16

<PAGE>

particular products developed as a result of being identified through the use 
of the Company's technologies. Failure to successfully manage existing and 
future collaborator 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 
loss of reputation, a loss of capital or a loss of collaborators, any of 
which could have a material adverse effect on the Company's business, 
financial condition and results of operations.

DEPENDENCE ON CONTRACTORS AND VENDORS. The Company relies 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 the Company believes that alternative sources for these 
components could be made available, any interruption in the development, 
manufacture or supply of a sole-sourced component could have a material 
adverse effect on the Company's ability to develop its UHTSS Platform or 
other systems until a new source of supply is qualified, could subject the 
Company to penalties for delays in delivery of the UHTSS Platform and, as a 
result, could have a material adverse effect on the Company's business, 
financial condition and results of operations. There can be no assurance the 
Company will be able to enter into additional technology alliances on 
commercially reasonable terms, if at all, or that the Company's current or 
future technology suppliers will meet the Company's requirements for quality, 
quantity or timeliness. Failure of any one of the company's current or future 
technology suppliers to deliver components (such as NanoWell Assay Plates, or 
various mechanical components of the UHTSS Platform or the AMCS) that meet 
required specifications in a timely manner, or at all, could significantly 
affect the Company's ability to meet its contractual obligations to the UHTSS 
syndicate members.

MANAGEMENT OF GROWTH. The Company's success will depend on its ability to 
expand and manage its operations and facilities. To be cost-effective and 
timely in the development and installation of its systems, services and 
technologies, the Company must coordinate the integration of multiple 
technologies in complex systems, both internally and for its collaborators. 
There can be no assurance that the Company will be able to manage its growth, 
to meet the staffing requirements of additional collaborative relationships 
or to successfully assimilate and train its new employees. If the Company 
continues to grow, there can be no assurance that the management skills and 
systems currently in place will be adequate or that the Company will be able 
to manage any additional growth effectively. Failure to achieve any of these 
goals could have a material adverse effect on the Company's business, 
financial condition or results of operations.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company may be 
required to raise additional capital over a period of several years in order 
to conduct or expand its operations or acquire new technology. Such capital 
may be raised through additional public or private equity financings, 
borrowings and other available sources. No assurance can be given that the 
Company's business or operations will not change in a manner that would 
consume available resources more rapidly than anticipated, or that 
substantial additional funding will not be required before the Company can 
achieve or sustain profitable operations. There can be no assurance that the 
Company will continue to receive revenues or funding under its existing 
collaborative agreements or that the Company's existing or potential future 
collaborative agreements will be adequate to fund the Company's operations.

DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. The Company's success will 
depend in part on its ability to obtain patent protection for its systems, 
services and technologies, and to operate without infringing the proprietary 
rights of third parties. The Company is dependent, in part, on the patent 
rights licensed from third parties with respect to its fluorescent assay and 
screening technologies. There can be no assurance that patent applications 
filed by the Company or its licensors will result in patents being issued, 
that the claims of such patents will offer significant protection of the 
Company's technology, or that any patents issued to, or licensed by, the 
Company will not be challenged, narrowed, invalidated, or circumvented. The 
Company may also be subject to legal proceedings that result in the 
revocation of patent rights previously owned by or licensed to the Company, 
as a result of which the Company may be required to obtain licenses from 
others to continue to develop, test or commercialize its systems, services or 
technologies. There can be no assurance that the Company will be able to 
obtain such licenses on acceptable terms, if at all.

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. The patent positions 
of pharmaceutical, biotechnology and drug discovery companies, including the 
Company, are generally uncertain and involve complex legal and factual 
questions. A number of patents have issued and may issue on certain targets 
or their use in screening assays that could prevent the Company and its 
collaborators from developing screens using such targets, or relate to 
certain other aspects of technology utilized or expected to be utilized by 
the Company. The Company has received invitations from third parties to 


                                      17

<PAGE>

license patents owned or controlled by third parties. The Company evaluates 
these requests and intends to obtain licenses that are compatible with its 
business objectives. There can be no assurance, however, that the Company 
will be able to obtain any licenses on acceptable terms, if at all. The 
Company's inability to obtain or maintain patent protection or necessary 
licenses could have a material adverse effect on the business, financial 
condition and results of operations of the Company.

The Company could incur substantial costs in defending patent infringement 
claims, obtaining patent licenses, engaging in interference and opposition 
proceedings or other challenges to its patent rights or intellectual property 
rights made by third parties, or in bringing such proceedings or enforcing 
any patent rights against third parties. The Company's inability to obtain 
necessary licenses or its involvement in proceedings concerning patent rights 
could have a material adverse effect on the business, financial condition and 
results of operations of the Company.

In addition to patent protection, Aurora also relies on copyright protection, 
trade secrets, know-how, continuing technological innovation and licensing 
opportunities. In an effort to maintain the confidentiality and ownership of 
trade secrets and proprietary information, the Company requires employees, 
consultants and certain collaborators to execute confidentiality and 
invention assignment agreements upon commencement of a relationship with the 
Company. There can be no assurance, however, that these agreements will 
provide meaningful protection for the Company's trade secrets or other 
confidential information in the event of unauthorized use or disclosure of 
such information or that adequate remedies would exist in the event of such 
unauthorized use or disclosure. The loss or exposure of trade secrets 
possessed by the Company could adversely affect its business.

COMPETITION AND THE RISK OF OBSOLESCENCE OF TECHNOLOGY. Competition among 
pharmaceutical and biotechnology companies that attempt to identify compounds 
for development or support drug discovery efforts is intense. Because the 
UHTSS instrumentation is being designed to integrate a number of different 
technologies, the Company competes in many areas, including instrumentation, 
assay development, high throughput screening and functional genomics. The 
Company competes with instrumentation companies, the research departments of 
pharmaceutical and biotechnology companies and other commercial enterprises, 
as well as numerous academic and research institutions. There can be no 
assurance that another technology provider will not develop a product to 
compete with the Company's UHTSS Platform. There can be no assurance that 
pharmaceutical, biotechnology and instrumentation companies which currently 
compete with the Company in specific areas will not merge or enter into joint 
ventures or other alliances with one or more other such companies and become 
substantial multi-point competitors or that the Company's collaborators will 
not 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 screen development, either alone or pursuant to 
alliances with others. The Company's technological approaches, in particular 
its UHTSS Platform, may be rendered obsolete or uneconomical by advances in 
existing technological approaches or the development of different approaches 
by one or more of the Company's current or future competitors. Many of these 
pharmaceutical and biotechnology companies, which represent the greatest 
potential market for the Company's systems, 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.

UNCERTAINTY OF MILESTONE PAYMENTS ON PHARMACEUTICAL PRODUCTS. The Company's 
long-term revenue may include revenues from the realization of milestone 
payments and royalties, if any, triggered by the successful development and 
commercialization of lead compounds identified through the use of the 
Company's technologies. The Company's screens may result in developed and 
commercialized pharmaceutical products generating milestone payments and 
royalties only after lengthy and costly pre-clinical and clinical development 
efforts, the receipt of requisite regulatory approvals, and the integration 
of manufacturing capabilities and successful marketing efforts, all of which 
must be performed by the Company's collaborators. The Company does not 
currently intend to perform any of these activities. The Company's 
collaborators may decide not to develop or commercialize lead compounds 
identified through the use of the Company's technologies. Development and 
commercialization of lead compounds will therefore depend not only on the 
achievement of research objectives by the Company and its collaborators, 
which cannot be assured, but also on each collaborator's own financial, 
competitive, marketing and strategic considerations, all of which are outside 
the Company's control. There can be no assurance that the interests and 
motivations of the Company's collaborators are, or will remain, aligned with 
those of the Company, that current or future collaborators will not pursue 
alternative technology in preference to that of the Company or that such 
collaborators will successfully perform their development, regulatory, 
compliance, manufacturing or marketing functions. In addition, there can be 
no assurance that any product will be developed and commercialized as a 
result of such collaborations, that any such development or commercialization 
would be successful or that disputes will not arise over the application of 
payment provisions to such drugs.


                                      18

<PAGE>

GOVERNMENT REGULATION. Regulation by the U.S. Food and Drug Administration 
(the "FDA") 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. It is not 
currently anticipated that the Company will develop its own drugs through 
clinical trials. However, pharmaceutical products, if any, developed by the 
Company's collaborators will require lengthy and costly pre-clinical and 
clinical trials and regulatory approval by governmental agencies prior to 
commercialization. The process of obtaining these approvals and the 
subsequent compliance with appropriate federal, state and foreign statutes 
and regulations are time consuming and require the expenditure of substantial 
resources. Delays in obtaining regulatory approvals would adversely affect 
the marketing of any drugs developed by the Company's collaborators, diminish 
any competitive advantages that the Company's collaborators may attain and 
therefore adversely affect the Company's ability to receive royalties or 
milestone payments. These testing and approval processes require substantial 
time and effort and there can be no assurance that any approval will be 
granted on a timely basis, if at all.

ATTRACTION AND RETENTION OF KEY EMPLOYEES AND CONSULTANTS. The Company is 
highly dependent on the principal members of its scientific and management 
staff, and certain scientific advisors. The loss of key members of its staff 
could have a material adverse effect on the Company's business, financial 
condition and results of operations. The Company does not maintain "key 
person" insurance on any of its employees. The Company's future success will 
also depend in part on its ability to identify, recruit and retain additional 
qualified personnel, including individuals holding doctoral degrees in the 
basic sciences. There is intense competition for such personnel in the areas 
of the Company's activities, and there can be no assurance that the Company 
will be able to continue to attract and retain personnel with the advanced 
technical qualifications necessary for the development of the Company's 
business. Failure to attract and retain key personnel could have a material 
adverse effect on the Company's business, financial condition and results of 
operations.

SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS. To date, all revenue received 
by the Company has been from the sales of services, technology, instruments, 
intellectual property licenses, and payment of research and co-development 
funding paid pursuant to collaborative agreements. The Company expects that 
its revenue for the foreseeable future will be comprised of such payments. 
The timing of certain large payments in the future will depend upon the 
completion of major deliverables in its collaborators' UHTSS Platforms. 
Operating results may therefore vary substantially from quarter to quarter 
and will not necessarily be indicative of results in subsequent periods.

POSSIBLE VOLATILITY OF STOCK PRICE. The market prices for securities of 
comparable 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 the Company or its competitors, 
disputes or other developments concerning proprietary rights, including 
patents and litigation matters, publicity regarding actual or potential 
results with respect to systems, services or technologies under development 
by the Company, its collaborative partners or its 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 the Company's revenues and financial results and 
other factors, may have a significant impact on the market price of the 
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 
such market price.

CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS. The Company's principal 
stockholders, executive officers, directors and affiliated individuals and 
entities together beneficially own approximately 28.0% of the outstanding 
shares of Common Stock as of March 19, 1999. As a result, these stockholders, 
if they act together, will be able to influence most matters requiring 
approval by the stockholders of the Company, including approvals of 
amendments to the Company's Certificate of Incorporation, mergers, a sale of 
all or substantially all of the assets of the Company and other fundamental 
transactions. The Company's Certificate of Incorporation (the "Restated 
Certificate") does not provide for cumulative voting with respect to the 
election of directors. Consequently, the present directors and executive 
officers of the Company and the Company's principal stockholders, if they act 
together, will be able to influence the election of the members of the Board 
of Directors of the Company. Such a concentration of ownership could have an 
adverse effect on the price of the Common Stock, and may have the effect of 
delaying or preventing a change in control of the Company, including 
transactions in which stockholders might otherwise receive a premium for 
their shares over then current market prices.

ANTI-TAKEOVER PROVISIONS. The Restated Certificate authorizes the Board of 
Directors of the Company, without stockholder approval, to issue additional 
shares of Common Stock and to fix the rights, preferences and privileges of 
and issue up to 7,500,000 shares of preferred stock with voting, conversion, 
dividend and other rights and preferences that could adversely 


                                      19

<PAGE>

affect the voting power or other rights of the holders of Common Stock. The 
issuance of preferred stock, rights to purchase preferred stock or additional 
shares of Common Stock may have the effect of delaying or preventing a change 
in control of the Company. In addition, the possible issuance of such 
preferred stock could make the acquisition of a substantial block of the 
Company's Common Stock more difficult or limit the price that investors might 
be willing to pay for shares of the Company's Common Stock. Further, the 
Restated Certificate provides that any action required or permitted to be 
taken by stockholders of the Company must be effected at a duly called annual 
or special meeting of stockholders and may not be effected by any consent in 
writing. Special meetings of the stockholders of the Company may be called 
only by the Chairman of the Board of Directors, the President of the Company, 
by the Board of Directors pursuant to a resolution adopted by a majority of 
the total number of authorized directors, or by the holders of 10% of the 
outstanding voting stock of the Company. These and other provisions contained 
in the Restated Certificate and the Company's Bylaws, as well as certain 
provisions of Delaware law, could delay or make more difficult certain types 
of transactions involving an actual or potential change in control of the 
Company or its management (including transactions in which stockholders might 
otherwise receive a premium for their shares over then current market prices) 
and may limit the ability of stockholders to remove current management of the 
Company or approve transactions that stockholders may deem to be in their 
best interests and, therefore, could adversely affect the price of the 
Company's Common Stock.


                                      20

<PAGE>

ITEM 2.      PROPERTIES

The Company leases approximately 81,200 square feet of space used for 
laboratory and administrative purposes in San Diego, California. These 
facilities are leased through September 15, 2008. The Company also leases 
approximately 22,200 square feet of laboratory and office space in La Jolla, 
California, through October 15, 1999, which is subleased to third-party 
tenants. The Company believes these facilities will be adequate for its 
current and projected needs and that additional space at a nearby location 
will be available as needed.

ITEM 3.      LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

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

Not Applicable.


                                      21

<PAGE>

                                   PART II

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

(a)   The Company's 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 the Company's common stock, as reported by
      Nasdaq, for the periods indicated:

<TABLE>
<CAPTION>
        1997                                                        High             Low
        ----                                                       ------           -----
        <S>                                                        <C>              <C>
        Second Quarter (beginning June 19, 1997)                   $12.25           $10.00
        Third Quarter                                               15.63             9.38
        Fourth Quarter                                              15.75            11.00
<CAPTION>
        1998
        ----
        <S>                                                        <C>              <C>
        First Quarter                                               14.38            10.25
        Second Quarter                                              12.38             5.88
        Third Quarter                                                9.25             3.75
        Fourth Quarter                                               8.00             4.00
</TABLE>

      As of March 19, 1999, there were approximately 217 stockholders of record
      of the Company's common stock. The Company has never declared or paid any
      cash dividends on its common stock and does not intend to pay any cash
      dividends on its common stock in the foreseeable future.


                                      22

<PAGE>

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>
                                                                                                       
                                                                                                          PERIOD FROM  
                                                                                                          MAY 8, 1995  
                                                                YEARS ENDED DECEMBER 31,                (INCEPTION) TO 
                                                   ---------------------------------------------------    DECEMBER 31, 
                                                        1998              1997             1996              1995
                                                   ---------------- ----------------- ---------------- -----------------
                                                                  (in thousands, except per share amounts)
<S>                                                <C>              <C>               <C>              <C>
STATEMENT OF OPERATIONS DATA:

Revenue                                              $       26,538  $        14,908  $         2,217  $             -

Operating expenses:
   Cost of revenue                                           23,777            6,983                -                -
   Research and development                                  17,146            5,406            4,396              366
   Selling, general and administrative                        6,068            3,679            1,275               46
                                                   ---------------- ----------------- ---------------- -----------------
      Total operating expenses                               46,991           16,068            5,671              412
                                                   ---------------- ----------------- ---------------- -----------------
Loss from operations                                        (20,453)          (1,160)          (3,454)            (412)
Interest income                                               2,445            1,793              580                -
Interest expense                                               (645)            (346)             (59)               -
                                                   ---------------- ----------------- ---------------- -----------------
Income (loss) before income taxes                           (18,653)             287           (2,933)            (412)
Income taxes                                                      -              (20)               -                -
                                                   ---------------- ----------------- ---------------- -----------------
Net income (loss)                                    $     (18,653)   $          267  $        (2,933) $          (412)
                                                   ---------------- ----------------- ---------------- -----------------
                                                   ---------------- ----------------- ---------------- -----------------
Basic income (loss) per share                        $        (1.14)  $         0.03  $         (3.86) $     (5,146.59)
                                                   ---------------- ----------------- ---------------- -----------------
                                                   ---------------- ----------------- ---------------- -----------------
Diluted income (loss) per share                      $        (1.14)  $         0.02  $         (3.86) $     (5,146.59)
                                                   ---------------- ----------------- ---------------- -----------------
                                                   ---------------- ----------------- ---------------- -----------------
Shares used in computing:
    Basic income (loss) per share                            16,312            8,970              760              < 1
                                                   ---------------- ----------------- ---------------- -----------------
                                                   ---------------- ----------------- ---------------- -----------------
    Diluted income (loss) per share                          16,312           15,423              760              < 1
                                                   ---------------- ----------------- ---------------- -----------------
                                                   ---------------- ----------------- ---------------- -----------------
</TABLE>

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                   ---------------------------------------------------------------------
                                                        1998              1997             1996              1995
                                                   ---------------- ----------------- ---------------- -----------------
                                                                                  (in thousands)
<S>                                                <C>              <C>               <C>              <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments               $       28,026   $       48,906  $        13,167  $            11
Total assets                                                 50,955           63,036           17,515              115
Capital lease obligations, less current portion               4,788            3,422            1,111                -
Accumulated deficit                                         (21,731)          (3,078)          (3,345)            (412)
Total stockholders' equity                                   37,542           54,364           15,184             (412)
</TABLE>


                                      23

<PAGE>

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, AND THE ABILITY TO MEET EXISTING COLLABORATIVE COMMITMENTS. READERS 
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 ("Aurora" or the "Company") designs, develops 
and commercializes proprietary drug discovery systems, services and 
technologies to accelerate and enhance the discovery of new medicines. 
Operating activities in 1996 and 1997 focused on the development of an 
integrated technology platform comprised of a portfolio of proprietary 
fluorescent assay technologies and an ultra-high throughput screening system 
("UHTSS-TM-" Platform) designed to allow assay miniaturization and to 
overcome many of the limitations associated with the traditional drug 
discovery process. In 1998, while continuing development and manufacture of 
other UHTSS components, the Company delivered Module 1 of its UHTSS Platform 
to three of its syndicate customers, continued to manufacture and deliver 
certain subsystems to customers, and performed screening services for 
collaborators, including screen development and screening.

The Company had an accumulated deficit of $21.7 million as of December 31, 
1998. The Company's objective is to increase revenue substantially in 1999, 
while controlling the growth of expenses. The Company's ability to achieve 
profitability will depend in part on its ability to successfully complete 
development, manufacture and delivery of UHTSS systems that meet contractual 
specifications, continue to provide screen development and screening services 
to pharmaceutical and biotechnology customers and achieve the required 
further growth of sales of its systems, services and technologies.

Revenue recognized by the company is predominately sales to corporate 
collaborators of services, technology, instruments and intellectual property 
licenses. To date, the sales have been generated from a limited number of 
collaborators in the biotechnology and pharmaceutical industries in the U.S. 
and Europe.

Many of the Company's agreements provide for future milestone payments from 
drug development achievements and royalties from the sale of products derived 
from certain of Aurora's technologies. However, there can be no assurance 
that any collaborators will ever generate products from technology provided 
by Aurora and thus that the Company will ever receive milestone payments or 
royalties. The Company believes its ability to achieve profitability is not 
dependent on receipt of milestone payments or royalties.

The Company may encounter significant fluctuations in its quarterly financial 
performance depending on factors such as revenue recognized from existing and 
future contracts and collaborations, timing of expenditures to develop its 
products or delivery of technologies and systems and the completion of 
contracted service commitments to Aurora's collaborators. The Company will 
also continue to invest in new technologies to expand its core drug discovery 
capabilities. Accordingly, the Company's results of operations for any period 
may not be comparable to, or predictive of, the results of operations for any 
other period.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

REVENUE

Revenue increased 78% to $26.5 million in 1998 from $14.9 million in 1997, 
which was an increase of 573% from $2.2 million in 1996. The increases in 
revenue resulted primarily from the Company's collaborative agreements with 
Warner-Lambert Company ("Warner-Lambert") and Merck & Co., Inc. ("Merck") 
executed in 1997, and collaborative agreements with Bristol-Myers Squibb 
Pharmaceutical Research Institute ("BMS") and Eli Lilly and Company ("Lilly") 
executed in 1996. The increase in 1998 was also attributable in part to an 
agreement with Warner-Lambert, executed in August 1998, to develop an 
automated master compound storage ("AMCS-TM-") system.


                                      24

<PAGE>

EXPENSES

Total operating expenses increased 192% to $47.0 million in 1998 from $16.1 
million in 1997, which was an increase of 183% from $5.7 million in 1996. The 
increases in operating expenses resulted primarily from the growth of the 
Company and its research and development programs. This growth was reflected 
by the increase to 150 employees at December 31, 1998 from approximately 50 
at December 31, 1996 and the expansion of the Company's facilities in October 
1997 to 81,000 square feet from 22,000 square feet.

Cost of revenue increased 241% to $23.8 million in 1998 from $7.0 million in 
1997. There was no cost of revenue in 1996. In addition to the growth of the 
Company's operations as noted above, the increase in cost of revenue was 
primarily a result of increased purchases of materials and increased 
technology development expenses related to the development of the UHTSS 
Platform, the AMCS system and screening subsystems for the Company's 
collaborators.

Research and development increased 217% to $17.1 million in 1998 from $5.4 
million in 1997, which was a 23% increase from $4.4 million in 1996. In 
addition to the growth of the Company's operations as noted above, the 
increases in research and development expenses were primarily attributable to 
ongoing development of a UHTSS Platform and an AMCS for Aurora, and the 
expansion of the Company's human cell functional genomics GenomeScreen-TM- 
program. In addition, licensing of technology from OSI Pharmaceuticals, Inc. 
and Xenometrix, Inc. and the costs of initiating a collaboration with SIDDCO, 
Inc. to produce a large library of compounds for Aurora's UHTSS contributed 
to the 1998 increase.

Selling, general and administrative expenses increased 65% to $6.1 million in 
1998 from $3.7 million in 1997, which was a 189% increase from $1.3 million 
in 1996. The increases were primarily attributable to the growth of the 
Company's operations as noted above and legal and professional fees incurred 
in connection with the overall scale-up of the Company's operations and 
business development efforts.

INTEREST AND OTHER INCOME

Net interest income increased 24% to $1.8 million in 1998 from $1.4 million 
in 1997, which was a 178% increase from $0.5 million in 1996. The increases 
primarily reflected interest income from increased cash and investment 
balances resulting from receipts under collaborative agreements and proceeds 
from the Company's initial public offering in June 1997. Interest income was 
partially offset by interest expense incurred on capital lease obligations 
beginning in the second half of 1996.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, Aurora held cash, cash equivalents and investment 
securities available-for-sale of $28.0 million and working capital of $24.9 
million. The Company has funded its operations through such date primarily 
through the issuance of equity securities with aggregate net proceeds of 
$57.3 million, receipts from corporate collaborations and strategic 
technology alliances of $42.4 million, capital equipment lease financing of 
$9.1 million and interest income of $4.8 million.

The Company's facility lease agreements are secured by letters of credit, 
which are secured by certificates of deposit recorded as restricted cash. At 
December 31, 1998, such restricted cash totaled $1.1 million. The letters of 
credit will be reduced over the next two years on a predetermined schedule.

The Company has entered into certain contractual commitments, subject to 
satisfactory performance by third parties, which obligate expenditures 
totaling approximately $9.3 million over the next five years.

The Company expects significant cash expenditures to continue into 1999 as it 
continues its development of screening technology and seeks access to new 
technologies to expand its technology platform through investments, licensing 
agreements, research and development alliances or acquisitions.

The Company's strategy for the development of the UHTSS Platform includes the 
establishment of a syndicate of collaborators to provide the Company with 
funding for development, technology and personnel resources and payments for 
system validation. The Company's UHTSS Platform co-development syndicate 
currently includes BMS, Lilly, Warner-Lambert and Merck. The Company has also 
entered into an agreement with Warner-Lambert to develop an AMCS system. In 
addition, the Company has entered into collaborations with Roche Bioscience 
Corporation, Allelix Biopharmaceuticals, Inc., Cytovia, Inc., Pharmacia & 
Upjohn, Inc. and F.Hoffman-LaRoche to provide screening services, and with 
Warner-Lambert for a functional genomics program. Other collaborations 
include a combinatorial chemistry agreement with SIDDCO, Inc. to synthesize 
large libraries of chemical compounds for Aurora.

                                      25

<PAGE>

The Company's ability to achieve sustained profitability will be dependent 
upon its ability to sell new products and services, and to increase market 
share of existing discovery services and technologies by agreements with new 
collaborators and expansion of agreements with existing collaborators. 
Although the Company is actively seeking to enter into additional 
collaborations, there can be no assurance that the Company will be able to 
negotiate additional collaborative agreements on acceptable terms, if at all, 
or that the Company's revenue goals will be met. Some of the Company's 
current collaborative agreements provide that they may be terminated by the 
collaborator without cause upon short notice, which would result in loss of 
anticipated revenue. Although certain of the Company's collaborators would be 
required to pay certain penalties in the event they terminate their 
agreements without cause, there can be no assurance that any one or more of 
the Company's collaborators will not elect to terminate their agreements with 
the Company. In addition, collaborators may terminate their agreements for 
cause if the Company cannot deliver the technology in accordance with such 
agreements. There can be no assurance that such collaborators will perform 
their obligations as expected, that the Company will derive any additional 
revenue from such agreements or that such current or future collaborative 
agreements will be successful and provide the Company with expected benefits. 
Termination of the Company's existing or future collaborative agreements, or 
the failure to enter into a sufficient number of additional collaborative 
agreements on favorable terms, or to generate sufficient revenues from the 
Company's services and technologies, could have a material adverse effect on 
the Company's business, financial condition and results of operations.

The Company may be required to raise additional capital over the next several 
years in order to conduct or expand its operations or acquire new technology. 
Such capital may be raised through additional public or private equity 
financings, borrowings and other available sources. No assurance can be given 
that the Company's business or operations will not change in a manner that 
would consume available resources more rapidly than anticipated, or that 
substantial additional funding will not be required before the Company can 
achieve or sustain profitable operations. There can be no assurance that the 
Company will continue to generate sales from and receive payments under its 
existing collaborative agreements or that the Company's existing or potential 
revenue will be adequate to fund the Company's operations. If additional 
funding becomes necessary, there can be no assurance that additional funds 
will be available on favorable terms, if at all. If adequate funds are not 
available, the Company 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 the Company's business, financial condition and 
results of operations.

IMPACT OF YEAR 2000

The Company recognizes the need to ensure its operations will not be 
adversely impacted by the inability of computer systems to process data 
having dates on or after January 1, 2000 (the "Year 2000" issue). The Company 
has completed an assessment of whether it will have to modify or replace 
portions of its software and certain hardware so that its systems will 
function properly with respect to dates in the year 2000 and thereafter. As a 
result of this assessment, the Company believes that no significant 
modifications or conversions of existing software and certain hardware will 
be required. All required modifications and conversions of existing software 
and certain hardware are expected to be completed by June 30, 1999, which is 
prior to any anticipated impact on the Company's systems. The Company 
believes that, with relatively minor modifications and conversions of 
existing software and certain hardware, the Year 2000 issue will not pose 
significant operational problems for its systems. However, if such 
modifications and conversions are not made, or are not completed timely, the 
Year 2000 issue could have a material impact on the operations of the Company.

The Company has gathered information about its significant suppliers, 
financial institutions and others with whom the Company does business to 
determine the extent to which the Company's systems are vulnerable to those 
third parties' failure to remediate their own Year 2000 issues. The Company 
continues to monitor the Year 2000 compliance status of such third parties, 
and no significant issues with third parties' systems have been identified to 
date. While the Company has no material systems that interface directly with 
those of third parties, there can be no assurance that any failure within 
systems of third parties will not have a material impact on the operations of 
the Company.

The Company does not expect expenditures related to new or upgraded software 
and hardware required for Year 2000 compliance to be significant. In 
addition, the Company does not expect to utilize significant external 
resources to assess, test, modify or replace existing software and hardware 
for Year 2000 issues. Accordingly, the total Year 2000 issue cost to the 
Company is expected to be less than $100,000.

The costs of the assessment and remediation of the Year 2000 issue and the 
date on which the Company believes it will complete the modifications 
necessary to resolve the Year 2000 issue are based on management's best 
estimates, which were 


                                      26

<PAGE>

derived utilizing numerous assumptions of future events, including the 
continued availability of certain resources and other factors. However, there 
can be no assurance that these estimates will be achieved and actual results 
could differ materially from those anticipated. Specific factors that might 
cause such material differences include, but are not limited to, the 
availability and cost of personnel trained in this area, the ability to 
locate and correct all relevant computer codes, and similar uncertainties.

The Company currently has no contingency plans in place in the event it does 
not complete all phases of its Year 2000 program. The Company plans to 
evaluate the status of completion in June 1999 and will develop contingency 
plans by August 1999.


                                      27

<PAGE>

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company invests its excess cash in interest-bearing investment-grade 
securities that it holds for the duration of the term of the respective 
instrument. The Company does not utilize derivative financial instruments, 
derivative commodity instruments or other market risk sensitive instruments, 
positions or transactions in any material fashion. Accordingly, the Company 
believes that, while the investment-grade securities it holds are subject to 
changes in the financial standing of the issuer of such securities, the 
Company is 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.

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplemental data of the Company required by 
this item are set forth at the pages indicated in Item 14(a)(1).

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

Not Applicable.


                                      28

<PAGE>

                                  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 the Company's proxy statement to be filed in 
connection with the solicitation of proxies for its 1999 Annual Meeting of 
Stockholders (the "Proxy Statement"). The required information concerning 
Executive Officers of the Company 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.

                                   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

       No reports on Form 8-K were filed during the quarter ended December 31,
1998.

(c)    Exhibits

<TABLE>
<CAPTION>
     EXHIBIT
      NUMBER     DESCRIPTION OF DOCUMENT
     -------     -----------------------
     <C>         <S>
      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.
</TABLE>


                                      29

<PAGE>

<TABLE>
<CAPTION>
     EXHIBIT
      NUMBER     DESCRIPTION OF DOCUMENT
     -------     -----------------------
     <C>         <S>
     10.1(1)     Form of Indemnity Agreement entered into between Registrant and
                 its directors and officers.
     10.2(1)#    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(1)#    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)#    Employment Agreement dated January 23, 1996 between the
                 Registrant and Timothy J. Rink, as subsequently amended on
                 March 8, 1996.
     10.10(1)#   Employment Agreement dated August 6, 1996 between the
                 Registrant and J. Gordon Foulkes.
     10.11(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.
     10.12(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.
     10.13(1)    Sublease dated May 29, 1996 between the Registrant and Torrey
                 Pines Science Center Limited Partnership, as subsequently
                 amended on August 31, 1996.
     10.14(1)    Master Lease Agreement dated May 17, 1996 between the
                 Registrant and Lease Management Services Incorporated.
     10.15(1)    Equipment Financing Agreement dated May 17, 1996 between the
                 Registrant and Lease Management Services Incorporated.
     10.16(1)    Security Deposit Pledge Agreement dated May 17, 1996 between
                 the Registrant and Lease Management Services Incorporated.
     10.17(1)*   Exclusive License Agreement for Fluorescent Assay Technologies
                 dated June 17, 1996 between the Registrant and The Regents of
                 the University of California.
     10.18(1)*   License Agreement dated August 2, 1996 between the Registrant
                 and California Institute of Technology.
     10.19(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.
     10.20(1)*   Research Agreement dated April 2, 1996 between the Registrant
                 and Sequana Therapeutics, Inc. 
     10.21(1)*   Collaboration and License Agreement effective as of April 24,
                 1996 between the Registrant and Packard Instrument Company, Inc.
     10.22(1)*   Collaborative Research and License Agreement dated November 26,
                 1996 between the Registrant and Bristol-Myers Squibb
                 Pharmaceutical Research Institute.
     10.23(1)*   Collaborative Research and License Agreement dated December 18,
                 1996 between the Registrant and Eli Lilly and Company.
     10.24(1)*   Collaboration Agreement effective as of February 1, 1997
                 between the Registrant and Allelix Biopharmaceuticals Inc.
     10.25(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.
     10.26(2)    First Amendment dated September 1, 1997, to Multi-Tenant
                 Industrial Lease between the Registrant and AEW/LBA Acquisition
                 Co. II, LLC.
     10.27(2)*   Collaborative Research and License Agreement dated September
                 22, 1997 between the Registrant and Warner-Lambert Company.
     10.28(3)*   Collaborative Research and License Agreement dated December 18,
                 1997 between the Registrant and Merck & Co., Inc.
     10.29(3)    Negative Covenant Pledge Agreement dated September 29, 1997
                 between the Registrant and Lease Management Services
                 Incorporated.
     10.30(3)    Collateral Security Agreement dated December 16, 1997 between
                 the Registrant and Lease Management Services Incorporated.
     10.31(3)*   Packard Aurora Supply Agreement dated February 5, 1998 between
                 the Registrant and Packard Instrument Company, Inc.
     10.32(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.
</TABLE>


                                      30

<PAGE>

<TABLE>
<CAPTION>
     EXHIBIT
      NUMBER     DESCRIPTION OF DOCUMENT
     -------     -----------------------
     <C>         <S>
     10.33(3)#   Amendment dated January 2, 1998, to Employment Agreement
                 between the Registrant and J. Gordon Foulkes.
     10.34(4)*   Combinatorial Chemistry Agreement dated April 25, 1998 between
                 the Registrant and SIDDCO, Inc.
     10.35(4)*   Agreement dated June 11, 1998 between the Registrant and J.
                 Gordon Foulkes.
     10.36(4)    Agreement dated July 16, 1998 between the Registrant and
                 Deborah J. Tower.
     10.37(5)*   Collaborative Research Agreement dated July 16, 1998 between
                 the Registrant and Cytovia, Inc.
     10.38(5)*   AMCS Development Agreement dated August 21, 1998 between the
                 Registrant and  Warner-Lambert Company.
     10.39#      Promissory Note dated February 18, 1997 between the Registrant
                 and Harry Stylli.
     10.40#      Terms of employment dated December 3, 1997 between the
                 Registrant and Paul J. England.
     10.41#      Terms of employment dated June 9, 1998 between the Registrant
                 and Thomas G. Klopack.
     10.42**     Termination Agreement between the Registrant and Packard 
                 Instrument Company, Inc.
     10.43#      Loan Agreement and Promissory Note dated December 23, 1998
                 between the Registrant and Thomas G. Klopack.
     23.1        Consent of Ernst & Young LLP, Independent Auditors.
     27.1        Financial Data Schedule related to the Financial Statements for
                 the fiscal year ended December 31, 1998.
</TABLE>
----------

         (1)    Previously filed as exhibits of the same number with the
                Registrant's Registration Statement on Form S-1 (No. 333-23407)
                or amendments thereof, and incorporated herein by reference.
         (2)    Previously filed as exhibits of the same number 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 as exhibits of the same number 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 as exhibits of the same number 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 as exhibits of the same number 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.
         *      The Company 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.
         **     The Company has requested 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).


                                      31

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the registrant has duly caused this report to be signed 
on its behalf by the undersigned, thereunto duly authorized, on March 31, 
1999.

                            By:       /s/ TIMOTHY J. RINK
                               -----------------------------------------------
                                           Timothy J. Rink
                                           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/ TIMOTHY J. RINK                         Chairman of the Board,            March 31, 1999
-------------------------------------------------         President and Chief Executive
          Timothy J. Rink, M.A., M.D., Sc.D                    Officer (PRINCIPAL
                                                               EXECUTIVE OFFICER)


                 /s/ JOHN PASHKOWKSY                           Director of Finance             March 31, 1999
-------------------------------------------------                 and Treasurer
                   John Pashkowsky                          (PRINCIPAL FINANCIAL AND
                                                               ACCOUNTING OFFICER)


                  /s/ JAMES C. BLAIR                                Director                   March 31, 1999
-------------------------------------------------
                James C. Blair, Ph.D.

                 /s/KEVIN J. KINSELLA                               Director                   March 31, 1999
-------------------------------------------------
                  Kevin J. Kinsella

               /s/ HUGH Y. RIENHOFF, JR.                            Director                   March 31, 1999
-------------------------------------------------
             Hugh Y. Rienhoff, Jr., M.D.

                  /s/ LUBERT STRYER                                 Director                   March 31, 1999
-------------------------------------------------
                 Lubert Stryer, M.D.

                 /s/ ROY A. WHITFIELD                               Director                   March 31, 1999
-------------------------------------------------
                   Roy A. Whitfield

                /s/ TIMOTHY J. WOLLAEGER                            Director                   March 31, 1999
-------------------------------------------------
                 Timothy J. Wollaeger
</TABLE>

                                      32


<PAGE>

                      AURORA BIOSCIENCES CORPORATION
                       INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                               PAGE
                                                                                               ----
<S>                                                                                            <C>
Report of Independent Auditors...............................................................   F-2

Balance Sheets as of December 31, 1998 and 1997..............................................   F-3

Statements of Operations for the years ended December 31, 1998, 1997 and 1996................   F-4

Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996......   F-5

Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................   F-6

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


                                      F-1

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Aurora Biosciences Corporation

We have audited the accompanying balance sheets of Aurora Biosciences 
Corporation as of December 31, 1998 and 1997, and the related statements of 
operations, stockholders' equity and cash flows for each of the three years 
in the period ended December 31, 1998. 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 generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Aurora Biosciences 
Corporation at December 31, 1998 and 1997, and the results of its operations 
and its cash flows for each of the three years in the period ended December 
31, 1998, in conformity with generally accepted accounting principles.

                                         ERNST & YOUNG LLP

San Diego, California
January 29, 1999


                                     F-2

<PAGE>

                         AURORA BIOSCIENCES CORPORATION
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                        DECEMBER 31,
                                                                           ----------------------------------
                                                                                 1998              1997
                                                                           ---------------- -----------------
<S>                                                                        <C>              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                 $   9,477,916    $  23,168,690
   Investment securities, available-for-sale                                    18,547,991       25,737,734
   Accounts receivable                                                           3,750,291        3,207,166
   Notes receivable from officers and employees                                    210,000                -
   Prepaid expenses                                                                475,927          563,017
   Other current assets                                                          1,104,249          763,330
                                                                           ---------------- -----------------
      Total current assets                                                      33,566,374       53,439,937
Equipment, furniture and leaseholds, net                                        10,863,357        6,691,939
Notes receivable from officers and employees                                       210,000          290,000
Restricted cash                                                                  1,096,034        1,311,923
Other assets                                                                     5,218,951        1,302,033
                                                                           ---------------- -----------------
     Total assets                                                            $  50,954,716    $  63,035,832
                                                                           ---------------- -----------------
                                                                           ---------------- -----------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:                                                                         
   Accounts payable                                                          $   3,216,696    $   1,111,946
   Accrued compensation                                                            550,770          278,852
   Other current liabilities                                                       391,694          227,778
   Unearned revenue                                                              2,440,833        2,324,001
   Capital lease obligations, current portion                                    2,024,786        1,153,185
                                                                           ---------------- -----------------
      Total current liabilities                                                  8,624,779        5,095,762

Capital lease obligations, less current portion                                  4,787,667        3,421,652
Other noncurrent liabilities                                                             -          154,346

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,
    17,024,919 and 17,032,885 shares issued and outstanding at December
    31, 1998 and 1997, respectively                                                 17,025           17,033
   Additional paid-in capital                                                   61,496,842       60,497,472
   Deferred compensation                                                        (2,240,606)      (3,072,560)
   Accumulated deficit                                                         (21,730,991)      (3,077,873)
                                                                           ---------------- -----------------
     Total stockholders' equity                                                 37,542,270       54,364,072
                                                                           ---------------- -----------------
     Total liabilities and stockholders' equity                              $  50,954,716    $  63,035,832
                                                                           ---------------- -----------------
                                                                           ---------------- -----------------
</TABLE>

                           SEE ACCOMPANYING NOTES.


                                     F-3

<PAGE>

                         AURORA BIOSCIENCES CORPORATION
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                         YEARS ENDED DECEMBER 31,
                                                 -------------------------------------------------------------------
                                                         1998                  1997                   1996
                                                 --------------------- ---------------------- ----------------------
<S>                                              <C>                   <C>                    <C>
 Revenue                                            $  26,537,888          $ 14,907,749         $   2,216,523

 Operating expenses:                                                                           
    Cost of revenue                                    23,777,215             6,982,875                     -
    Research and development                           17,145,787             5,405,731             4,395,914
    Selling, general and administrative                 6,067,445             3,679,317             1,275,032
                                                 --------------------- ---------------------- ----------------------
       Total operating expenses                        46,990,447            16,067,923             5,670,946
                                                 --------------------- ---------------------- ----------------------

 Loss from operations                                 (20,452,559)           (1,160,174)           (3,454,423)

 Interest income                                        2,444,836             1,793,691               580,382
 Interest expense                                        (645,395)             (346,183)              (59,439)
                                                 --------------------- ---------------------- ----------------------
 Income (loss) before income taxes                    (18,653,118)              287,334            (2,933,480)
 Income taxes                                                   -               (20,000)                    -
                                                 --------------------- ---------------------- ----------------------
 Net income (loss)                                  $ (18,653,118)         $    267,334         $  (2,933,480)
                                                 --------------------- ---------------------- ----------------------
                                                 --------------------- ---------------------- ----------------------

 Basic income (loss) per share                      $       (1.14)         $       0.03         $       (3.86)
                                                 --------------------- ---------------------- ----------------------
                                                 --------------------- ---------------------- ----------------------
 Diluted income (loss) per share                    $       (1.14)         $       0.02         $       (3.86)
                                                 --------------------- ---------------------- ----------------------
                                                 --------------------- ---------------------- ----------------------

 Shares used in computing:

   Basic income (loss) per share                       16,312,194             8,970,183               759,741
                                                 --------------------- ---------------------- ----------------------
                                                 --------------------- ---------------------- ----------------------
   Diluted income (loss) per share                     16,312,194            15,422,755               759,741
                                                 --------------------- ---------------------- ----------------------
                                                 --------------------- ---------------------- ----------------------
</TABLE>

                           SEE ACCOMPANYING NOTES.


                                     F-4

<PAGE>

                       AURORA BIOSCIENCES CORPORATION
                     STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                            
                                               PREFERRED STOCK         COMMON STOCK        ADDITIONAL               
                                          ----------------------- -----------------------   PAID-IN      DEFERRED   
                                             SHARES     AMOUNT      SHARES       AMOUNT     CAPITAL    COMPENSATION 
                                          ----------- ----------- ----------- ----------- -----------  ------------ 
<S>                                       <C>         <C>         <C>         <C>         <C>          <C>          
Balance at December 31, 1995                        - $         -          80 $         - $         -  $          - 
  Issuance of Series A preferred stock,     7,634,895       7,635           -           -  12,617,058             - 
     net
  Issuance of Series A preferred stock
     for cancellation of notes payable        556,387         556           -           -     924,441             - 
  Issuance of Series B preferred stock,       666,665         667           -           -   1,494,889             - 
     net
  Issuance of Series C preferred stock,       600,000         600           -           -   1,496,800             - 
     net
  Issuance of Series D preferred stock,       458,026         458           -           -   2,054,943             - 
     net
  Issuance of common stock, net                     -           -   2,677,076       2,677      90,847             - 
  Issuance of common stock for acquired
     technology                                     -           -     188,000         188      63,312             - 
  Deferred compensation related to
     stock and stock options                        -           -           -           -     145,500      (373,742)
  Amortization of deferred compensation             -           -           -           -           -         2,169 
  Net loss                                          -           -           -           -           -               
                                                                                                                 --
                                          ----------- ----------- ----------- ----------- ----------- ------------- 
Balance at December 31, 1996                9,915,973       9,916   2,865,156       2,865  18,887,790      (371,573)
  Costs incurred in connection with
     issuance of Series D preferred                 -           -           -           -     (37,485)            - 
     stock
  Conversion of Series A, B, C and D
     preferred stock into common stock     (9,915,973)     (9,916)  9,915,973       9,916           -             - 
  Exercise of warrants to purchase
     common stock                                   -           -      45,290          45         (45)            - 
  Issuance of common stock, net                     -           -   4,206,466       4,207  37,905,268             - 
  Deferred compensation related to
     stock and stock options                        -           -           -           -   3,741,944    (3,513,702)
  Amortization of deferred compensation             -           -           -           -           -       812,715 
  Net income                                        -           -           -           -           -             - 
                                          ----------- ----------- ----------- ----------- ----------- --------------
Balance at December 31, 1997                        -           -  17,032,885      17,033  60,497,472    (3,072,560)
  Issuance of common stock, net                     -           -     125,369         125     511,510             - 
  Issuance of common stock for acquired
     technology                                     -           -      75,000          75     569,456             - 
  Repurchases of common stock                       -           -    (208,335)       (208)    (24,436)            - 
  Deferred compensation related to
     stock and stock options                        -           -           -           -     (57,160)       57,160 
  Amortization of deferred compensation             -           -           -           -           -       774,794 
  Net loss                                          -           -           -           -           -             - 
                                          ----------- ----------- ----------- ----------- ----------- --------------
BALANCE AT DECEMBER 31, 1998                        - $         -  17,024,919 $    17,025 $61,496,842 $  (2,240,606)
                                          ----------- ----------- ----------- ----------- ----------- --------------
                                          ----------- ----------- ----------- ----------- ----------- --------------

<CAPTION>

                                                             TOTAL      
                                           ACCUMULATED    STOCKHOLDERS' 
                                             DEFICIT     EQUITY (DEFICIT
                                          -------------- ---------------
<S>                                       <C>            <C>            
Balance at December 31, 1995              $  (411,727)  $   (411,727)   
  Issuance of Series A preferred stock,             -     12,624,693    
     net                                                                
  Issuance of Series A preferred stock                                  
     for cancellation of notes payable              -        924,997    
  Issuance of Series B preferred stock,             -      1,495,556    
     net                                                                
  Issuance of Series C preferred stock,             -      1,497,400    
     net                                                                
  Issuance of Series D preferred stock,             -      2,055,401    
     net                                                                
  Issuance of common stock, net                     -         93,524    
  Issuance of common stock for acquired                                 
     technology                                     -         63,500    
  Deferred compensation related to                                      
     stock and stock options                        -       (228,242)   
  Amortization of deferred compensation             -          2,169    
  Net loss                                 (2,933,480)    (2,933,480)   
                                                                        
                                          -------------- ---------------
Balance at December 31, 1996               (3,345,207)    15,183,791   
  Costs incurred in connection with                                     
     issuance of Series D preferred                 -        (37,485)   
     stock                                                              
  Conversion of Series A, B, C and D                                    
     preferred stock into common stock              -              -    
  Exercise of warrants to purchase                                      
     common stock                                   -              -    
  Issuance of common stock, net                     -     37,909,475    
  Deferred compensation related to                                      
     stock and stock options                        -        228,242    
  Amortization of deferred compensation             -        812,715    
  Net income                                  267,334        267,334    
                                          ------------- ---------------
Balance at December 31, 1997               (3,077,873)    54,364,072   
  Issuance of common stock, net                     -        511,635    
  Issuance of common stock for acquired                                 
     technology                                     -        569,531    
  Repurchases of common stock                       -        (24,644)   
  Deferred compensation related to                                      
     stock and stock options                        -              -    
  Amortization of deferred compensation             -        774,794    
  Net loss                                (18,653,118)   (18,653,118)  
                                         -------------- ---------------
BALANCE AT DECEMBER 31, 1998             $(21,730,991)  $ 37,542,270
                                         -------------- ---------------
                                         -------------- ---------------
</TABLE>

                           SEE ACCOMPANYING NOTES.


                                     F-5

<PAGE>

                         AURORA BIOSCIENCES CORPORATION
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31,
                                                                ----------------------------------------------------
                                                                      1998             1997              1996
                                                                ----------------- ---------------- -----------------
<S>                                                             <C>               <C>              <C>
Operating activities:
Net income (loss)                                               $  (18,653,118)   $      267,334   $   (2,933,480)
Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
  Depreciation and amortization                                      2,421,986           964,323          156,861
  Forgiveness of notes receivable from officers and employees
                                                                             -                 -           93,129
  Issuance of common stock in exchange for acquired technology
                                                                       569,531                 -           63,500
  Amortization of deferred compensation                                774,794           812,715            2,169
  Changes in operating assets and liabilities:
    Accounts receivable                                               (543,125)       (2,090,643)      (1,116,523)
    Prepaid expenses and other current assets                         (253,829)         (929,143)        (378,871)
    Other assets                                                    (1,480,639)         (230,376)        (106,625)
    Accounts payable and accrued compensation                        2,376,668           999,451          339,820
    Other current liabilities                                          163,916           227,778                -
    Unearned revenue                                                   116,832         2,074,001          250,000
    Other noncurrent liabilities                                      (154,346)          154,346                -
                                                                ----------------- ---------------- -----------------
Net cash provided by (used in) operating activities                (14,661,330)        2,249,786       (3,630,020)
Investing activities:
  Purchases of short-term investments                              (23,015,257)      (24,459,286)     (12,147,818)
  Sales and maturities of short-term investments                    30,205,000         7,974,422        2,894,948
  Purchases of property and equipment                               (2,837,991)       (1,951,776)        (458,657)
  Notes receivable from officers and employees                        (130,000)          (90,000)        (223,331)
  Restricted cash                                                      215,889        (1,311,923)               -
  Other assets                                                      (2,436,279)         (339,283)        (619,309)
                                                                ----------------- ---------------- -----------------
Net cash provided by (used in) investing activities                  2,001,362       (20,177,846)     (10,554,167)
Financing activities:
  Issuance of convertible preferred stock, net                               -           (37,485)      17,673,050
  Issuance of common stock, net                                        486,991        37,909,475           93,524
  Issuance of notes payable                                                  -                 -          449,997
  Principal payments on capital lease obligations                   (1,517,797)         (689,278)        (129,465)
                                                                ----------------- ---------------- -----------------
Net cash provided by (used in) financing activities                 (1,030,806)       37,182,712       18,087,106
                                                                ----------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents               (13,690,774)       19,254,652        3,902,919
Cash and cash equivalents at beginning of year                      23,168,690         3,914,038           11,119
                                                                ----------------- ---------------- -----------------
Cash and cash equivalents at end of year                        $    9,477,916    $   23,168,690   $    3,914,038
                                                                ----------------- ---------------- -----------------
                                                                ----------------- ---------------- -----------------
Supplemental disclosure of cash flow information:
  Interest paid                                                 $      645,395    $      346,183   $       59,439
                                                                ----------------- ---------------- -----------------
                                                                ----------------- ---------------- -----------------

Supplemental schedule of non-cash investing and 
  financing activities:

Property and equipment acquired under capital leases            $    3,755,413    $    3,802,971   $    1,590,609
                                                                ----------------- ---------------- -----------------
                                                                ----------------- ---------------- -----------------
Conversion of notes payable to convertible preferred stock      $            -    $            -   $      924,997
                                                                ----------------- ---------------- -----------------
                                                                ----------------- ---------------- -----------------
</TABLE>

                             SEE ACCOMPANYING NOTES.


                                      F-6

<PAGE>

                         AURORA BIOSCIENCES CORPORATION
                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 designs, develops and commercializes 
proprietary drug discovery systems, services and technologies to accelerate 
and enhance the discovery of new medicines. Aurora is developing an 
integrated technology platform comprised of a portfolio of proprietary 
fluorescent assay technologies and an ultra-high throughput screening system 
("UHTSS-TM-") platform designed to allow assay miniaturization and to 
overcome many of the limitations associated with the traditional drug 
discovery process. To date, the Company's revenue has been generated from a 
limited number of collaborators in the biotechnology and pharmaceutical 
industries in the U.S. and Europe.

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 a separate component of stockholders' equity if material. 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. 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.

OTHER ASSETS

Equity investments in closely-held companies are carried at cost. 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.

WARRANTY LIABILITY

The Company records a liability for estimated future warranty costs related 
to its contractual obligations to provide service and support for a limited 
time for certain installed systems and instruments. To date, the Company's 
warranty costs have been minimal.

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.


                                     F-7

<PAGE>

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Revenue under collaborative agreements with UHTSS syndicate customers 
typically consists of non-refundable, non-creditable upfront fees, ongoing 
research and co-development payments, and milestone, royalty and other 
contingent payments. Revenue from non-refundable, non-creditable upfront fees 
for past research and development efforts is recognized upon signing of the 
agreement when there are no future performance obligations associated with 
such upfront fees. Revenue from ongoing research and co-development payments 
is recognized ratably over the term of the agreement, and the Company 
believes such payments will approximate the research and development expense 
being incurred associated with the agreement. The Company does not have an 
obligation to refund, nor does there exist the presumption of an obligation 
to refund, ongoing research and co-development payments. Revenue from 
milestone or other contingent payments is recognized upon satisfaction of the 
contractual terms of the milestone or contingency. Revenue from equipment 
sales under short-term production contracts is recognized using the completed 
contract method. Revenue from equipment sales under long-term production 
contracts is recognized using the percentage of completion method. License 
revenue is recognized ratably over the term of the licensing agreement. 
Revenue from royalty payments will be recognized upon applicable product 
sales.

Revenue from screen 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. 
Advance payments received in excess of amounts earned through performance are 
classified as unearned revenue. 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.

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 1997, diluted income per share also gives effect 
to all potential dilutive common shares outstanding during the period. In 
1998 and 1996, all potential dilutive common shares have been excluded from 
the calculation of diluted loss per share as their inclusion would be 
anti-dilutive.

COMPREHENSIVE INCOME (LOSS)

Effective January 1, 1998, the Company adopted Statement of Financial 
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"), 
which requires that all components of comprehensive income (loss), including 
net income (loss), be reported in the financial statements in the period in 
which they are recognized. Comprehensive income (loss) is defined as the 
change in equity during a period from transactions and other events and 
circumstances from non-owner sources. Net income (loss) and other 
comprehensive income (loss), including unrealized gains and losses on 
investments, shall be reported, net of their related tax effect, to arrive at 
comprehensive income (loss). The Company has not reported comprehensive 
income (loss) because there were no items of other comprehensive income 
(loss) for the years ended December 31, 1998, 1997 and 1996.

SEGMENT INFORMATION

Effective January 1, 1998, the Company adopted Statement of Financial 
Accounting Standards No. 131, SEGMENT INFORMATION ("SFAS 131"), which 
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-8

<PAGE>

1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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.

RECLASSIFICATION

Certain prior year amounts in the financial statements have been reclassified 
to conform to the current year presentation.

2.  CASH EQUIVALENTS AND INVESTMENT SECURITIES

A summary of the estimated fair value of cash equivalents and investment 
securities is shown below:

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                               1998              1997
                                                                         ----------------- ----------------
<S>                                                                      <C>               <C>
Money market funds                                                         $   1,627,317     $   8,381,835
U.S. government and agency securities                                         14,134,679        18,498,884
U.S. corporate securities                                                     12,263,312        22,235,157
                                                                         ----------------- ----------------
   Total debt securities                                                      28,025,308        49,115,876
Less amounts classified as cash equivalents                                   (9,477,317)      (23,378,142)
                                                                         ----------------- ----------------
                                                                         ----------------- ----------------
   Total investment securities                                              $ 18,547,991      $ 25,737,734
                                                                         ----------------- ----------------
                                                                         ----------------- ----------------
</TABLE>

The estimated fair value of each cash equivalent and investment security 
approximates cost and no unrealized gains or losses were reported as of 
December 31, 1998 or 1997. Realized gains or losses on sales of 
available-for-sale securities in 1998 and 1997 were not significant. The 
estimated fair value of available-for-sale debt securities as of December 31, 
1998 by contractual maturity is as follows: $17.2 million due within one year 
and $10.8 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, 1998 include two $60,000 loans 
to officers of the Company. One note bears interest payable monthly at 
approximately 6% per annum and is due in 2001, following an extension granted 
in February 1999. The other note is interest-free and is due in 2003.

4.  EQUIPMENT, FURNITURE AND LEASEHOLDS

Equipment, furniture and leaseholds consists of the following:

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31,
                                                                               1998               1997
                                                                         ------------------ -----------------
<S>                                                                      <C>                <C>
Scientific equipment                                                       $   5,394,363        $ 3,358,521
Office furniture, computers and equipment                                      4,109,911          2,242,204
Leasehold improvements                                                         4,887,714          2,197,860
                                                                         ------------------ -----------------
                                                                              14,391,988          7,798,585
Less accumulated depreciation and amortization                                (3,528,631)        (1,106,646)
                                                                         ------------------ -----------------
                                                                         ------------------ -----------------
                                                                            $ 10,863,357        $ 6,691,939
                                                                         ------------------ -----------------
                                                                         ------------------ -----------------
</TABLE>

The cost of equipment, furniture and leaseholds under capital leases at 
December 31, 1998 and 1997 was $9,148,994 and $5,393,580, respectively. The 
accumulated depreciation and amortization of equipment, furniture and 
leaseholds under capital leases at December 31, 1998 and 1997 was $2,693,324 
and $915,155, respectively.


                                     F-9

<PAGE>

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 $225,000 over the next four years. The agreements are 
cancelable by either party upon 60 or 90 days written notice. During the 
years ended December 31, 1998, 1997 and 1996, the Company expensed 
approximately $250,000, $440,000 and $330,000, 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 $1,400,000, 
$850,000 and $550,000 in 1998, 1997 and 1996, respectively, and is obligated 
to pay a total of approximately $6.7 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 $1,070,000, $140,000 and 
$120,000 in 1998, 1997 and 1996, respectively, and is obligated to pay a 
total of approximately $1.7 million over the next five years.

LEASES

The Company leases its facilities and certain equipment under operating lease 
agreements which expire at various dates through September 2008. The 
facilities lease agreements are secured by letters of credit totaling $1.1 
million, which are secured by certificates of deposit. At December 31, 1998, 
such restricted cash totaling $1,096,034 was included in noncurrent assets. 
The letters of credit will be reduced over the next two years on a 
predetermined schedule. Rent expense totaled approximately $1,593,000, 
$1,205,000 and $462,000 in 1998, 1997 and 1996, respectively.

In November 1997, the Company subleased certain of its facilities to a third 
party under an operating lease which expires in October 1999. Total sublease 
income in 1998 and 1997 included as a credit to expense is $935,000 and 
$79,000, respectively. Scheduled aggregate future sublease income at December 
31, 1998 is approximately $771,000.

The Company leases certain equipment and improvements under capital lease 
agreements which expire at various dates through September 2003. Capital 
lease agreements and uses under the lease line totaled approximately $9.1 
million through December 31, 1998. There was no unused capital lease line 
available at December 31, 1998.

Annual future minimum lease payments for operating and capital leases as of 
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                         OPERATING LEASES        CAPITAL LEASES
                                                                       ---------------------- ---------------------
<S>                                                                    <C>                    <C>
      Years ended December 31,
      1999                                                                 $   2,210,744          $   2,636,676
      2000                                                                     1,745,628              2,343,303
      2001                                                                     1,797,515              1,605,173
      2002                                                                     1,852,071              1,315,882
      2003                                                                     1,907,633                172,069
      Thereafter                                                               9,863,676                      -
                                                                       --------------------------------------------
      Total minimum lease payments                                          $ 19,377,267              8,073,103
                                                                       -----------------------
      Less amounts representing interest                               -----------------------       (1,260,650)
                                                                                                -------------------
      Present value of capital lease payments                                                         6,812,453
      Less current portion                                                                           (2,024,786)
                                                                                                -------------------
      Capital lease obligations, noncurrent                                                        $  4,787,667
                                                                                                -------------------
                                                                                              ---------------------
</TABLE>


                                     F-10

<PAGE>

6.  STOCKHOLDERS' EQUITY

PREFERRED STOCK

During 1996, the Company issued 9,915,973 shares of convertible preferred 
stock with $.001 par value. In June 1997, as a result of the Company's 
initial public offering ("IPO") of common stock, all outstanding shares of 
convertible preferred stock were automatically converted into 9,915,973 
shares of common stock. In addition, the number of authorized shares of the 
Company's preferred stock was decreased from 25,000,000 to 7,500,000 upon the 
closing of the IPO. No shares of preferred stock were outstanding at December 
31, 1998.

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, 1998, 349,428 shares of common stock were 
subject to repurchase by the Company.

During 1996, the Company issued 188,000 shares of common stock in exchange 
for certain licenses and rights. Research and development expense of $63,500 
was recorded related to such issuances, representing the fair value of such 
shares as determined by the Board of Directors on the date of issuance.

In April 1997, the Company effected a four-for-five reverse split of its 
outstanding common stock. All share and per share amounts, including those 
relating to preferred stock, in the accompanying financial statements have 
been retroactively restated to reflect the reverse stock split.

In June 1997, the Company completed an IPO of 4,000,000 shares of common 
stock at $10.00 per share, with the Company receiving net proceeds of $36.3 
million. In July 1997, the Company sold an additional 150,184 shares of 
common stock in connection with the partial exercise of an over-allotment 
option granted to the underwriters for net proceeds of approximately $1.4 
million.

In May 1998, the Company issued 75,000 shares of common stock in exchange for 
certain licenses and rights. Research and development expense of $570,000 was 
recorded related to such issuances based upon the fair market value of such 
shares at the date of issuance.

WARRANTS

In 1996, the Company issued warrants to purchase 54,320 shares of Series A 
preferred stock at $1.66 per share to a leasing company in connection with 
the execution of a capital lease agreement. In June 1997, in connection with 
the Company's IPO, the warrants were exercised in a cashless transaction 
resulting in the issuance of 45,290 shares of common stock. No warrants were 
outstanding at December 31, 1998.

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. Shares included in the computation of deferred compensation include 
restricted stock issued and stock options granted since April 1996.


                                     F-11

<PAGE>

6.  STOCKHOLDERS' EQUITY (CONTINUED)

STOCK OPTION AND PURCHASE PLANS

In 1996, the Company adopted the 1996 Stock Plan (the "Stock Plan"), under 
which, as amended, 4,000,000 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 purchase rights to employees, directors 
and consultants. All options and stock appreciation rights 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 and stock purchase rights 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. 
Options issued to date generally vest monthly over four years. 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. The fair value of options granted to 
non-employee directors has been included in deferred compensation.

In 1997, the Company adopted an Employee Stock Purchase Plan (the "Purchase 
Plan"), under which 400,000 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, 1998, 106,697 shares of common stock have been issued 
pursuant to the Purchase Plan.

In December 1998, the Board of Directors committed to grant options to 
purchase 198,411 shares of common stock to employees of the Company on 
January 1, 1999. The shares were priced at $6.44 per share, representing the 
fair market value of the Company's common stock at December 31, 1998.

During 1997 and 1996, the Company issued 113,472 and 353,960 shares, 
respectively, of restricted common stock under the Stock Plan at prices 
ranging from $0.09 to $3.00 per share. Of the shares issued during 1997 and 
1996, 113,472 and 52,800 shares, respectively, were issued at prices below 
the fair value of the Company's common stock on the date of issuance. The 
weighted average fair value of these issuances was $3.14 and $2.75 per share, 
respectively, and the difference between the fair value and issue price of 
such shares has been included in deferred compensation.

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 1998, 1997 and 1996: 
risk-free interest rates of 4.59%, 5.44% and 6.22%, respectively; no annual 
dividends; volatility factor of the expected market price of the Company's 
common stock price of 60%; and an expected option life of five years. The 
weighted-average fair value of stock options granted during 1998, 1997 and 
1996 was $4.15, $3.33 and $0.05, respectively.

Shares issued under the Purchase Plan were valued based upon the difference, 
if any, between the market value of the stock and the 15% discounted 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 $5.32 and 
$5.19 in 1998 and 1997, respectively.


                                     F-12

<PAGE>

6.  STOCKHOLDERS' EQUITY (CONTINUED)

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 1998, 1997 and 1996 would have been as follows:

<TABLE>
<CAPTION>
                                                                1998              1997             1996
                                                                ----              ----             ----
<S>                                                        <C>               <C>               <C>
Pro forma loss                                             $ (19,587,000)    $  (124,000)      $ (2,934,000)

Pro forma basic and diluted loss per share                 $       (1.20)    $     (0.01)      $      (3.86)
</TABLE>

The pro forma results for 1998, 1997 and 1996 are not likely to be 
representative of the effects of applying SFAS 123 on the reported net income 
or loss in future years as these amounts reflect the expense associated with 
less than three years of vesting.

The following table summarizes stock option activity under the Stock and 
Directors' Plans and related information through December 31, 1998:

<TABLE>
<CAPTION>
                                                                                     WEIGHTED-
                                                                   NUMBER OF          AVERAGE
                                                                    OPTIONS       EXERCISE PRICE
                                                                ----------------- ----------------
<S>                                                             <C>               <C>
Outstanding at December 31, 1995                                            -                -
Granted                                                                 4,000            $0.09
                                                                -----------------
Outstanding at December 31, 1996                                        4,000            $0.09
Granted                                                             1,119,120            $5.90
Exercised                                                              (4,000)           $1.15
Cancelled                                                             (12,700)           $5.02
                                                                -----------------
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
                                                                -----------------
                                                                -----------------
</TABLE>

At December 31, 1998, 1,094,278 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 does 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 having 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. None of 
the replacement options are exercisable until November 20, 1999. Under 
certain circumstances and at the discretion of the Board of Directors, the 
replacement options may be cancelled by the Company and the original options 
reinstated with original terms of exercise, vesting and expiration. All 
replacement options are included in grants and cancellations in the above 
summary of stock option activity.


                                     F-13

<PAGE>

6.  STOCKHOLDERS' EQUITY (CONTINUED)

The following table summarizes information about stock options outstanding 
under the Company's Stock and Directors' Plans at December 31, 1998:

<TABLE>
<CAPTION>
                                    OPTIONS OUTSTANDING                            OPTIONS EXERCISABLE
                    ----------------------------------------------------    ----------------------------------
                                         WEIGHTED-
                                          AVERAGE
     RANGE OF                            REMAINING        WEIGHTED-                             WEIGHTED-
     EXERCISE          NUMBER OF        CONTRACTUAL        AVERAGE             NUMBER OF         AVERAGE
      PRICES            OPTIONS            LIFE         EXERCISE PRICE          OPTIONS       EXERCISE PRICE
------------------- ----------------- ---------------- -----------------    ----------------- ----------------
<S>                 <C>               <C>              <C>                  <C>               <C>
 $ 0.09 - $ 5.38        1,815,705            8.86         $   4.06               271,878          $   1.76
 $ 6.00 - $13.38          928,785            9.64         $   7.52                32,492          $  11.91
                    -----------------                                       -----------------
 $ 0.09 - $13.38        2,744,490            9.12         $   5.23               304,370          $   2.85
                    -----------------                                       -----------------
                    -----------------                                       -----------------
</TABLE>

COMMON STOCK RESERVED FOR FUTURE ISSUANCE

At December 31, 1998, 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                       3,598,768
    Common stock under Employee Stock Purchase Plan                              293,303
    Stock options under Directors' Plan                                          240,000
    Other                                                                          4,000
                                                                       --------------------
                                                                               4,136,071
                                                                       --------------------
                                                                       --------------------
</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,
                                                                                    1998              1997
                                                                             ----------------- -----------------
<S>                                                                          <C>               <C>
    Federal income taxes (benefit) at 35%                                    $ (6,528,000)        $ 101,000
    State income tax, net of federal benefit                                            -             3,000
    Tax effect on non-deductible expenses                                         414,000           301,000
    Alternative minimum taxes                                                           -            17,000
    Increase (decrease) in valuation allowance and other                        6,114,000          (402,000)
                                                                             ----------------- -----------------
                                                                             $          -        $   20,000
                                                                             ----------------- -----------------
                                                                             ----------------- -----------------
</TABLE>

At December 31, 1998, the Company had federal and California income tax net 
operating loss carryforwards of approximately $19,564,000 and $3,351,000, 
respectively. The difference between federal and California tax loss 
carryforwards is primarily attributable to the capitalization of research and 
development expenses for California tax purposes and the fifty percent 
limitation on California tax loss carryforwards. The federal and California 
tax loss carryforwards will begin to expire in 2011 and 2003, respectively, 
unless previously utilized. The Company also had federal and California 
research tax credit carryforwards of approximately $657,000 and $424,000, 
respectively, which will begin to expire in 2010 unless previously utilized. 
The Company also had California manufactured investment tax credit 
carryforwards of approximately $350,000, which will begin to expire in 2005 
unless previously utilized.

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.


                                     F-14

<PAGE>

7.  INCOME TAXES (CONTINUED)

Significant components of the Company's net deferred tax assets as of 
December 31, 1998 and 1997 are shown below. Valuation allowances of 
$9,148,000 and $1,550,000 at December 31, 1998 and 1997, respectively, have 
been recognized to offset the net deferred tax assets as realization of such 
assets is uncertain.

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,
                                                                                1998               1997
                                                                         --------------------------------------
    <S>                                                                  <C>                 <C>
    Deferred tax assets:
      Net operating loss carryforwards                                     $    7,048,000    $      965,000
      Tax credit carryforwards                                                  1,184,000           704,000
      Capitalized research and development                                        915,000                 -
      Other                                                                       346,000           178,000
                                                                         --------------------------------------
      Total deferred tax assets                                                 9,493,000         1,847,000
    Deferred tax liability:
      Depreciation                                                               (345,000)         (297,000)
                                                                         --------------------------------------
    Net deferred tax assets                                                     9,148,000         1,550,000
    Valuation allowance for net deferred tax assets                            (9,148,000)       (1,550,000)
                                                                         --------------------------------------
    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,
                                                                1998               1997               1996
                                                          ---------------- ------------------- ------------------
       <S>                                                <C>              <C>                 <C>
       Numerator:
         Net income (loss)                                 $ (18,653,118)    $     267,334       $  (2,933,480)

                                                          ---------------- ------------------- ------------------
         Numerator for basic and diluted income (loss)
           per share - income available to common
           stockholders                                   $  (18,653,118)    $     267,334       $  (2,933,480)
                                                          ---------------- ------------------- ------------------
                                                          ---------------- ------------------- ------------------
       Denominator:

         Weighted average common shares                       16,312,194         8,970,183             759,741
                                                          ---------------- ------------------- ------------------
         Denominator for basic income (loss) per share
           - weighted average common shares                   16,312,194         8,970,183             759,741

         Effect of dilutive securities:
           Convertible preferred stock                                 -         4,591,231                   -
           Nonvested common stock                                      -         1,452,820                   -
           Warrants                                                    -            20,970                   -
           Common stock options                                        -           387,551                   -
                                                          ---------------- ------------------- ------------------
         Dilutive potential common shares                              -         6,452,572                   -
                                                          ---------------- ------------------- ------------------
         Denominator for diluted income (loss) per
           share - adjusted weighted average common
           shares and assumed conversions                     16,312,194        15,422,755             759,741
                                                          ---------------- ------------------- ------------------
                                                          ---------------- ------------------- ------------------
       Basic income (loss) per share                       $      (1.14)     $        0.03       $       (3.86)
                                                          ---------------- ------------------- ------------------
                                                          ---------------- ------------------- ------------------
       Diluted income (loss) per share                     $      (1.14)     $        0.02       $       (3.86)
                                                          ---------------- ------------------- ------------------
                                                          ---------------- ------------------- ------------------
</TABLE>

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


                                     F-15

<PAGE>

8.  INCOME (LOSS) PER SHARE (CONTINUED)

Basic income (loss) per share excludes the weighted average effects of the 
Company's nonvested common stock totaling 693,861, 1,452,820 and 1,254,917 
shares for the years ended December 31, 1998, 1997 and 1996, respectively. 
Nonvested common stock is not included in basic income (loss) per share until 
the time-based vesting restrictions have lapsed.

Options to purchase 2,744,490 shares of common stock and 349,428 shares of 
nonvested common stock were outstanding at December 31, 1998 but were not 
included in the computation of diluted earnings per share because the effect 
would be antidilutive.

In computing income (loss) per share for periods prior to the Company's IPO 
in June 1997, the Company excluded the impact of convertible preferred stock 
to conform to current interpretations by the Securities and Exchange 
Commission. For comparative purposes, income (loss) per share under the 
if-converted method would have been $0.02 in 1997 (basic) with 13,561,414 
weighted average shares and $(0.35) in 1996 (basic and diluted) with 
8,346,650 weighted average shares.

9.  401(K) RETIREMENT SAVINGS PLAN

In 1996, the Company adopted a 401(k) Retirement Savings 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 $6,000 
and $3,000 in 1998 and 1997, respectively. Company matching contributions, if 
any, are determined by the Company at its sole discretion. Company 
contributions under the Plan totaled $120,000 in 1998. No Company 
contributions were made in 1997.

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 
Bristol-Myers Squibb Company and Eli Lilly and Company, Inc. in 1996 and 
Warner-Lambert Company and Merck & Co., Inc. in 1997 (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 non-refundable upfront fees, 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.

The Company and the Collaborators will also co-develop high thoughput 
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.

The Collaborators may terminate the Agreements at any time without cause upon 
written notice, provided that certain withdrawal payments are made. Certain 
of the Agreements provide for penalties, defined at $2,777 per day up to $1 
million per agreement, payable by the Company if it fails to deliver the 
completed UHTSS Platform by a specified time, as well as bonuses to the 
Company (up to $500,000 per certain agreements) in the event of early 
delivery of the systems. As of December 31, 1998, the Company expects to meet 
the specified delivery dates, and accordingly, has not accrued for any 
penalties.

In August 1998, the Company entered into an agreement with the Parke-Davis 
Research Division of Warner-Lambert Company to develop an automated master 
compound storage ("AMCS-TM-") system for long-term housing of chemical and 
biological compounds. The agreement provides for Warner-Lambert to make 
payments in excess of $9 million to the Company over a 15-month period.


                                     F-16

<PAGE>

10.  COLLABORATIVE AGREEMENTS (CONTINUED)

SCREENING SERVICES AGREEMENTS

In February 1997, the Company and Allelix Biopharmaceuticals, Inc. 
("Allelix") entered into a collaborative agreement (the "Allelix Agreement") 
regarding the development of screening assays and the provision of screening 
services. In 1998, the Company entered into a collaboration with Cytovia, 
Inc., to provide screening services and access to Aurora's compound library. 
Since the beginning of 1999, Aurora has entered into agreements to develop 
screening assays and/or provide screening services with Pharmacia & Upjohn, 
Inc. and F.Hoffman-LaRoche Ltd. The Company also entered into an agreement 
with Warner-Lambert to provide functional genomics services using the 
Company's GenomeScreen-TM- technology. 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 upfront 
fees, 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.

STRATEGIC TECHNOLOGY ALLIANCES

In 1996, the Company entered into strategic technology alliances with Packard 
Instrument Company ("Packard") and Carl Creative Systems to design, develop 
and implement certain instrumentation components. The alliances required the 
Company to make certain payments for development work performed by these 
companies (Note 5). In addition, Packard purchased $1 million of the 
Company's Series B preferred stock in May 1996 in connection with the 
collaboration. The preferred stock was automatically converted into common 
stock as a result of the Company's initial public offering of common stock in 
June 1997. In October 1998, the collaboration and license agreement with 
Packard was concluded by mutual consent of the two companies. Aurora assumed 
responsibility for development and production of the instrumentation required 
for its UHTSS platform. The work conducted under the Company's agreement with 
Carl Creative Systems is substantially completed.

In 1996, the Company entered into a technology alliance with Universal 
Technologies, Inc. ("UTI") relating principally to automated storage and 
retrieval systems which are significant components of the Company's UHTSS 
platform and the AMCS project. This alliance requires the Company to make 
certain payments to UTI for development work and the production of system 
components.

11.  RELATED PARTY TRANSACTIONS

During 1996, one of the Company's founding stockholders and affiliated 
venture funds loaned the Company $449,997. The note was converted into shares 
of Series A Preferred Stock in March 1996, which were subsequently converted 
into common stock as a result of the IPO in June 1997. The general partner of 
the venture funds which made these loans was the Company's Chairman of the 
Board and Acting Chief Executive Officer at the time of these transactions. 
This individual and stockholder continues to serve on the Company's Board of 
Directors.


                                     F-17