<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              ---------------------

                                    FORM 10-K
(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES       
         EXCHANGE ACT OF 1934
         For the fiscal year ended December 31, 1998 or

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES    
         EXCHANGE ACT OF 1934
         For the transition period from            to            
                                        -----------  ------------

COMMISSION FILE NUMBER 0-19732

                           CORVAS INTERNATIONAL, INC.
             (Exact name of Registrant as specified in its charter)


               DELAWARE                                 33-0238812
    (State or other jurisdiction of          (IRS Employer Identification No.)
     incorporation or organization)


               3030 SCIENCE PARK ROAD, SAN DIEGO, CALIFORNIA 92121
          (Address of principal executive offices, including zip code)

                                 (619) 455-9800
              (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, $.001 Par Value

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]  No [ ] 

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The approximate aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the last sale price of the Common
Stock reported on the Nasdaq National Market was $30,601,900 as of March 15,
1999.*

         The number of shares of Common Stock outstanding as of March 15, 1999
was 15,141,588.

                       DOCUMENTS INCORPORATED BY REFERENCE
                        (To the extent indicated herein)

The Registrant's definitive proxy statement to be filed in connection with
solicitation of proxies for its Annual Meeting of Stockholders to be held on May
24, 1999 is incorporated by reference into Part III of this Form 10-K.



* Calculated on the basis of 11,657,852 shares held by nonaffiliates (less than
10% shareholders on as-converted basis) and assumes, solely for this purpose,
that the executive officers and directors of the Registrant are affiliates as
defined in Rule 405 under the Securities Act of 1933, as amended.




<PAGE>


                                     PART I

         EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING, IN
PARTICULAR, STATEMENTS IN THIS REPORT ABOUT THE COMPANY'S PLANS, STRATEGIES AND
PROSPECTS. THESE STATEMENTS, WHICH MAY INCLUDE WORDS SUCH AS "MAY," "WILL,"
"EXPECT," "BELIEVE," "INTEND," "PLAN," "ANTICIPATE," "ESTIMATE," OR SIMILAR
WORDS, ARE BASED ON THE COMPANY'S CURRENT BELIEFS, EXPECTATIONS AND ASSUMPTIONS
AND ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. ALTHOUGH THE COMPANY
BELIEVES THAT ITS BELIEFS, EXPECTATIONS AND ASSUMPTIONS REFLECTED IN THESE
STATEMENTS ARE REASONABLE, THE COMPANY'S ACTUAL RESULTS AND FINANCIAL
PERFORMANCE MAY PROVE TO BE VERY DIFFERENT FROM WHAT THE COMPANY MIGHT HAVE
PREDICTED ON THE DATE OF THIS REPORT. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," AS WELL AS IN THE SECTIONS ENTITLED "BUSINESS STRATEGY," "PRODUCT
DEVELOPMENT PROGRAMS," "INTEGRATED TECHNOLOGY PLATFORMS," "STRATEGIC ALLIANCES,"
"PATENTS AND PROPRIETARY RIGHTS," AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

ITEM 1.  BUSINESS

OVERVIEW

         Corvas International, Inc. ("Corvas" or the "Company") is a
biopharmaceutical firm engaged in the design and development of a new generation
of therapeutic agents for cardiovascular, cancer and other major diseases. Two
of Corvas' drug candidates are presently in Phase II clinical trials, and Corvas
plans to start a Phase I trial for a third candidate in 1999. The Company's drug
candidates target major cardiovascular diseases, such as heart attack, unstable
angina, deep vein thrombosis ("DVT") and pulmonary embolism, as well as acute
inflammation associated with reperfusion injury in ischemic stroke. Corvas has
developed its portfolio of drug candidates by integrating its in-depth knowledge
of the biology of thrombosis and, more generally, vascular biology with advanced
and proprietary drug discovery and design technology.

         Corvas' programs are based on several technology platforms: drug
design, medicinal chemistry and novel biologics discovery and development.
Corvas' medicinal chemistry programs, which have produced drug candidates
demonstrating oral activity, are the source of the Company's synthetic drug
molecules. Corvas' platform of novel biologics discovery, including gene
discovery, cloning, expression and mutagenesis, enables Corvas to identify and
improve upon naturally occurring novel proteins as drug candidates and move them
into clinical development. The Company has demonstrated the ability to exploit
various protease enzymes in the discovery of novel therapeutic entities. This
area of long-standing interest is the basis for ongoing efforts in the
development of a new generation of oral and injectable anticoagulants, as well
as more recent efforts in the area of new cancer and anti-parasitic therapies.

         The clinical trials planned for 1999 include: (i) continuation of a
multi-center Phase II trial currently being conducted by the Company for Corvas'
proprietary rNAPc2 drug for the prevention of DVT; (ii) continuation of a Phase
II trial, currently being conducted by Pfizer Inc. ("Pfizer"), for the
Corvas-developed anti-inflammatory drug rNIF; and (iii) a Phase I trial to be
conducted by Corvas for rNAP5, an injectable drug for acute cardiovascular
indications, which Corvas anticipates will start later in 1999.


                                       -2-

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         CARDIOVASCULAR PROGRAMS. Corvas has focused its cardiovascular programs
on the development of both synthetic (small molecule) drugs and drugs based on
naturally occurring proteins that inhibit blood clot formation and certain
inflammatory processes. Serine proteases are key enzymes in the blood
coagulation cascade and the Company's programs are directed at inhibiting the
activity of such proteases. The Company is developing drug candidates that are
each designed to inhibit thrombin, Factor Xa or Factor VIIa, all key proteases
in the coagulation cascade.

         The primary goal of the synthetic anticoagulant program is to develop
safe and effective orally active drugs to be used in clinical indications, such
as chronic DVT, atrial fibrillation and post-myocardial infarction. Other
protease inhibitor drugs may not readily address these indications. The Company
is developing these synthetic oral anticoagulants in collaboration with Schering
Corporation ("Schering-Plough").

          The Company's scientists have discovered a class of
naturally-occurring small protein anticoagulants (NAP) in blood-feeding
hookworms which inhibit either Factor Xa or Factor VIIa complexed with its
non-enzymatic co-factor, Tissue Factor ("Factor VIIa/Tissue Factor"). In late
1998, Corvas began an international multi-centered Phase II trial on rNAPc2.
rNAPc2 is a member of the NAP family that inhibits the Factor VIIa/Tissue Factor
complex, which initiates the first step in the blood coagulation cascade leading
to blood clot formation. The primary objective of this trial is to demonstrate
the ability of rNAPc2 to prevent DVT, the formation of blood clots in the veins
of the legs that can occur following orthopedic surgery. Earlier in 1998, Corvas
completed a second rNAPc2 Phase I clinical trial on healthy volunteers. An
additional Phase I trial in which rNAPc2 is being administered subcutaneously to
patients with disseminated intravascular coagulation ("DIC") has been ongoing in
order to examine the safety, tolerability and pharmacokinetics in patients with
an active coagulation disorder. To date, Corvas has not partnered with any
collaborators on this program and has retained all commercialization rights to
this compound. The Company plans to seek a development and commercialization
partner for this program.

         Corvas is developing another NAP drug, rNAP5, which is an injectable
Factor Xa inhibitor. Corvas plans to conduct a Phase I clinical trial of rNAP5
in 1999 in preparation of possible future trials for the prevention and
treatment of acute cardiovascular indications such as DVT, pulmonary embolism,
myocardial infarction (heart attack) or unstable angina. The Company has
recently reacquired all development and commercial rights to rNAP5 from
Schering-Plough following the extension of the companies' ongoing program
focusing on synthetic ORAL anticoagulants. See "- Product Development Programs"
and "- Strategic Alliances."

         The Company's cardiovascular program also includes a drug candidate for
the prevention of the acute inflammatory response which often occurs after the
onset of an ischemic stroke. This inflammatory response can exacerbate damage to
injured areas of the brain. The Company discovered the protein called neutrophil
inhibitory factor (NIF) from blood-feeding hookworms, and determined that it
blocks certain white blood cell (neutrophil) functions associated with acute
inflammation. In 1997, Pfizer entered into a license and development agreement
with the Company for rNIF. Pfizer initiated two clinical trials of rNIF in 1998;
a Phase I trial in February and a Phase II trial in December that is ongoing.
See "- Strategic Alliances."


                                       -3-

<PAGE>


         CANCER PROGRAMS. The Company believes that it can leverage its
proprietary combinatorial chemistry approach developed in connection with its
cardiovascular program to develop therapeutics outside the cardiovascular field.
This technology allows the Company to develop synthetic libraries dedicated to
mechanism-based inhibitors specifically targeted at cysteine and serine
proteases. The Company is currently using this new technology to develop its
cancer programs. This combinatorial approach is being applied in an early stage
proprietary program focused on the identification of inhibitors of urokinase
plasminogen activator ("uPA"). This protease has been associated with tumor
metastasis and the generation of new blood vessels (angiogenesis) in certain
solid tumors. Lead inhibitors in this program have been shown to inhibit
angiogenesis in animal models.

         Another new program at Corvas is directed towards Plasminogen Activator
Inhibitor ("PAI") antagonists. PAI has been shown to be the primary inhibitor in
plasma controlling the activity of the proteases Tissue-type Plasminogen
Activator ("tPA") and uPA. Elevated levels of PAI have been shown to directly
correlate with a poor outcome in certain cancers, particularly in breast cancer.

         Corvas is also performing research in the area of vascular biology
focusing on targeting drugs and genes to the surface of blood vessels. In
mid-1997, Corvas entered into an option agreement with Vascular Genomics Inc.
("VGI") pursuant to which Corvas has the right through June 2000 to acquire VGI,
and the exclusive right to conduct research and development using the
VGI-developed technology during the option period. VGI has a portfolio of
technology, patents and patent applications that the Company believes may be
important in identifying unique sites on the lining of the blood vessels or the
endothelium. Protein markers, unique to the surface of the endothelium in
specific organs and those markers that distinguish tumor blood vessels from
those vessels in healthy tissue, are thought to exist. Corvas' program
objectives include (i) identifying unique protein markers for solid tumor
cancers and using these markers for selective targeting of therapeutics and (ii)
understanding and exploiting the mechanism by which molecules are transported
across the endothelium to enhance delivery of therapeutic agents to organs and
tissues. See "- Product Development Programs" and "Legal Proceedings."

         OTHER PROGRAMS. In collaboration with Schering-Plough, the Company has
a program directed at a serine protease thought to be critically involved in the
replication of the hepatitis C virus. This program covers the development of
orally available inhibitors of this protease. See "- Strategic Alliances."

         Another of the Company's new research programs is directed towards
discovering inhibitors of a crucial protease involved in the pathogenic effects
of malaria protease inhibitors. This early-stage program, aimed at developing a
novel therapy for this devastating disease, remains proprietary to Corvas.



         CORVAS(R) is a registered trademark and the Corvas logo is a trademark
of the Company. REOPRO(R) is a registered trademark of Eli Lilly and Company.
PLAVIX(R) and ARSUMAX(R) are registered trademarks of Sanofi Pharmaceuticals,
Inc. TICLID (R) and LARIAM(R) are registered trademarks of Hoffman-LaRoche Inc.
ACTIVASE(R) is a registered trademark of Genentech, Inc. AGGRASTAT(R) is a
registered trademark of Merck & Co., Inc. MALARONE(R) is a registered trademark
of Glaxo Wellcome, Inc. RIAMET(R) is a registered trademark of Novartis Pharma.
VIRAZOLE(R) is a registered trademark of ICN Pharmaceuticals, Inc. LOVENOX(R) is
a registered trademark of Rhone-Poulenc-Rorer SA. INTEGRELIN(TM) is a trademark
of Cor Therapeutics, Inc.


                                       -4-

<PAGE>


BUSINESS STRATEGY

         The Company believes its technical expertise will allow it to continue
to efficiently discover and develop new therapeutic drug candidates and advance
them to the clinic. In addition, the Company plans to leverage its drug
development skills in synthetic chemistry and biology to diversify its portfolio
of proprietary and partnered drug candidates.

         Key elements of Corvas' strategy include:

         ADVANCE COMPOUNDS TO THE CLINIC. Corvas is focusing on advancing its
drug candidates from the research and development stage into the clinic in an
efficient and practical manner. The Company, alone or with its strategic
alliance partners, conducted six clinical trials on three drug candidates in
1998, including two Phase II trials which are ongoing in 1999. The Company
believes its research and development programs will continue to provide new drug
candidates that it can advance to the clinic in the future, either alone or with
a strategic partner.

         DEVELOP PORTFOLIO OF ANTITHROMBOTIC DRUG CANDIDATES. Corvas continues
to develop antithrombotic drug candidates for the cardiovascular market. The
Company believes that its programs on the development of inhibitors of blood
coagulation proteases will enable it to target multiple clinical indications
with drugs that can be administered orally or by injection.

         EXPAND THE PRODUCT PORTFOLIO BY APPLICATION OF TECHNOLOGY TO ADDITIONAL
TARGETS. The Company intends to expand on its success in developing small
molecule inhibitors of serine proteases that can be administered orally or by
injection. Further, the Company believes it can leverage this existing knowledge
base to discover and develop new inhibitors of related proteases in the serine
and the closely-related cysteine protease family. For example, the Company has
identified compounds with inhibitory activity against the hepatitis C NS3
protease, uPA and the malarial protease falcipain. The Company plans to utilize
its proprietary chemical methodologies in vascular biology to increase the speed
and economy of new lead discovery in the area of protease inhibition and expand
the number of target proteases in its portfolio. Additionally, Corvas believes
its technology in vascular biology may allow it to leverage its existing
knowledge base, including a combinatorial technology focused on serine and
cysteine protease inhibitors, into additional drug candidates and new drug
delivery techniques.

         INTEGRATE DRUG DISCOVERY METHODOLOGIES. The Company intends to continue
to integrate a wide range of disciplines to develop new drug candidates through
a systematic process. The Company's drug development disciplines include
medicinal chemistry, combinatorial chemistry, computer-aided drug design,
structural biology, molecular biology, biochemistry, as well as pharmacology
competencies.

         ESTABLISH A STRONG PORTFOLIO OF PATENTS AND PROPRIETARY TECHNOLOGIES.
Corvas plans to continue its proactive policy of filing and prosecuting patent
applications claiming a range of inventions, including a number of new chemical
classes of compounds, uses and methods of synthesis of new molecules, discovery
methods, novel genes and gene products and novel analytical reagents. Corvas has
entered into selected agreements to license enabling technology from third
parties and intends to seek rights to additional external technology on an
ongoing basis to complement internal discovery efforts. See "- Patents and
Proprietary Rights" and "- Strategic Alliances."


                                       -5-

<PAGE>


         UTILIZE STRATEGIC ALLIANCES AS A MEANS TO ENHANCE DEVELOPMENT AND
COMMERCIALIZATION OF Products. Corvas intends to continue to establish strategic
alliances, such as those already established with Schering-Plough and Pfizer, to
access the resources required to support the development and commercialization
of other technologies and drug candidates. In certain situations, Corvas may
retain certain exclusive, joint commercialization or co-promotion rights to
selected acute care products for the U.S. market or other selected markets.

BACKGROUND

THROMBOSIS

         The formation of a blood clot, or thrombus, results from a complex
cascade of biochemical events involving blood coagulation proteases and cellular
fragments called platelets. Although blood clot formation is a normal vascular
repair mechanism, it can also result in occlusion of one or more critical blood
vessels (thrombosis) in a vital organ, such as the heart, lungs or brain. The
blood coagulation process is most often triggered when there is damage or
disruption to the lining of the blood vessel wall known as the endothelium.
Damage or disruption of the endothelium exposes the previously protected
underlying tissue of the blood vessel wall to the blood. Exposure of the protein
Tissue Factor to blood triggers the formation of a complex with Factor VIIa, a
protease circulating in the blood. The resulting complex (Factor VIIa/Tissue
Factor) initiates a complex biochemical cascade of events leading to the
development of a blood clot that involves the formation of another key protease,
Factor Xa. Factor Xa carries out the penultimate step in this cascade, which is
the formation of the final protease thrombin. It is thrombin that causes the
formation of the blood clot at the site of the blood vessel damage by activating
platelets and forming a glue-like protein fibrin.

         Thrombosis causes several significant clinical conditions characterized
by the location of the blood vessel where the clot is lodged. For example, acute
myocardial infarction ("MI") results from thrombosis in a major coronary artery
that supplies blood to the heart muscle. Transient thrombosis in one or more of
the coronary arteries of the heart may result in unstable angina ("UA"), which
leads to serious chest pain and is a significant risk factor in the development
of MI. Stroke or transient ischemic attacks, known also as "TIA's," may result
from thrombosis in an artery that supplies blood to a part of the brain.
Similarly, thrombosis in the major veins of the legs, called DVT, causes local
inflammation, pain and other complications, including the potential for
dislodgment of part of the blood clot which can travel to the lungs and may
result in life-threatening pulmonary embolism ("PE"). DVT and PE can be
unpredictable complications of surgery indirectly involving the vasculature such
as major orthopedic and abdominal surgery. Thrombosis can also be generalized
systemically, with microclot formation occurring throughout the vascular system.
This condition, known as DIC, can be a consequence of certain viral diseases
such as ebola, cancers and sepsis, and may result in multiple organ failure,
hemorrhage and death.


                                       -6-

<PAGE>


         Two classes of antithrombotic drugs are presently in clinical use:
anticoagulants and antiplatelet agents. In the U.S., heparins and warfarin
(COUMADIN(R)) are the only drugs currently approved for use as acute and chronic
anticoagulants, respectively. Although these drugs are widely prescribed, they
have significant limitations. Unfractionated heparins ("UFH"), which act by an
indirect inhibition of one or more coagulation proteases (primarily thrombin),
can cause excessive bleeding and decreased platelet count (thrombocytopenia) and
are administered primarily by injection in a hospital setting where monitoring
is available. Low molecular weight heparins ("LMWH"), which may be injected
subcutaneously and do not require monitoring of coagulation function, are the
anticoagulants of choice today for acute therapy. Although these drugs have been
adopted for selected indications and have the advantage of subcutaneous
injection, low molecular weight heparins still suffer from many of the
limitations of UFH and have shown limited efficacy in several clinical
indications of thrombosis. Warfarin, which is orally administered, lacks
specificity of action, may cause bleeding, must be carefully monitored and, due
to its slow onset of action, is unsuitable for use as an acute antithrombotic
drug. Additionally, there are many adverse drug and dietary interactions that
impact the effectiveness of warfarin due to the difficulties in maintaining
effective blood levels of the drug which in turn narrows the margin of safety
for effective use.

         Aspirin, the most commonly used antiplatelet agent for chronic therapy,
has a relatively slow onset of action and its effect is reversed by the natural
production of new blood platelets, a process that takes approximately ten days.
In addition, chronic administration of aspirin carries the risk of
gastrointestinal bleeding (ulceration) and possibly hemorrhagic stroke. Two
other antiplatelet agents are currently marketed for chronic therapy, but offer
only a marginal benefit over aspirin. Clopidogrel (TICLID(R)) and ticlopidine
(PLAVIX(R)) are chemically related drugs that act to reduce the activity of
platelets. INTEGRELIN(TM), REOPRO(R) AND AGGRASTAT(R) are products in a new
class of antiplatelet agents, GPIIb/IIIa antagonists, which have been introduced
to the market for acute coronary thrombotic indications. The more advanced
GPIIb/IIIa antagonists are administered intravenously and should be used with an
anticoagulant such as heparin.

         Thrombotic and associated vascular diseases affect large numbers of
patients. Limited efficacy, adverse side effects and invasive methods of
administration burden existing products, which provides a significant market
opportunity for new drugs. The growth in sales in the antithrombotic drug
category supports the view that physicians are adopting new agents in search of
more effective and safer agents with better therapeutic outcomes and economics.
Corvas is building on recent scientific advances in the understanding of the
mechanisms of blood clot formation and is developing new therapeutics designed
to intervene more specifically in the disease process that may result in a new
generation of drugs which Corvas believes will offer important economic and
therapeutic advantages over existing therapies.

INFLAMMATION

         Inflammation is the body's response to injury and infection. The
inflammatory response is mediated by a series of biochemical events by which the
body attempts to limit or destroy the injurious agents, heal wounds and maintain
health. However, the body's inflammatory response can result in significant
additional tissue injury. A critical event in an inflammatory response is the
adhesion of neutrophils, a specific type of white blood cell, to the
endothelium, a layer of cells that line the blood vessel walls. Adhesion is
caused by the interaction of specific receptors on the neutrophils with adhesion
molecules on the endothelium. After adhesion occurs, the neutrophils migrate
across the lining of the blood vessel and into the underlying tissue where they


                                       -7-

<PAGE>


release toxic substances that can exacerbate tissue damage. These events can
occur in both acute and chronic inflammatory conditions. Acute disorders that
are often accompanied by this inflammatory response include ischemic stroke and
the traumatic shock that can occur following certain surgical procedures such as
aortic aneurysm repair, artery bypass grafting and major abdominal surgery.

         The competitive environment in the treatment of stroke is presently
favorable for new product entry. Physicians have few drugs at their disposal for
treating the stroke patient. Currently marketed anti-inflammatory drugs seek to
alleviate symptoms rather than intervene in the underlying disease processes. In
the acute phase of ischemic stroke, a thrombolytic agent, Activase (R), may be
given to attempt to dissolve the blood clot that is blocking blood flow and
causing the ischemia. However, this treatment does not prevent, and may
initiate, the secondary, and often serious, damage that occurs when blood flow
is restored (reperfusion injury). Blocking the activation and adhesion of
neutrophils to the endothelium, and thereby preventing their accumulation in
tissue, is an alternate approach that Corvas believes could more effectively
inhibit the inflammatory response responsible for reperfusion injury.

         Corvas is developing drugs that are intended to block the activation
and adhesion of neutrophils in response to an ischemic stroke thereby inhibiting
the inflammation that may cause additional damage to the affected portion of the
brain. Development programs at other companies have also addressed neutrophil
receptor inhibition using mainly antibody-based agents. Some of these programs
have been discontinued, Corvas believes, because of limited efficacy or
unfavorable side-effect profiles.

CANCER

         Competition in cancer products is diverse, but is generally
characterized by limited efficacy or significant and debilitating side effects.
In solid tumor cancers, malignant tumors invade and disrupt nearby tissues and
can also metastasize or spread. The impact of these tumors on vital organs such
as the lungs and the liver frequently leads to death. Surgery is used to remove
solid tumors that are accessible to the surgeon and can be effective if the
cancer has not metastasized. Radiation therapy also can be employed to irradiate
a solid tumor and surrounding tissues and is a first-line therapy for inoperable
tumors, but side effects are a limiting factor in treatment. Radiation therapy
is used frequently in conjunction with surgery either to reduce the tumor mass
prior to surgery or to destroy tumor cells that may remain at the tumor site
after surgery. However, radiation therapy cannot assure that all tumor cells
will be destroyed and has only limited utility for treating widespread
metastases. While surgery and radiation therapy are the primary treatments for
solid tumors, chemotherapy and hormonal treatments often are used as adjunctive
therapies and also are used as primary therapies for inoperable or metastatic
cancers. There are many, well established marketers of products for radiation,
chemotherapy and hormonal treatments. However, the side effects of these
therapies can often limit their effectiveness due to patient tolerance and
compliance.

         Corvas is focusing on the development of drugs that may prevent the
spreading of tumor cells, the growth of solid tumors and the delivery of
therapeutic drugs to selective organs and tissues in the body.


                                       -8-

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         ROLE OF UROKINASE PLASMINOGEN ACTIVATOR
         ---------------------------------------

         The process of metastatic migration of tumor cells is not presently
well understood. However, it has been demonstrated that several proteases may
play an important role in this process. uPA is a serine protease similar to
those in the blood coagulation cascade that has been shown to play an important
role in the metastasis of certain solid tumor cells. In addition, uPA has been
implicated in the establishment and growth of the new blood vessels
(angiogenesis) required for the survival of metastatic tumors in organs and
tissues distant from the primary tumor. Corvas believes that the multiple
effects of uPA in the metastasis and growth of certain solid tumors, as well as
its similarities to other serine proteases, make it an ideal target for the
development of selective inhibitors to use in conjunction with first-line
therapies for the treatment of patients with life-threatening malignancies.

         ROLE OF PLASMINOGEN ACTIVATOR INHIBITOR
         ---------------------------------------

         The protein Plasminogen Activator Inhibitor-1 (PAI-1) is a natural
serpin-type protease inhibitor primarily found in the circulation that regulates
the activity of the plasminogen activators tPA and uPA. One function of PAI-1 is
to attenuate the activity of these plasminogen activators to prevent excessive
fibrinolysis, or the dissolving of blood clots, by tPA and to a lesser extent
uPA. The therapeutic modulation of PAI-1 activity is the basis of a strategic
research and development partnership between Eli Lilly and Company and Xenova
Group plc through its subsidiary MetaXen LLC, on the development of small
molecule antagonists of PAI-1 as antithrombotic drugs. The role of PAI-1 in the
natural progression of certain solid tumor cancers has been suggested based on
the strong correlation of increased levels of this protein and a poor patient
survival in certain types of cancer, including breast cancer. In addition,
recent evidence in animals genetically lacking PAI-1 has demonstrated that the
growth and metastasis of certain human tumors is significantly impaired,
suggesting that PAI-1 may play a pivotal role in the growth and metastatic
migration of certain solid tumors. Accordingly, PAI-1 appears to be an
appropriate target for the development of new chemical entities as specific
antagonists to use in conjunction with first-line therapies for the treatment of
patients with life-threatening malignancies.

         SOLID TUMOR VASCULATURE
         -----------------------

         All of the blood vessels in the body are lined with a continuous,
single layer of cells that form a highly specialized organ called the
endothelium. This is the only organ in the body that is directly exposed to the
blood and, as a result, the endothelial cells serve as the primary gatekeepers
that regulate exposure of the underlying tissues of the body's organs to oxygen,
nutrients and drugs delivered via the circulation. The intimate relationship
between the blood, the endothelium, and the underlying tissue make the
endothelium a responsive organ to its local environment, both in normal and
diseased states. This responsiveness is reflected in the appearance of unique
proteins on the endothelial cell surface that are exposed to the blood and are
specific for the vascular system of a particular tissue. For example, it has
been suggested that the newly-developed blood vessels due to angiogenesis in
solid tumors which involve the formation and growth of the endothelium have
unique, surface-exposed marker proteins that could be used for selective
targeting of therapeutic agents to the tumor only, and not to other organs of
the body.


                                      -9-

<PAGE>


         Scientists at Corvas are developing methodologies for identifying
endothelial cell surface proteins thought to be crucial for transport of
blood-borne agents from the blood to the underlying tissue that uniquely
characterize the vascular systems of organs and tissues throughout the body.
Once identified, a unique endothelial protein could become a possible target for
selective delivery of drugs, genes or other biological modifiers. As
gatekeepers, endothelial cells have evolved specialized mechanisms to facilitate
the transport of blood-borne components to the underlying tissues. For example,
the blood-brain barrier defines the vascular endothelial lining of the brain
that is exquisitely selective with regard to the exposure of the brain to many
substances that would normally be transported to other tissues in the body.
Characterization and subsequent exploitation of these transport mechanisms
coupled with selective vascular targeting strategies could provide unique
opportunities for efficient organ and tissue-specific delivery.

HEPATITIS C

         Chronic hepatitis C infection is a substantial public health problem
affecting a significant percentage of the world's population. Infection with the
hepatitis C virus may lead to an increased probability of developing serious
and, in some cases, life-threatening chronic liver disease including liver
failure and cancer. The primary treatment for hepatitis C infections today is a
regimen of alpha interferon, a recombinant anti-viral protein, and other
anti-viral drugs such as ribavirin (VIRAZOLE(R)). The leading alpha
interferon-ribavirin combination is marketed by Schering-Plough, Corvas'
strategic partner on its hepatitis C program. The marketed products demonstrate
efficacy in only a minority segment of patients, are expensive, must be
administered by subcutaneous injection several times weekly and are, at times,
associated with undesirable side effects. Development efforts by other
biotechnology and pharmaceutical companies include attempts to develop vaccines,
broad-spectrum anti-viral agents and other small molecule, orally available
agents focused on molecular targets that are crucial to the replication of the
virus. One such target is a serine protease made by the virus to facilitate its
replication in the host liver cells. Corvas believes that development of an
orally administered inhibitor of this serine protease may be an effective means
of treating patients with chronic hepatitis C infection.

PARASITIC DISEASES - MALARIA

         Malaria is a continuing affliction that has seen a resurgence in
infection rates over the last decade. Over 40% of the world's population is
possibly at risk, with greater than 500 million individuals becoming infected
each year. Annual mortality rates, currently at 2.7 million people worldwide,
have been steadily increasing primarily due to increased resistance of the
malaria parasite (primarily the PLASMODIUM species FALCIPARUM and VIVAX) to
existing therapeutic drugs. The global effects of malaria significantly threaten
public health and, more importantly, economic growth and prosperity in many
third world countries with an emerging middle class economy, as well as more
affluent travelers and military personnel in Western and other non-endemic
countries. This is the basis for the ROLL BACK MALARIA INITIATIVE, a worldwide
effort being organized by the World Health Organization (WHO) to re-focus
efforts on the development of new approaches in the prevention and treatment of
malaria.


                                      -10-

<PAGE>


         Efforts continue to be directed at the development of a vaccine, but
there has been little success in this area to date. The current class of
therapeutic anti-parasitic drugs is becoming less effective due to resistance.
The current drug of choice in most Western nations for prevention during travel
to endemic countries is mefloquine (LARIAM(R)). Reported neurological problems
associated with this drug, however, are limiting its routine use. Generic
versions of the established anti-parasitic drugs chloroquine and proguanil are
in more widespread use, but resistance is beginning to limit their effectiveness
as well. The newest therapeutic drugs introduced into use, primarily in Europe
and parts of Africa and Asia, are MALARONE(R) and the artemisinin derivatives,
ARSUMAX(R) AND RIAMET(R). While these agents are proving to be effective in
limited areas, it remains to be seen whether they will be suitable for
widespread use.

         The life cycle of the malaria parasite offers several attractive
targets for drug intervention, including the key cysteine protease falcipain.
The malaria parasite uses falcipain to aid in the digestion of hemoglobin
following infection of the red blood cells. In animal models, inhibition of
falcipain has been demonstrated to inhibit parasite development and replication,
allowing it to be cleared from the body. Specific inhibitors of this protease
would be expected to yield a possible new generation of anti-malarial drugs for
the prevention and treatment of this dreaded worldwide disease. Additionally,
the existence of proteases similar to falcipain in other parasites that cause
significant human disease worldwide including Chagas disease, Leishmaniasis and
Schistomiasis, offer the possibility that the approach taken with malaria may be
applicable to the development of new therapies for these and other diseases
impacting the world.


                                      -11-

<PAGE>


         PRODUCT DEVELOPMENT PROGRAMS

         The following table describes Corvas' primary drug development
programs, their targeted therapeutic indications and their development status.
<TABLE>
<CAPTION>


---------------------------------------------------------------------------------------------------------------------------------
PROGRAM                               TARGET INDICATION(1)                  STATUS(2)                  PARTNER
---------------------------------------------------------------------------------------------------------------------------------

<S>                                   <C>                           <C>                                <C>
CARDIOVASCULAR:

FACTOR VIIa/TISSUE FACTOR INHIBITOR
-----------------------------------

rNAPc2-injectable                     DVT/PE, UA, MI                Phase II for DVT/PE                Corvas proprietary

FACTOR Xa INHIBITOR
-------------------

rNAP5-injectable                      DVT/PE, MI, UA                Phase I planned for 1999           Corvas proprietary

FACTOR Xa/THROMBIN INHIBITOR
----------------------------

Oral Anticoagulants                   MI, UA, DVT/PE                Lead                               Schering-Plough
                                                                    evaluation/optimization

ANTI-INFLAMMATORY
-----------------

rNIF-injectable                       Ischemic stroke               Phase II                           Pfizer


CANCER:

Urokinase (uPA) Inhibitor             Tumor metastasis,             Lead                               Corvas proprietary
                                      tumor angiogenesis            evaluation/optimization 

Plasminogen Activator                 Tumor metastasis, solid       Lead discovery                     Corvas proprietary
Inhibitor (PAI) Antagonists           tumor cancers                

Vascular Targeting                    Tumor vasculature             R&D                                Corvas has option
                                      targeting                                                        to acquire


OTHER:

Hepatitis C NS3 Protease              Chronic hepatitis C           Lead discovery                     Schering-Plough
Inhibitors                            infections

Malaria Protease Inhibitors           Malaria vaccine               Lead discovery                     Corvas proprietary

</TABLE>

---------------------
(1)    The following abbreviations are used in the above table: DVT=deep vein
       thrombosis; MI=myocardial infarction; PE=pulmonary embolism; UA=unstable
       angina; R&D=research and development.

(2)    The following definitions apply to the above table: "Lead
       discovery"=Identification of lead compounds with activity in appropriate
       IN VITRO assay systems. These lead compounds may require additional
       chemical manipulation and more extensive evaluation prior to selection of
       candidates, if any, for preclinical development. "Lead
       evaluation/optimization" = Extensive evaluation of lead compounds in
       multiple IN VITRO assay systems and preliminary animal pharmacology
       studies. See "Business - Government Regulation" for a description of the
       clinical trial process.


                                      -12-

<PAGE>


CARDIOVASCULAR PROGRAMS

         Corvas is developing a new generation of drug candidates for the
prevention and treatment of a broad range of acute and chronic thrombotic
indications, as well as an anti-inflammatory agent directed at ischemic stroke.
Corvas has adopted a comprehensive approach in its cardiovascular program,
strategically targeting inhibition of multiple key proteases in the coagulation
cascade. Corvas is developing compounds for the inhibition of FVIIa/Tissue
Factor, Factor Xa and thrombin, and believes that these drug candidates have
advantages over currently available antithrombotic drugs with respect to
efficacy, patient safety and convenience. Corvas believes that its program
targeting the inhibition of the key coagulation proteases is among the most
comprehensive in the industry and that it has achieved a leading position in the
design and development of injectable and orally active antithrombotic agents.

         NAP ANTICOAGULANTS. Corvas scientists have discovered a unique family
of small protein inhibitors of Factors Xa and VIIa/Tissue Factor. The NAP
proteins were discovered by Corvas scientists in the hookworm parasite that has
evolved efficient anticoagulation mechanisms for feeding on blood. Based on
comparative data developed both in the Company's laboratories and with
collaborators, Corvas believes that these agents exhibit significant
antithrombotic potency. A recombinant version of NAPc2 (rNAPc2), a novel Factor
VIIa/Tissue Factor inhibitor, has completed two Phase I clinical trials to
assess safety, tolerability and pharmacokinetics following single and multiple
subcutaneous administrations. The route of administration is similar to
LOVENOX(R), a LMWH that is the current leading clinical anticoagulant for acute
therapy. The administration of rNAPc2 in these double-blinded,
placebo-controlled studies resulted in a dose-dependent systemic anticoagulant
effect with a prolonged duration. There were no safety or tolerability concerns
associated with the administration of rNAPc2 at any of the doses tested. An
additional Phase Ib trial is in progress in patients presenting to the clinic
with DIC in order to examine safety, tolerability and pharmacokinetics in
patients with an active coagulation disorder. In late 1998, Corvas initiated an
international, multi-center, open-label, dose-ranging Phase II study of rNAPc2
for the prevention of DVT in patients undergoing unilateral knee arthroplasty,
an orthopedic surgical procedure where DVT is commonly observed.

         In 1999, Corvas plans to begin a Phase I trial of a recombinant version
of NAP5 (rNAP5), another member of the NAP family of anticoagulants. This
anticoagulant protein is a direct inhibitor of Factor Xa, in contrast to rNAPc2,
which principally inhibits Factor VIIa/Tissue Factor. Corvas recently
re-acquired all development and commercial rights to rNAP5 from Schering-Plough
as part of the extended agreement between the companies that is focused
exclusively on the development of oral anticoagulant compounds. Corvas hopes to
be able to use rNAPc2 and rNAP5 to prevent and treat the wide range of clinical
disorders involving thrombosis such as DVT, PE, MI and UA. Both rNAPc2 and rNAP5
have been shown in several animal models of thrombosis to have significant
advantages over both UFH and LMWH, the leading injectable anticoagulants
currently in clinical use. The current and planned clinical trials of these two
new anticoagulant agents will determine if these advantages can be extended to
man.


                                      -13-

<PAGE>


         ORAL ANTICOAGULANTS. Corvas recently extended its long-term
relationship with Schering-Plough focusing on the development of synthetic
inhibitors of the coagulation proteases Factor Xa and thrombin as a potential
new generation of orally administered anticoagulants. The amended agreement
covers the development of synthetic compounds that do not contain
transition-state mimetics. This contrasts to the previous focus of the program,
which was on compounds that mimic the transition state structure. Although the
clinical development compound previously selected by Schering-Plough exhibited
desirable properties in animals, it was not shown to have sufficient
pharmacokinetic properties following oral administration in a 1998 Phase I
clinical trial to warrant further development. Scientists at Corvas have
identified specific thrombin and Factor Xa inhibitors in this program, including
compounds that exhibit oral bioavailability in rodent and canine models. Corvas'
research activities are focused on the continued refinement of these molecules
for selection of a clinical candidate by Schering-Plough.
See "- Strategic Alliances."

         NIF. Corvas is developing rNIF, a protein that is a highly specific
antagonist of neutrophil activation, adhesion and transmigration into tissue.
Like the NAP protein, Company scientists originally discovered NIF from the
hookworm parasite. NIF interacts specifically with a key cellular adhesion
receptor (integrin) on the surface of neutrophils known as CD11b/CD18 (Mac-1)
and blocks the adhesion of neutrophils to the endothelium, thereby inhibiting
the first step in the inflammatory response. A recombinant form of NIF (rNIF)
has been shown to inhibit inflammatory responses in several animal models,
including the significant reduction of infarct size or damage to the brain
following focal ischemia in a rodent model of ischemic stroke. Corvas believes
that rNIF is the first identified, naturally-occurring, non-antibody antagonist
of CD11b/CD18 that may have application as an acute anti-inflammatory drug with
safety and efficacy advantages over current clinical therapies and other
investigational agents. In February 1997, following extensive preclinical
evaluation, Pfizer entered into an exclusive license and development agreement
with the Company to develop rNIF as a therapy for ischemic stroke. Pfizer has
completed Phase I clinical testing of rNIF in normal volunteers and, based on
the favorable pharmacokinetic and safety profile defined in this trial, has
initiated a Phase II dose-ranging trial in stroke patients. The primary
objective of this Phase IIa trial is to determine the pharmacokinetic and safety
profile of rNIF in stroke patients in preparation for future pivotal clinical
studies. See "- Strategic Alliances."

CANCER PROGRAMS

         UPA INHIBITORS. Corvas is using its combinatorial and medicinal
chemistry technologies to discover and develop inhibitors of the serine protease
uPA as a potential new generation of injectable and orally administered
anti-cancer agents. Corvas has identified lead compounds that inhibit uPA and
are selective against related proteases, including tPA. Selective lead
inhibitors have been demonstrated to effectively inhibit angiogenesis and tumor
growth in a commonly used experimental model (CAM assay). Lead optimization is
expected to continue along with expanded testing of selected inhibitors in
animal models of solid tumor growth and metastasis.

         PAI ANTAGONISTS. Corvas is using the information derived from the
three-dimensional structure of PAI-1, in parallel with combinatorial chemistry
approaches, to identify specific small molecule lead antagonists of this serpin
inhibitor. To date, compounds have been identified which bind to PAI-1 at
several sites on the protein and antagonize the inhibition of tPA and uPA IN
VITRO. Further optimization of these compounds is ongoing for eventual testing
on relevant models of solid tumor growth and metastasis.


                                      -14-

<PAGE>


         VASCULAR TARGETING. The focus of this early-stage research program is
on the proprietary technology developed by VGI that Corvas has an option to
acquire. See "- Strategic Alliances." The technology is based on the use of a
form of derivatized colloidal silica that, when perfused through the vasculature
of an organ or tissue such as a solid tumor IN SITU, coats the outer surface or
membrane of the endothelium lining the blood vessel. The modification of the
endothelial membrane with the colloidal silica is thought to change the physical
properties of this membrane as to allow its selective isolation from the
majority of other membranous components in the tissue that make up more than 99%
of the total membrane component. Corvas has developed a proteomics-based
approach to separate the protein components of the isolated endothelial membrane
preparations using high-resolution two-dimensional electrophoresis, followed by
identification using mass spectrometry performed in the laboratories of several
collaborators. This approach has been applied to endothelial membrane
preparations derived from normal tissue and tissue containing highly
vascularized solid tumors with the hope that unique proteins could be
identified, cloned using molecular biology techniques and used to generate
monoclonal antibodies as specific targeting agents.

         Results thus far have strongly indicated that the complexity of the
preparations isolated using the colloidal silica technology are such that
identification of an endothelial surface protein unique to any one organ or
tissue remains a long-range goal, but is not the focus of the current research
efforts which is to use the proprietary colloidal silica technology to aid in
the isolation of vesicular compartments called caveolae. Caveolae are found on
the endothelium of many tissues and are far less complex in terms of protein
composition than the preparations of endothelial membrane from which they are
derived. This makes caveolae more amenable to the type of proteomic and
immunological characterization originally envisioned in the program. Caveolae
have been demonstrated by others to be involved in the transport of certain
macromolecules from the blood across the endothelial barrier to the underlying
tissue. Therefore caveolae vesicles contain a potential source of proteins that
may uniquely characterize a particular organ or tissue and be exploited for drug
or gene delivery. Another aspect of the program is focusing on derivatizing the
surface proteins of the endothelium with a chemical tag before applying the
colloidal silica isolation technique. In this way the derivatized proteins can
be isolated away from the majority of other contaminating proteins using the
tag.

OTHER DRUG PROGRAMS

         HEPATITIS C PROTEASE INHIBITORS. The Company is also using its
proprietary combinatorial chemistry technology to identify inhibitors of the
enzymatic function of a viral serine protease, NS3, thought to be a crucial
component required for replication of the hepatitis C virus. In June 1997,
Corvas entered into a strategic alliance with Schering-Plough to collaborate on
the development of treatments for chronic hepatitis C infections. This program
has identified compounds with NS3 inhibitory activity which are now the focus of
optimization and testing in relevant cell-based systems. See "- Strategic
Alliances."


                                      -15-

<PAGE>


         MALARIA PROTEASE INHIBITORS. Corvas is using its expertise in the area
of novel protease inhibitor development in a new program directed at inhibitors
of the cysteine protease falcipain, which has been implicated in the development
and reproduction of the malaria-causing protozoa. This early-stage program is
utilizing the proprietary combinatorial chemistry technology developed for
rapidly identifying lead inhibitors of cysteine and serine protease inhibitors.
Lead inhibitors of falcipain have been identified using the isolated enzyme IN
VITRO. These lead inhibitors have also been demonstrated to inhibit parasite
development in a culture system using human red blood cells. Optimization of
these lead compounds, followed by testing in animal models of malaria infection,
is underway.

INTEGRATED TECHNOLOGY PLATFORMS

         MEDICINAL CHEMISTRY. Corvas scientists have extensive knowledge and
practical experience in computer-aided drug design and have developed novel,
proprietary software to expedite the design of synthetic drug candidates. Using
computer-aided molecular modeling techniques, along with X-ray crystal
structures of native proteases as well as protease inhibitor complexes, Corvas
scientists have gained valuable insights regarding the unique features of each
of its specific protease and other molecular targets. Corvas scientists have
used this information to both design novel inhibitors and to optimize lead
compounds. By systematic iterative synthesis, biological evaluation and
modeling, Corvas scientists have developed a comprehensive database correlating
biological activity of candidate drugs with their structures.

         Corvas' medicinal chemistry expertise is essential to the development
of synthetic pharmaceuticals and is supported and complemented by capabilities
in protein engineering, biochemistry, immunology, monoclonal antibody
technology, analytical chemistry, molecular modeling and IN VITRO and IN VIVO
biological testing. Corvas has built a team of experienced medicinal chemists
who have a broad range of experience in critical areas of pharmaceutical
chemistry. Specific areas of expertise within this group include synthetic,
peptide, peptidomimetic, combinatorial, analytical and small-scale process
chemistry. Novel and proprietary technologies developed by Corvas, such as the
development of proprietary combinatorial chemistry approaches, may help to speed
the process of drug discovery.

         Corvas scientists are currently combining Corvas proprietary chemistry
with combinatorial chemistry to create novel methods of producing large
synthetic libraries of protease inhibitors with a variety of mechanisms of
action. The Company expects that such methods will improve the speed of lead
identification and optimization efforts, and enable Corvas to rapidly expand its
drug candidate portfolio to include new target proteases in addition to those
protease targets already part of the Corvas portfolio, such as the coagulation
proteases, uPA and the hepatitis C viral protease. Additionally, Corvas
scientists have applied their expertise in chemistry to non-protease targets
such as PAI-1 antagonists, which further expands the universe of targets that
can be considered.

         NOVEL BIOLOGICS DISCOVERY. Natural products have been a source of new
drugs for many years. Advances in molecular biology permit the search for, and
identification of, new biological entities in a variety of sources when
appropriate analytical assays exist. Corvas scientists have examined
blood-feeding parasites as a source of biologically active agents which can
serve as mechanistic probes and potential drug candidates. Using specialized
assays of coagulation proteases and white blood cells, Corvas scientists have
discovered natural protein molecules that inhibit certain blood coagulation
proteases (NAPs) and certain white blood cell functions (NIF). Techniques used


                                      -16-

<PAGE>


to discover these proteins include classical molecular fractionation and
purification, as well as gene cloning, including specialized expression cloning
methods developed by Corvas scientists. The study of the structure and function
of molecules evolved by nature to perform specialized biochemical functions
often yields novel insights into molecular mechanisms. Such studies have
provided competitive advantages to Corvas scientists, which are being applied in
its synthetic molecule drug discovery programs. Corvas anticipates using its
biological discovery expertise to identify molecules that act on new drug
discovery targets and to identify novel targets for future discovery programs as
well.

STRATEGIC ALLIANCES

         As part of Corvas' strategy for the research, development and
commercialization of its products, the Company has entered into various
arrangements with corporate partners, licensors, licensees and others, and would
expect to enter into additional alliances in the future.

         RELATIONSHIPS WITH SCHERING-PLOUGH. In December 1994, Corvas entered
into a strategic alliance agreement with Schering-Plough to collaborate on the
discovery and commercialization of orally active thrombin inhibitor drugs for
the prevention and treatment of chronic cardiovascular disorders. Under the
terms of the initial agreement, Schering-Plough compensated Corvas for certain
costs of research and preclinical development of thrombin inhibitors over a
two-year period that ended December 31, 1996. Schering-Plough assumed
responsibility for certain preclinical development, clinical trials and
regulatory activities, and received exclusive worldwide manufacturing and
marketing rights for any resulting thrombin inhibitors. In January 1997,
Schering-Plough selected a clinical development candidate, which resulted in a
$3,000,000 milestone payment to Corvas. In June 1998, Schering-Plough began a
Phase I clinical trial of an oral thrombin inhibitor, which triggered a
$1,000,000 milestone payment to the Company. In August 1998, the Company and
Schering-Plough agreed to terminate their oral thrombin inhibitor collaboration.
Such agreement did not affect the other two collaborations ongoing with
Schering-Plough.

         In conjunction with the December 1994 agreement for oral thrombin
inhibitors, Schering-Plough acquired an exclusive option to expand its alliance
with the Company to include Factor Xa inhibitors. In December 1996,
Schering-Plough exercised this option and agreed to compensate Corvas for
certain costs of research and preclinical development of Factor Xa inhibitors
over a two-year period that originally ended December 31, 1998. In December
1998, Schering-Plough extended the funding of this program through September
1999 and expanded the scope of the program to encompass the development of both
Factor Xa and thrombin inhibitors of thrombosis using a different design
approach than the terminated program. Schering-Plough, which is responsible for
preclinical development, all clinical trials and regulatory activities, has
exclusive worldwide marketing rights for any resulting Factor Xa inhibitors.
Corvas retained certain manufacturing rights and may in the future receive
milestone payments and royalties on sales of therapeutics resulting from this
alliance.

         Upon execution of the initial agreement in 1994, Schering-Plough
purchased 1,000,000 shares of Series A Convertible Preferred Stock of the
Company, which resulted in net proceeds of $4,864,000. Upon exercise of the
Factor Xa option in 1996, Schering-Plough purchased 250,000 shares of Series B
Convertible Preferred Stock of the Company, which resulted in net proceeds of
$2,000,000. Schering-Plough beneficially owns approximately 7.6% of the
outstanding securities of the Company on an as-converted basis. Revenue of


                                      -17-

<PAGE>


$5,000,000, $7,000,000 and $5,000,000 was recognized under both of these
agreements in each of 1996, 1997 and 1998, respectively, and it is anticipated
that $3,000,000 will be recognized in 1999. Through the end of 1998, Corvas has
received a total of $28,000,000 from Schering-Plough as a result of these
programs. If all milestones remaining on the program are met, Corvas would
receive an additional $30,500,000 in milestone payments and research funding,
plus royalties on any sales of commercialized products.

         In June 1997, Corvas entered into an additional agreement with
Schering-Plough which covers the design and development of orally-bioavailable
inhibitors of a key protease believed to be necessary for hepatitis C virus
replication. Under the terms of this agreement, Schering-Plough received an
exclusive worldwide license for products developed from these inhibitors and is
responsible for all development, manufacturing and marketing of any resultant
products. Corvas received a license fee of $250,000 in 1997 and, in addition,
has recognized revenue from collaborative agreements of $919,000 and $1,575,000
in 1997 and 1998, respectively. The initial term of the research program was one
year; Schering-Plough has exercised the first of its options to extend funding
through May 1999, and has one option remaining to extend the program for an
additional one-year period. Funding for each extension year is dependent on the
manpower applied to the program, within an established minimum and maximum. The
Company may also receive milestone payments as well as royalty payments on
product sales if products are successfully commercialized from this agreement.

RELATIONSHIP WITH PFIZER

         In October 1995, Corvas and Pfizer entered into a research and option
agreement of up to eighteen months to collaborate on the development of rNIF. In
February 1997, Pfizer exercised its option to enter into a two-year license and
development agreement. Pfizer holds an exclusive, worldwide license to further
develop, manufacture and market rNIF as a therapeutic agent and has the right to
terminate the agreement at any time upon 30 days written notice to the Company.
Pfizer is also responsible for funding all further development of rNIF,
including costs associated with clinical trials and certain limited activities
performed by Corvas. Pfizer is compensating Corvas for certain costs of research
and preclinical development of rNIF over a two-year period that ends March 31,
1999. In February 1998, Pfizer began a Phase I clinical trial for rNIF, which
triggered a $1,000,000 milestone payment to Corvas and, in December 1998, Pfizer
initiated a Phase II trial for rNIF. If products are successfully commercialized
from this agreement, Corvas will also receive milestone payments and royalties
on product sales. Through the end of 1998, Pfizer has paid Corvas $4,247,000
under this alliance. If all milestones on this program are met, Corvas would
receive an additional $24,112,000 in payments plus royalties on any sales of
commercialized products.

RELATIONSHIP WITH VASCULAR GENOMICS INC.

         In June 1997, Corvas entered into both an option agreement to acquire
all of the outstanding stock of VGI, as well as a research and development
agreement. During the option period, Corvas is making monthly option payments of
approximately $83,000 to VGI. Under the terms of the research and development
agreement, VGI is required to make monthly payments of $80,000 to Corvas to be
applied to research and development covering the VGI technology. If this option
is exercised prior to its termination on June 30, 2000, the acquisition will be
made with newly-issued Corvas Common Stock or, in certain circumstances at the
option of the Company, a combination of cash and 633,600 shares of Common Stock.
The aggregate acquisition price for VGI, which increases based on timing of
option exercise, ranges from a minimum of $13,782,000 as of December 31, 1998


                                      -18-

<PAGE>

to a maximum of $19,960,000 in June 2000. Exercise of the option would be
automatically triggered if the Company entered into a partnering agreement that
covered any portion of the VGI technology and had an aggregate value equal to
the dollar value of the acquisition price applicable at that date. If Corvas
elects not to exercise its option, VGI may require Corvas to purchase 19.9% of
its outstanding stock for $3,960,000 in Corvas Common Stock.

RELATIONSHIP WITH JOHNSON & JOHNSON COMPANIES

         In November 1998, the Company entered into exclusive license agreements
with two affiliates of Johnson & Johnson, Ortho-Clinical Diagnostics Inc. and
LifeScan, Inc. These agreements cover recombinant tissue factor, which is used
in diagnostic tests to determine the blood clotting ability of patients, and
supercede earlier agreements entered in June 1992. In addition to transferring
the Company's manufacturing activities to these affiliates of Johnson & Johnson,
certain specialized equipment was also sold in 1998. The new agreements continue
to provide for royalties to be paid based on unit sales of tissue factor.

RESEARCH COLLABORATIONS AND LICENSES

         Corvas has also established collaborations with scientists at a number
of leading North American and European academic and clinical research centers to
further its technology and product development objectives. These collaborations
are generally conducted pursuant to agreements that give Corvas a license to, or
the option to license, certain technology, patent rights or materials. These
agreements may require Corvas to fund research or to pay license fees or
milestone payments and, upon commercial sale of certain products, royalties.
Corvas also has several contractual arrangements with scientific advisors and
collaborators for which Corvas compensates these individuals or an affiliated
entity.

PATENTS AND PROPRIETARY RIGHTS

         Corvas' success will depend in part on its ability to obtain patent
protection for its products, both in the U.S. and other countries. The patent
position of biotechnology and pharmaceutical companies is highly uncertain and
involves complex legal and factual questions. There is also uncertainty as to
the breadth of claims that will be allowed in biotechnology patents. Corvas
intends to file applications as appropriate for patents covering both its
products and processes. As of March 15, 1998, Corvas owns or holds exclusive
rights in 42 U.S. patents and has received Notices of Allowance for at least
eight U.S. patent applications that have not yet issued as patents. Of the
issued patents, 38 are owned by Corvas and four are licensed by the Company.
Corvas has filed or holds licenses to approximately 35 additional patent
applications that currently are pending in the U.S. Patent and Trademark Office
("USPTO"). Corvas has filed foreign counterparts to certain of the issued
patents and patent applications in many countries. Generally, it is the
Company's policy to file foreign counterparts in countries with significant
pharmaceutical markets. Some of these foreign counterparts have issued as
patents or have been indicated as allowed. Corporate partners and others may
have certain rights to some patents owned by Corvas under applicable strategic
alliance and other agreements. There is no assurance that patents will issue
from any of the Company's owned or licensed patent applications or as to the
breadth or scope of protection that claims allowed under any issued patents will
provide to protect the Company. In addition, there is no assurance that any
patents issued or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide proprietary
protection to the Company.


                                      -19-

<PAGE>


         In addition to patents, the Company relies on trade secrets and
proprietary know-how, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information and inventions agreements with its
current and prospective collaborative partners, employees, scientific advisors
and consultants. There is no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.

         Certain of the Company's research has been funded in part by the U.S.
Government's Small Business Innovation Research ("SBIR") program or by other
government funding. As a result of such funding, Government Rights will exist in
any technology, including inventions, developed with the funding. These rights
include the grant of a non-exclusive, paid-up, worldwide license to such
inventions for any governmental purpose. In addition, the government has the
right to require the Company to grant an exclusive license to any of these
inventions to a third party if the government determines that (i) adequate steps
have not been taken to commercialize such inventions, (ii) such action is
necessary to meet public health or safety needs or (iii) such action is
necessary to meet requirements for public use under federal regulations. Federal
law requires any licensor of an invention that was partially funded by federal
grants to obtain a covenant from its exclusive licensee to substantially
manufacture products using the invention in the U.S. In addition, the Company's
licenses may also relate to technology developed with federal funding and,
therefore, may also be subject to Government Rights.

GOVERNMENT REGULATION

         The Company, alone or through its collaborators, intends to market its
product candidates in all jurisdictions where it receives the required
regulatory approvals and where such marketing would likely be commercially
successful. The production and marketing of the Company's products and its
ongoing research and development activities are subject to regulation by
numerous governmental authorities in the U.S. and other countries. Any drug
developed by the Company must undergo rigorous preclinical and clinical testing
and an extensive regulatory approval process mandated by the U.S. Food and Drug
Administration ("FDA") and/or applicable foreign authorities before it can be
marketed. Various federal and, in some cases, state statutes and regulations
also govern or influence the manufacturing, safety, labeling, storage,
recordkeeping and marketing of such products. These processes can take a number
of years and require the expenditure of substantial resources. Any failure by
the Company or its collaborators or licensees to obtain, or any delay in
obtaining, regulatory approvals could adversely affect the marketing of any
products developed by the Company and its ability to receive product or royalty
revenue.

         The activities required before a pharmaceutical agent may be marketed
in the U.S. begin with preclinical testing. Preclinical tests include laboratory
evaluation of product chemistry and animal studies to assess the potential
safety and efficacy of the product and its formulations. The results of these
studies must be submitted to the FDA as part of an IND, which must be reviewed
and become effective pursuant to FDA regulations before proposed clinical
testing in the U.S. can begin. Typically, clinical testing involves a
three-phase process. In Phase I, clinical trials are conducted with a small
number of subjects to determine the early safety profile and the pattern of drug
distribution and metabolism. In Phase II, clinical trials are conducted with
groups of patients afflicted with a specified disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase

                                      -20-

<PAGE>

III, large scale, multi-center, comparative clinical trials are conducted with
patients afflicted with a target disease in order to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others. The
results of the preclinical and clinical testing are then submitted to the FDA,
for a pharmaceutical product in the form of a New Drug Application ("NDA"), or
for a biological product in the form of a Biology License Application ("BLA"),
for approval to commence commercial sales. In responding to an NDA or BLA, the
FDA may grant marketing approval, request additional information or deny the
application if it determines that the application does not demonstrate, to the
satisfaction of the FDA, that the product is safe and effective for its labeled
indications. For approved products, the FDA requires that adverse effects be
reported to the FDA and may also require post-marketing testing to monitor for
adverse effects, which can involve significant expense.

         Among the conditions for NDA or BLA approval is the requirement that
the prospective manufacturer's quality control and manufacturing procedures
conform on an ongoing basis with Good Manufacturing Practices ("GMPs"). In
complying with GMPs, manufacturers must continue to expend time, money and
effort in the area of production and quality control to ensure full technical
compliance. Manufacturing facilities are subject to periodic inspections by the
FDA. Noncompliance may result in the withdrawal of previously granted approvals
and/or the imposition of other regulatory enforcement sanctions, including civil
penalties, recall, injunction or seizure of products, refusal to grant marketing
approval or to allow the Company to enter into government contracts, and
criminal prosecution.

         The Company is also subject to regulation by the Food and Drug branch
of the California Department of Health Services ("FDB") and, prior to the
marketing of any of its products manufactured in California, the Company will be
required to secure a drug manufacturing license from the FDB. Such licenses are
issued after an FDB inspection of manufacturing facilities, and are reissued on
an annual basis after re-inspection by the FDB.

         The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use,
storage, discharge and disposal of hazardous or potentially hazardous substances
and radioactive compounds and infectious disease agents, used in connection with
the Company's research. The extent of government regulation that might result
from any legislation or administrative action cannot be accurately predicted.

COMPETITION

         Due to the high incidence of cardiovascular diseases, cancer, viral
infections such as hepatitis C and parasitic diseases such as malaria, most, if
not all, of the major pharmaceutical companies have significant research and
product development programs in these areas. The Company expects to encounter
significant competition both in the U.S. and in foreign markets for each of the
products it seeks to develop. Several existing products have well-established
market positions and there are a number of new products in advanced clinical
development. The Company's competitors include fully-integrated pharmaceutical
and biotechnology companies both in the U.S. and in foreign markets which have
expertise in research and development, manufacturing processes, testing,
obtaining regulatory approvals and marketing, and may have financial and other
resources significantly greater than those of the Company. Smaller companies may
also prove to be significant competitors. Furthermore, academic institutions,
U.S. and foreign government agencies and other public and private research
organizations conduct research relating to diseases targeted by the Company, and


                                      -21-

<PAGE>

may seek patent protection for, and establish collaborative arrangements for the
development and marketing of, products for the treatment of these diseases.
Products developed by these and other entities may compete directly with those
being developed by the Company. These companies and institutions may also
compete with the Company in recruiting and retaining highly qualified scientific
personnel.

         The Company's competition will be determined in part by the potential
indications for which the Company's products are developed and ultimately
approved by regulatory authorities, by the timing of such approvals and market
introductions and by whether any currently available drugs, or drugs under
development by others, are effective in the same indications. Accordingly, the
relative speed with which the Company can develop products, complete the
clinical trials and approval processes, and supply commercial quantities of the
products to the market is expected to be an important competitive factor. The
Company expects that competition among products approved for sale will be based,
among other things, on product efficacy, safety, reliability, availability,
price and patent position.

RISK FACTORS

EARLY STAGE OF DEVELOPMENT

         The Company is at an early stage of development and its primary sources
of revenue are from research funding, license fees and milestone payments from
its collaborations. To date, Corvas, alone or in conjunction with its strategic
partners, has completed early stage Phase I clinical trials for only five
product candidates. The Company's product candidates will require significant
additional development, clinical trials, regulatory approval and additional
investment prior to their commercialization, if any. The Company and its
strategic alliance partners do not expect to be able to market any of these
product candidates for a number of years, if at all. There is no assurance that
the Company's and its strategic alliance partners' product development efforts
will progress any further or be successfully completed, either because the
financing is not available or because the product does not prove to be effective
in targeting the desired indication in clinical trials. In addition, there is no
assurance that the Company's and its strategic alliance partners' potential
products will be capable of being produced in commercial quantities at
reasonable costs, that required regulatory approvals can be obtained or that any
potential products, if introduced, will be successfully marketed or will be
profitable to the Company.

CONTINUING OPERATING LOSSES; ACCUMULATED DEFICIT

         The Company has experienced significant operating losses since its
inception in 1987. At December 31, 1998, the Company had an accumulated deficit
of approximately $77,853,000. The Company expects to incur substantial
additional operating losses over the next several years as the Company
progresses in its clinical trial and research and development efforts.
Substantially all of the Company's revenues to date have consisted of revenues
from research funding and milestones from collaborative agreements, license fees
and interest income. To achieve profitable operations, the Company, alone or
with others, must successfully develop, manufacture and market its current
product candidates and identify, develop, manufacture and market additional
future products, all of which will require regulatory approval. See
"-Uncertainties of Regulatory Approval; Government Regulation" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

                                      -22-

<PAGE>

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING

         The Company's operations to date have consumed substantial amounts of
cash. Negative cash flow from operations is expected to continue in the
foreseeable future. The Company will require substantial funds to conduct
research and development on, and preclinical and clinical testing of, its
product candidates and any future products, to market and sell such products
and, if necessary, to establish commercial scale manufacturing facilities. The
Company's future capital requirements will depend on many factors, including,
but not limited to, the following: the scientific progress in and magnitude of
its drug discovery programs; the progress and results of preclinical testing and
clinical trials; the costs involved in regulatory compliance; the costs of
filing, prosecuting, maintaining and enforcing patents; the progress of
competing technology and other market developments; the changes in its existing
collaborative relationships; the Company's ability to establish and maintain
collaborative or licensing arrangements; the cost of manufacturing scale-up; and
the effectiveness of activities and arrangements of the Company or its
collaborative partners to commercialize the Company's products. The Company
intends to seek, and is currently seeking, such additional funding either
through collaborative arrangements or through public or private financings.
There is no assurance that additional financing will be available, or, if
available, that it will be available on a timely basis or on acceptable terms.
If additional funds are raised by issuing securities, further dilution, possibly
substantial, to existing stockholders will likely result. If adequate funds are
not available, the Company may be required to significantly delay, scale back or
discontinue one or more of its drug discovery programs, clinical trials or other
aspects of its operations, or obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would not otherwise relinquish or at prices below what the Company would
otherwise choose to accept for relinquishing such rights.

RELIANCE ON COLLABORATIVE PARTNERS AND LICENSORS

         Corvas has relied, and will continue to rely, on certain established
pharmaceutical companies interested in its technology to fund a portion of its
research and development expenses. The Company has entered into collaborative
research agreements with collaborative partners whereby such partners provide
capital in exchange for certain technology, product, manufacturing and marketing
rights related to the collaborative research.

         Corvas has collaborative agreements with Pfizer for the development of
NIF and with Schering-Plough for the discovery and commercialization of orally
active inhibitors of (i) thrombosis (Factor Xa and thrombin) for the prevention
and treatment of chronic cardiovascular disorders and (ii) a hepatitis C
protease for the prevention and treatment of hepatitis C infections. The Company
also has an exclusive license with two affiliates of Johnson & Johnson for the
manufacture and worldwide sales and marketing of diagnostic tests containing
recombinant human tissue factor. As a result, the Company is dependent on Pfizer
and Schering-Plough with respect to the regulatory filings relating to, and the
clinical testing of, the Company's product candidates and any future product
candidates developed under these collaborations. At any time Pfizer or
Schering-Plough may, based on data obtained in clinical trials or otherwise,
elect to halt or repeat trials or conduct trials using different formulations of
these product candidates. Any of these actions could result in delays or the
discontinuation of the clinical development of compounds covered by these
collaborations.

                                      -23-

<PAGE>

         Furthermore, the Company can not control the amount and timing of
resources dedicated by these collaborators. There is no assurance that (i) the
interests of the Company will continue to coincide with those of its
collaborators, or (ii) that the collaborators will continue the development of
any of the Company's product candidates, or (iii) that the collaborators will
not develop independently, or with third parties, products that could compete
with the Company's future products or (iv) that disagreements between the
Company and its collaborators over rights, technology, other proprietary
interests or otherwise will not occur. Further, there is no assurance that the
collaborative agreements will be extended at the end of their respective terms.
If any of the Company's collaborators breaches or terminates its agreement with
the Company, or fails to conduct its collaborative activities in a timely
manner, the research program under the applicable collaborative agreement, or
the development and commercialization of product candidates subject to such
collaboration, may be adversely affected as well as the Company's immediate
liquidity and capital resources. There is no assurance that the Company's
existing collaborations will be successful, that the Company will receive any
further milestones or other payments pursuant to the collaborative agreements,
that the collaborations will continue since these collaborative agreements are
terminable at the option of the collaborator upon certain events, that the
collaborations will be commercially successful or that any product derived
therefrom will be profitable for the Company. If the strategic alliances are not
continued or successful, the Company's business, financial condition, prospects
and results of operations could be materially and adversely affected.

         Corvas has also established collaborations with scientists at a number
of leading North American and European academic and clinical research centers to
further its technology and product development objectives. These collaborations
are generally conducted pursuant to agreements that give the Company a license,
or the option to license, certain technology, patent rights or materials. These
agreements may require the Company to fund research or to pay license fees or
milestone payments and, upon commercial sale of certain products, royalties.

         Corvas also expects to rely on additional future collaborative
arrangements to develop and commercialize some of its product candidates. There
is no assurance that the Company will be able to negotiate acceptable
collaborative or license arrangements in the future or that such collaborative
and license arrangements or its existing collaborative and license arrangement
will be successful. In addition, collaborative partners may pursue alternative
technologies or develop alternative compounds either on their own or in
collaboration with others, including the Company's competitors, as a means of
developing treatments for diseases targeted by any collaborative programs. See
"Business - Strategic Alliances."

UNPREDICTABILITY OF CONDUCTING PRECLINICAL AND CLINICAL TRIALS

         Before obtaining required regulatory approvals for the commercial sale
of any of the Company's product candidates, the Company must demonstrate through
preclinical testing and clinical trials to the FDA or any applicable foreign or
state regulatory agency's satisfaction, that each product candidate is safe and
effective for use in indications for which approval is requested. The results
from preclinical testing and early clinical trials may not be predictive of
results obtained in large clinical trials. Companies in the pharmaceutical and
biotechnology industries have suffered significant setbacks in various stages of
clinical trials, even in advanced clinical trials after promising results had
been obtained in earlier trials.

                                      -24-

<PAGE>

         The development of safe and effective products is highly uncertain and
subject to numerous risks. Product candidates that may appear to be promising in
development may not reach the market for a number of reasons. Product candidates
may be found to be ineffective or to cause harmful side effects during clinical
trials, may take longer to progress through clinical trials than had been
anticipated, may fail to receive necessary regulatory approvals, may prove
impracticable to manufacture in commercial quantities at reasonable costs and
with acceptable quality, may not be subject to patient reimbursement from third
party payors such as Medicare or may fail to achieve market acceptance.
Completion of research, preclinical testing and clinical trials may take several
years, and the length of time varies substantially with the type, complexity,
novelty and intended use of the product. In addition, data obtained from
preclinical and clinical activities are susceptible to varying interpretations,
which could delay, limit or prevent regulatory approval. Delays or rejections
may be encountered based upon many factors, including changes in regulatory
policy during the period of product development. There is no assurance that any
of the Company's development programs will be successfully completed, that any
regulatory applications to conduct clinical trials will be approved by the FDA
or other regulatory authorities or that clinical trials will commence or proceed
as planned.

         All of the Company's product candidates are subject to extensive
regulation and will require approval from the FDA and other regulatory agencies
prior to commercial sale. The cost to the Company of conducting clinical trials
for any product candidate can vary dramatically based on a number of factors,
including the order and timing of clinical indications pursued and the extent of
development and financial support, if any, from collaborators. See "-Future
Capital Needs; Uncertainty of Additional Funding," "-Uncertainties of Regulatory
Approval; Government Regulation" and "Business Government Regulation."

         In addition, because the Company will, in a number of cases, rely on
its contractual rights to access data collected by others in phases of its
clinical trials, the Company is dependent on the continued satisfaction by such
parties of their contractual obligations to provide such access and to cooperate
with the Company in the execution of successful filings with the FDA. There is
no assurance that the FDA will permit such reliance or that such data will prove
reliable. If the Company were unable to rely on clinical data collected by
others, the Company may be required to repeat clinical trials, which could
significantly delay commercialization and require significantly greater capital,
which may or may not be available to the Company.

         The rate of completion of the Company's clinical trials is dependent
upon, among other factors, the number of patients to be included in the trial
and the rate of patient enrollment. Patient enrollment is a function of many
factors, including the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the eligibility
criteria for the study. More advanced studies requiring patients with particular
clinical indications may require longer enrollment periods. Delays in planned
patient enrollment may result in delays in commencement of clinical trials and
increased costs, which could have a material adverse effect on the Company's
business, financial condition, prospects and results of operations. See
"Business - Government Regulation."

RISKS RELATED TO THE VASCULAR GENOMICS INC. OPTION

         In June 1997, Corvas entered into an option agreement with VGI pursuant
to which Corvas makes certain monthly option payments and, under a related
research and development agreement, VGI is required to pay to Corvas certain
amounts to sponsor its research and development expenses related to this

                                      -25-

<PAGE>

technology. Under the option agreement, the Company has the option through June
2000 to acquire all of the stock of VGI with Corvas Common Stock, or in certain
circumstances at the option of the Company, a combination of cash and 633,600
shares of Common Stock. The maximum aggregate purchase price ranged from
$13,782,000 to $19,960,000 as of December 31, 1998. The Company cannot predict
whether or when it will be able to establish proof of principle or whether it
will be able to establish collaborative relationships on satisfactory terms to
develop and commercialize this technology and fund its further development, or
that such relationships will successfully reduce the costs associated with this
technology. There is no assurance that the goals of the Company's research and
development efforts in connection with the VGI technology will be achieved or
that the technology will enable Corvas or any collaborators to develop drugs for
targeting therapeutics. If the Company elects to exercise its option, the
acquisition will be dilutive to existing Corvas stockholders. The Company may
have to decide whether to exercise the option before it is able to assess
whether this technology will have any commercial value or provide any return on
investment to Corvas. Further, if Corvas elects not to exercise its option, VGI
may require Corvas to purchase 19.9% of its outstanding stock for $3,960,000 in
Corvas Common Stock, which would result in additional dilution to existing
stockholders. See "Business - Strategic Alliances."

UNCERTAINTIES OF REGULATORY APPROVAL; GOVERNMENT REGULATION

         The developing, testing, manufacturing, labeling, advertising,
promotion, export, sale and distribution and marketing of the Company's product
candidates are subject to extensive regulation by numerous governmental
authorities in the U.S. and other countries. Any drug developed by the Company
must undergo rigorous preclinical and clinical testing and an extensive
regulatory approval process mandated by the FDA, certain state regulatory
agencies and equivalent foreign authorities before it can be marketed in such
jurisdiction. These processes can take a number of years and require the
expenditure of substantial financial and other resources, which may or may not
be available to the Company. Products, if any, resulting from the Company's
existing research and development programs are not expected to be commercially
available for a number of years, if at all. See "- Future Capital Needs,
Uncertainty of Additional Funding."

         The activities required before a pharmaceutical agent may be marketed
in the U.S. begin with preclinical testing. Preclinical tests include laboratory
evaluation of product chemistry and animal studies to assess the potential
safety and efficacy of the product and its formulations. The results of these
studies must be submitted to the FDA as part of an IND, which must be reviewed
and become effective pursuant to FDA regulations before proposed clinical
testing in the U.S. can begin. Typically, clinical testing involves a
three-phase process. In Phase I, clinical trials are conducted with a small
number of subjects to determine the early safety profile and the pattern of drug
distribution and metabolism. In Phase II, clinical trials are conducted with
groups of patients afflicted with a specified disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase
III, large scale, multi-center, comparative clinical trials are conducted with
patients afflicted with a target disease in order to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others. The
results of the preclinical and clinical testing are then submitted to the FDA,
for a pharmaceutical product in the form of an NDA, or for a biological product
in the form of a BLA, for approval to commence commercial sales. In responding
to an NDA or BLA, the FDA may grant marketing approval, request additional
information or deny the application if it determines that the application does
not demonstrate, to the satisfaction of the FDA, that the product is safe and

                                      -26-

<PAGE>

effective for its labeled indications. For approved products, the FDA requires
that adverse effects be reported to the FDA and may also require post-marketing
testing to monitor for adverse effects, which can involve significant expense.

         The time required for completing such testing and obtaining such
approvals is uncertain, and approval itself may not be obtained. To date, the
Company, alone or in conjunction with its strategic partners, has conducted
early stage human clinical testing of five product candidates. Further testing
of any of these, as well as the Company's other product candidates in research
and development, may reveal undesirable and unintended side effects or other
characteristics that may prevent or limit their commercial use. The FDA or the
Company and its collaborators may decide to discontinue or to suspend clinical
trials at any time if the subjects or patients who are participating in such
trials are being exposed to unacceptable health risks. There is no assurance
that the Company will not encounter problems in clinical trials that will cause
the FDA, the Company or a collaborator to delay or to suspend clinical trials.
Furthermore, there is no assurance that any of the Company's products will be
approved for any indication by the FDA, state or local authorities or equivalent
foreign authorities. Even if regulatory approval of a product candidate is
granted, such approval may entail limitations on the indicated uses for which
the product may be marketed. In addition, a marketed product, its manufacturer
and the facilities in which the product is manufactured are subject to continual
review and periodic inspections. Later discovery of previously unknown problems
with a product, manufacturer or facility may result in liability for the
Company, or restrictions on such product or manufacturer, including withdrawal
of the product from the market, which would have a material adverse effect on
the Company's business, financial condition, prospects and results of
operations. See "- Unpredictability of Conducting Preclinical and Clinical
Trials," "- Risk of Product Liability; Uncertainty and Availability of
Insurance" and "Business - Government Regulation."

TECHNOLOGICAL CHANGE AND COMPETITION

         The Company is engaged in a rapidly evolving field. Competition from
other biotechnology companies, pharmaceutical companies and research and
academic institutions is intense and expected to increase. There is no assurance
that the Company's competitors will not succeed in developing products based on
the Company's technology or other technologies which are more effective than
technologies or products being developed by the Company or which would render
the Company's technology and products obsolete and noncompetitive.

         Many of the Company's competitors have substantially greater financial,
technical and human resources than the Company. In addition, many of these
competitors have significantly greater experience than the Company in
undertaking preclinical testing and clinical trials of new pharmaceutical
products and obtaining regulatory approvals of human therapeutic products. The
Company's competitors may succeed in obtaining FDA approval for products more
rapidly than the Company. Furthermore, if the FDA permits the Company to
commence commercial sales of products, the Company will compete with respect to
manufacturing efficiency and sales and marketing capabilities, areas in which it
has limited or no experience and where many of its competitors have
significantly greater experience. See "Manufacturing Limitations," "-Absence of
Sales or Marketing Experience" and "Business - Competition."

         Products under development by the Company address an array of markets.
The Company's competition will be determined in part by the potential
indications for which the Company's compounds are developed and approved. For


                                      -27-

<PAGE>

certain of the Company's potential product candidates, an important factor in
competition may be the timing of market introduction of its, or competitive,
products. Accordingly, the relative speed with which Corvas or its collaborators
can develop products, complete the clinical trials and the regulatory approval
processes, and supply commercial quantities of the products to the market is
expected to be an important competitive factor. The Company expects that
competition among products approved for sale will be based on, among other
things, product efficacy, safety, reliability, availability, price and patent
position.

DEPENDENCE ON QUALIFIED PERSONNEL

         The Company's success is highly dependent on its ability to attract and
retain qualified scientific and management personnel. The loss of services of
the principal members of the Company's management and scientific staff may
impede the Company's ability to commercialize its products. In order to
commercialize its products, the Company must maintain and eventually expand its
personnel, particularly in the areas of clinical trial management,
manufacturing, sales and marketing. The Company faces intense competition for
such personnel from other companies, academic institutions, government entities
and other organizations. There is no assurance that the Company will be
successful in hiring or retaining qualified personnel.

         The continued employment of the Chief Executive Officer, Randall E.
Woods, and the Executive Vice President, Research and Development, George P.
Vlasuk, Ph.D., is key to the Company's success. Each of these employees has an
employment agreement with the Company, but the agreements provide for "at-will"
employment with no specified term.

         There is intense competition for qualified personnel in the areas of
the Company's activities, and there is no assurance that the Company will be
able to continue to attract and retain the personnel necessary. Failure to
attract and retain key personnel could have a material adverse effect on the
Company's business, financial condition, prospects and results of operations.
See "Business - Human Resources" and "Management."

MANUFACTURING LIMITATIONS

         In order for the Company's products to be successful, they must be
manufactured in sufficient commercial quantities, in compliance with regulatory
requirements, and at an acceptable cost. The Company has limited experience in
pilot scale manufacturing. For larger-scale production, as is required for
clinical testing, the Company must rely on third parties to manufacture its
product candidates. If the Company is unable to contract for large-scale
manufacturing capabilities on acceptable terms, or, in such event, develop its
own manufacturing capabilities (which itself would require additional funds and
expertise which may not be available to the Company), the Company's ability to
conduct clinical trials may be adversely affected, resulting in the delay or
preclusion of submission of products for regulatory approval, which in turn
could adversely affect the Company's business, financial condition, prospects
and results of operations. See "Business - Properties and Manufacturing."

PATENTS AND PROPRIETARY RIGHTS

         Corvas' success will depend in part on its ability to obtain patent
protection for its products, both in the U.S. and other countries. The patent
position of biotechnology and pharmaceutical companies is highly uncertain and
involves complex legal and factual questions. There is also uncertainty as to


                                      -28-

<PAGE>

the breadth of claims that will be allowed in biotechnology patents. Corvas
intends to file applications as appropriate for patents covering both its
products and processes. As of March 15, 1998, Corvas owns or holds exclusive
rights in 42 U.S. patents and has received Notices of Allowance for at least
eight U.S. patent applications that have not yet issued as patents. Of the
issued patents, 38 are owned by Corvas and four are licensed by the Company.
Corvas has filed or holds licenses to approximately 35 additional patent
applications that currently are pending in the USPTO. Corvas has filed foreign
counterparts to certain of the issued patents and patent applications in many
countries. Generally, it is the Company's policy to file foreign counterparts in
countries with significant pharmaceutical markets. Some of these foreign
counterparts have issued as patents or have been indicated as allowed. Corporate
partners and others may have certain rights to some patents owned by Corvas
under applicable strategic alliance and other agreements. There is no assurance
that patents will issue from any of the Company's owned or licensed patent
applications or as to the breadth or scope of protection that claims allowed
under any issued patents will provide to protect the Company. In addition, there
is no assurance that any patents issued or licensed to the Company will not be
challenged, invalidated or circumvented, or that the rights granted thereunder
will provide proprietary protection to the Company.

         While the Company is aware of issued patents in the Company's field and
may also be aware of pending applications published outside of the U.S., it is
uncertain whether these patents and applications will require the Company to
alter products or processes, obtain licenses or cease certain activities. If the
Company is required to obtain such licenses, there is no assurance the Company
will be able to obtain any necessary licenses at a reasonable cost. Failure by
the Company to obtain a license to any technology that it requires to
commercialize its products and obtain FDA approval within an acceptable period
of time, if required to do so, would have a material adverse effect on the
Company's business, financial condition, prospects and results of operations.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce patents issued to the Company or to determine the scope and
validity of others' proprietary rights.

         In addition to patents, the Company relies on trade secrets and
proprietary know-how, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information and inventions agreements with its
current and prospective collaborative partners, employees, scientific advisors
and consultants. There is no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.

         Certain of the Company's research has been funded in part by the SBIR
program or by other government funding. As a result of such funding, Government
Rights will exist in any technology, including inventions, developed with the
funding. These rights include the grant of a non-exclusive, paid-up, worldwide
license to such inventions for any governmental purpose. In addition, the
government has the right to require the Company to grant an exclusive license to
any of these inventions to a third party if the government determines that (i)
adequate steps have not been taken to commercialize such inventions, (ii) such
action is necessary to meet public health or safety needs or (iii) such action
is necessary to meet requirements for public use under federal regulations.
Federal law requires any licensor of an invention that was partially funded by
federal grants to obtain a covenant from its exclusive licensee to substantially
manufacture products using the invention in the U.S. In addition, the Company's

                                      -29-

<PAGE>

licenses may also relate to technology developed with federal funding and,
therefore, may also be subject to Government Rights. See "Business - Patents and
Proprietary Rights."

ABSENCE OF SALES, MARKETING OR DISTRIBUTION EXPERIENCE

         The Company has limited experience in sales, marketing and
distribution. To market and distribute any of its products directly, the Company
must develop a substantial marketing and sales force with technical expertise
and supporting distribution capability. Alternatively, the Company may obtain
the assistance of a pharmaceutical company or other entity with a large
distribution system and a large direct sales force. Other than its collaborative
and license agreements with Schering-Plough, Pfizer and the two Johnson &
Johnson companies, the Company does not have any existing distribution
arrangements with any entity for its products. There is no assurance that the
Company will be able to establish sales, marketing and distribution capabilities
of its own or enter into separate arrangements with any other entity. See
"-Technological Change and Competition."

 UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT

         In both domestic and foreign markets, sales of the Company's product
candidates will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations.
Third-party payors are increasingly challenging the price and cost effectiveness
of medical products and services. Significant uncertainty exists as to the
reimbursement status of newly-approved health care products. In many major
markets outside the U.S., pricing approval is required before sales can
commence. There is no assurance as to what price can be obtained for any of the
Company's products that reach the market or whether government-approved prices,
once established, will not be reduced in subsequent years. There is no assurance
that the Company's product candidates, when and if commercialized, will be
considered cost effective or that adequate third-party reimbursement will be
available to enable the Company to maintain price levels sufficient to realize
an appropriate return on its investment in product development. Legislation and
regulations affecting the pricing of pharmaceuticals may change before the
Company's proposed products are approved for marketing. Adoption of such
legislation could further limit reimbursement for medical products. If adequate
coverage and reimbursement levels are not provided by the government and
third-party payors for the Company's product candidates, the market acceptance
of such products would be adversely affected, which would have a material
adverse effect on the Company's business, financial condition, prospects and
results of operations.

RISK OF PRODUCT LIABILITY; UNCERTAINTY AND AVAILABILITY OF INSURANCE

         The testing, marketing and sale of human diagnostic and therapeutic
products exposes the Company to significant and unpredictable risks of product
liability claims in the event of allegations that the use of its technology or
products results in adverse effects. Such risks will exist even with respect to
any products that receive regulatory approval for commercial sale. While the
Company has obtained liability insurance for its products in clinical trials,
there is no assurance that it will be sufficient to satisfy any liability that
may arise. There is no assurance that adequate insurance coverage, in either
clinical or commercial products, will be available in the future at an
acceptable cost, if at all, or that a product liability claim would not
adversely affect the Company's business, financial condition, prospects or
results of operations.

                                      -30-

<PAGE>

ENVIRONMENTAL REGULATIONS

         The Company is subject to a variety of governmental regulations related
to the use, storage, discharge and disposal of toxic or other hazardous
substances and certain radioactive materials used in the Company's operations.
The Company itself uses, stores, discharges and disposes of such hazardous
substances in accordance with applicable regulations, and generally contracts
with third parties for the disposal of such substances. The Company, however,
generally stores its low level radioactive waste at its facility until the
materials are no longer considered radioactive because there are no facilities
presently permitted to accept such waste in California or neighboring states.
Any failure to comply with current or future regulations could result in civil
penalties or criminal fines being imposed on the Company, or its officers,
directors or employees, as well as suspension of production, alteration of its
manufacturing process or cessation of operations. Such regulations could require
the Company to acquire expensive remediation or abatement equipment or to incur
additional expenses to comply with environmental regulations or to remedy a
problem arising in connection with such substances or materials. Any failure by
the Company or its third party contractors to properly manage the use, storage
or disposal of, or adequately restrict discharge of hazardous or toxic
substances or radioactive waste could subject the Company to significant
liabilities which could have a material adverse effect on the Company's
business, financial condition, prospects or results of operations. See "Business
Properties and Manufacturing."

VOLATILITY OF COMMON STOCK PRICE

         The market prices for securities of biotechnology companies, including
Corvas, have historically been highly volatile and the market from time to time
has experienced significant price and volume fluctuations that are unrelated to
the operating performance of such companies. Moreover, the Company's relatively
low trading volume increases the likelihood and severity of volume fluctuations
which likely will result in a corresponding increase in the volatility of
Corvas' Common Stock price. Factors such as announcements of technological
innovations or new commercial therapeutic products by the Company or others,
announcements of adverse or favorable preclinical or clinical results of the
Company's or other entities' drug candidates, governmental regulations,
developments in patent or other proprietary rights, developments in the
Company's relationships with its collaborative partners, public concern as to
the safety of drugs developed by the Company or others, general market
conditions and the timing of decisions by existing Corvas stockholders to sell
large positions of the Company's Common Stock may have a significant effect on
the market price of the Company's Common Stock. Fluctuations in financial
performance from period to period also may have a significant impact on the
market price of the Common Stock. See "Price Range of Common Stock."

ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS; 
STOCKHOLDER RIGHTS PLAN

         Certain provisions of Delaware law applicable to the Company could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company, including Section 203 of the Delaware General Corporation Law,
which prohibits a Delaware corporation from engaging in any business combination
with any interested stockholder for a period of three years from the date the
person became an interested stockholder unless certain conditions are met. The
Company's Certificate of Incorporation (the "Certificate") provides for
staggered terms for the members of the Board of Directors. In addition, the
Company currently has Preferred Stock issued and outstanding which entitles the


                                      -31-

<PAGE>

holders thereof to rights not available to holders of Common Stock. Furthermore,
the Board of Directors of the Company may issue additional shares of Preferred
Stock without stockholder approval and on such terms as the Board of Directors
may determine. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. In addition, the Company's Certificate and
Bylaws require advanced stockholder notice to nominate directors and raise
matters at the annual meeting of stockholders and do not provide for cumulative
voting in the election of directors. Further, pursuant to the terms of its
Stockholder Rights Plan (the "Stockholder Rights Plan"), the Company has
distributed a dividend of one right for each outstanding share of Common Stock.
These rights could cause substantial dilution to the ownership percentage of a
person or group that attempts to acquire the Company on terms not approved by
the Board of Directors and may have the effect of deterring hostile takeover
attempts. All of the foregoing could have the effect of delaying, deferring or
preventing a change in control of the Company and could limit the price that
certain investors might be willing to pay in the future for shares of the
Company's Common Stock. See "Description of Capital Stock."

FORWARD-LOOKING STATEMENTS

         This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in this Report
which address activities, events or developments which the Company expects or
anticipates will or may occur in the future, including, but not limited to, the
development of its potential products and research programs, the timing of
clinical trials, the levels of anticipated research and development and capital
expenditures and the Company's ability to execute its business strategies, are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future developments as
well as other factors it believes are appropriate under the circumstances.
However, whether actual results and developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties
which could cause actual results to differ materially from the Company's
expectations, including the risk factors discussed in this Report and other
factors, many of which are beyond the control of the Company. Consequently, all
of the forward-looking statements made in this Report are qualified by these
cautionary statements and there is no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected consequences to, or
effects on, the Company or its business, financial condition, prospects or
results of operations. The Company assumes no obligation to update publicly any
such forward-looking statements, whether as a result of new information, future
events or otherwise. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."

HUMAN RESOURCES

         As of March 15, 1999, Corvas employed 73 individuals on a full-time
basis, 19 of whom hold Ph.D. degrees.

         A significant number of the Company's management and professional
employees have had prior experience with pharmaceutical, biotechnology or
medical product companies. Corvas believes that it has been highly successful in
attracting skilled and experienced scientific personnel; however, competition

                                      -32-

<PAGE>

for such personnel is intense. None of the Company's employees is covered by a
collective bargaining agreement. All of the Company's employees are covered by
confidentiality and arbitration agreements, and certain of its officers have
employment contracts. The Company believes that its relationship with its
employees is good.


ITEM 2.  PROPERTIES

         Corvas presently occupies approximately 30,200 square feet of
laboratory and office space in San Diego, California. In March 1999, the Company
executed an amendment to extend the lease on its current facility through
September 2006.

         The Company does not have manufacturing facilities for pilot scale or
commercial production of compounds under development as therapeutic products.
The Company must presently rely on third parties to manufacture its candidate
products for clinical testing.

         For its therapeutic product candidates, the Company will need to
establish quality control and quality assurance programs to the extent the
Company will manufacture any such products when and if fully developed.
Otherwise, the Company will continue to be dependent on contract manufacturers
or strategic partners. There is no assurance that these manufacturers will be
available or will meet the Company's requirements for quality, quantity and
timeliness, or that the Company will be able to find substitute manufacturers,
if necessary.


ITEM 3.  LEGAL PROCEEDINGS

         In March 1999, the Company was served with a Complaint in the Superior
Court of California, County of San Diego, by a former employee of the Company
who is also a principal shareholder of VGI. The Complaint consists of several
allegations including, among others, violation of the Labor Code and breach of
contract. As the Complaint was only recently filed, the Company cannot yet
estimate its financial impact, if any. The Company denies all of the claims
alleged and intends to vigorously defend itself in this lawsuit.


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

         None


                                      -33-

<PAGE>


                                     PART II

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

         The Company's Common Stock began trading on The Nasdaq Stock Market on
January 30, 1992 under the symbol "CVAS." Prior to January 30, 1992, there was
no public market for the Company's Common Stock. The following table sets forth
for the periods indicated the high and low sale prices of Common Stock as
reported by the Nasdaq National Market.

                                                     HIGH              LOW
YEAR ENDED DECEMBER 31, 1998                        ------           ------

Fourth Quarter....................................  $3 3/4           $1 5/8
Third Quarter.....................................   4 3/8            1 3/4
Second Quarter....................................   5 13/16          3 7/8
First Quarter.....................................   5 1/2            3 1/4

YEAR ENDED DECEMBER 31, 1997

Fourth Quarter....................................  $5 5/8           $3 3/4
Third Quarter.....................................   6 3/4            4
Second Quarter....................................   6 5/8            4 5/8
First Quarter.....................................   7 3/8            5 3/8


         On March 15, 1999, the last reported sale price of the Common Stock was
$2.63 per share. As of March 15, 1999, there were approximately 697 holders of
record of the Common Stock.


                                      -34-

<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

         The selected data presented below under the captions "Statements of
Operations Data" and "Balance Sheets Data" for, and as of the end of, each of
the years in the five-year period ended December 31, 1998, are derived from and
should be read in conjunction with the financial statements of Corvas
International, Inc., which financial statements have been audited by KPMG LLP,
independent certified public accountants. The financial statements as of
December 31, 1998 and 1997, and for each of the years in the three-year period
ended December 31, 1998, and the independent auditors' report thereon, are
included elsewhere in this Report.
<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                               ---------------------------------------------------------------------------------
                                                                    (In thousands, except per share amounts)
 STATEMENTS OF OPERATIONS DATA:                     1998             1997            1996             1995              1994
                                               -------------    -------------    -------------    -------------    -------------
 <S>                                           <C>              <C>              <C>              <C>              <C>
 REVENUES:
 Revenue from collaborative agreements         $      6,985     $      5,811     $      5,480     $      4,354     $        ---
 License fees and milestones                          2,795            4,100              400              500              ---
 Net product sales                                       44              374              224              406              280
 Royalties                                              145              120              161              142              183
 Research grants                                        ---              ---              ---              ---              667
                                               -------------    -------------    -------------    -------------    -------------

    Total revenues                                    9,969           10,405            6,265            5,402            1,130
                                               -------------    -------------    -------------    -------------    -------------
 COSTS AND EXPENSES:
 Research and development                            15,800            9,705           10,901            9,723           11,378
 General and administrative                           3,670            4,469            3,181            2,582            3,159
 Cost of products sold                                   18              194              134              211               83
 Litigation settlement and related
    expenses                                            ---              ---              ---              ---              535
 Restructuring charge                                   ---              ---              ---              ---            1,575
                                               -------------    -------------    -------------    -------------    -------------

    Total costs and expenses                         19,488           14,368           14,216           12,516           16,730
                                               -------------    -------------    -------------    -------------    -------------

    Loss from operations                             (9,519)          (3,963)          (7,951)          (7,114)         (15,600)
    Other income, net                                 1,415            1,511            1,242              821              697
                                               -------------    -------------    -------------    -------------    -------------

 Net loss and comprehensive loss               $     (8,104)    $     (2,452)    $     (6,709)    $     (6,293)    $    (14,903)
                                               =============    =============    =============    =============    =============
 Basic and diluted net loss per share(1)       $      (0.56)    $      (0.18)    $      (0.52)    $      (0.67)    $      (1.60)
                                               =============    =============    =============    =============    =============
 Shares used in calculation of basic                                                                                           
    and diluted net loss per share(1)                14,460           13,873           12,882            9,374            9,336
                                               =============    =============    =============    =============    =============
</TABLE>

<TABLE>
<CAPTION>

                                                                                DECEMBER 31,
                                               ---------------------------------------------------------------------------------
 BALANCE SHEETS DATA:                               1998             1997            1996             1995              1994
                                               -------------    -------------    -------------    -------------    -------------
 <S>                                            <C>              <C>              <C>              <C>              <C> 
 Cash, cash equivalents and                                                                                                  
    short-term debt securities                 $     17,613     $     26,120     $     28,596     $     12,451     $     19,867
 Working capital                                     16,902           21,133           24,254            7,372           13,902
 Total assets                                        19,912           28,214           30,639           14,462           22,509
 Accumulated deficit                                (77,853)         (69,749)         (67,297)         (60,588)         (54,295)
 Total stockholders' equity                          18,386           22,445           24,347            8,768           14,647


</TABLE>

----------
(1) See Note 2 of the Notes to Financial Statements.


                                      -35-

<PAGE>



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

OVERVIEW

         Formed in 1987, Corvas International, Inc. ("Corvas" or the "Company")
is a biopharmaceutical firm engaged in the design and development of a new
generation of therapeutic agents for cardiovascular, cancer and other major
diseases. To date, the Company has not generated significant revenues from
product sales and currently does not sell any commercial products. The Company
has not been profitable on an annual basis since inception and expects to incur
substantial additional operating losses over the next several years as the
Company progresses in its research and development programs. The Company's
historical results are not necessarily indicative of future results. In
addition, there is no assurance that the Company will successfully develop,
commercialize, manufacture or market its products or generate sufficient
revenues to become profitable on a sustained basis or at all. At December 31,
1998, the Company had an accumulated deficit of $77,853,000.

RESULTS OF OPERATIONS

         Total operating revenues in 1998 decreased to $9,969,000 from
$10,405,000 in 1997. Operating revenues in 1996 were $6,265,000. Revenues from
collaborative agreements in 1998, which increased by $1,174,000 over 1997,
included (i) $4,000,000 attributable to the Company's strategic alliance
agreement with Schering Corporation ("Schering-Plough") to collaborate on the
discovery and commercialization of orally-active inhibitors of coagulation
Factor Xa, (ii) $1,575,000 recognized pursuant to the license and collaboration
agreement with Schering-Plough regarding the design and development of oral
inhibitors of a key protease necessary for hepatitis C virus replication, (iii)
$960,000 recognized pursuant to a research and development agreement with
Vascular Genomics Inc. ("VGI") which covers a novel vascular targeting
technology, and (iv) $450,000 attributable to the Company's research and option
agreement with Pfizer Inc. ("Pfizer") to collaborate on the development of
neutrophil inhibitory factor ("NIF"). License fees and milestones in 1998, which
decreased $1,305,000 from the 1997 amounts, were comprised of (i) a $1,000,000
milestone payment received from Pfizer upon commencement of a Phase I trial of
NIF, (ii) a $1,000,000 milestone payment received from Schering-Plough upon
commencement of a Phase I trial of an oral thrombin inhibitor, and (iii) license
fees of $795,000 pursuant to the transfer of manufacturing activities of
recombinant tissue factor to two Johnson & Johnson subsidiaries. The $330,000
decrease in net product sales in 1998 compared to 1997 is due to the
discontinuation of tissue factor manufacturing in 1998.

         Total operating revenues in 1997 increased over the 1996 amounts by
$4,140,000, primarily due to a $3,000,000 milestone earned with respect to
thrombin inhibitors. Revenues from collaborative agreements in 1997, which
increased by $331,000 from the 1996 amount, consisted of (i) $4,000,000
attributable to the Company's Factor Xa inhibitor program with Schering-Plough,
(ii) $919,000 from the Company's program with Schering-Plough covering
inhibitors of the hepatitis C virus, (iii) $480,000 recognized pursuant to the
research and development agreement with VGI for vascular targeting, and (iv)
$412,000 attributable to the Company's alliance with Pfizer on the NIF program.
License fees and milestones in 1997, which increased by $3,700,000 over 1996,
were comprised of (i) a $3,000,000 milestone payment received upon selection of


                                      -36-

<PAGE>


a clinical development compound in the Company's collaboration with
Schering-Plough for thrombin inhibitors, (ii) license fees of $850,000 in
connection with Pfizer exercising its option on the NIF program, and (iii)
license fees of $250,000 attributable to initiation of the hepatitis C
collaboration with Schering-Plough.

         Research and development expenditures, which accounted for 81% of the
total costs and expenses in 1998, 68% in 1997 and 77% in 1996, increased to
$15,800,000 in 1998 from $9,705,000 in 1997. This $6,095,000 increase is
primarily due to the clinical development of rNAPc2, the Company's proprietary
anticoagulant drug candidate which entered Phase II clinical trials late in
1998, as well as research associated with the VGI technology. Manufacturing of
clinical supplies for the rNAP5 program also contributed to the increase in
expenditures. Research and development costs in 1997 decreased by $1,196,000
from $10,901,000 in 1996. This decrease was primarily due to costs incurred in
1996 for the manufacture of rNAPc2 clinical supplies that were not incurred in
1997.

         General and administrative expenses decreased to $3,670,000 in 1998
from $4,469,000 in 1997. This $799,000 reduction was primarily attributable to a
reduction in legal and business development costs, as well as administrative
recruiting and relocation expenses incurred in 1997 that were not incurred in
1998. These same factors accounted for the majority of the $1,288,000 increase
of general and administrative expenses in 1997 compared to 1996.

         Total other income was $1,415,000 in 1998, $1,511,000 in 1997 and
$1,242,000 in 1996. In addition to interest income of $1,201,000, the 1998
amount also included $214,000 from the sale of certain equipment and materials
to a Johnson & Johnson subsidiary in connection with the transfer of
manufacturing activities described above. The fluctuations in interest income
over the three-year period is due to varying cash balances available for
investment.

         Subject to the availability of additional capital, the Company expects
it will continue to incur significant expenses and operating losses over the
next several years, including increased research and development expenses as the
clinical development of rNAPc2 proceeds. However, there is no assurance that the
Company will be able to raise any additional capital.

LIQUIDITY AND CAPITAL RESOURCES

         Since inception, the Company's operations have been funded primarily
through public offerings and private placements of equity securities, revenues
and milestones from collaborative agreements, license fees and interest income
earned on cash and investment balances. The Company's principal sources of
liquidity are its cash and cash equivalents, time deposits and debt securities
which, net of a restricted time deposit, totaled $17,553,000 and $26,060,000 as
of December 31, 1998 and 1997, respectively. Working capital as of December 31,
1998 and 1997 was $16,902,000 and $21,133,000, respectively. Available cash is
invested in accordance with an investment policy set by the Board of Directors,
which has established the objectives of preserving principal, maintaining
adequate liquidity and maximizing income. The policy provides guidelines
concerning the quality, term and liquidity of investments. The Company presently
invests its excess cash primarily in government-backed debt instruments and, to
a smaller degree, in debt instruments of corporations with strong credit
ratings.


                                      -37-

<PAGE>


         Net cash of $12,599,000 was used in operations for the year ended
December 31, 1998, compared to $2,560,000 for the year ended December 31, 1997.
This increase was due to an increase in total costs of $5,120,000 in 1998, and
the recognition of $4,656,000 of revenue that was recorded as deferred revenue
at the end of 1997. Net cash provided by investing activities was $7,245,000 for
the year ended December 31, 1998, compared to $1,947,000 in the previous year.
This difference was primarily due to the increased use of maturing investments
required to fund operations in 1998. Net cash provided by financing activities
increased to $3,921,000 for the year ended December 31, 1998, from $455,000 for
the year ended December 31, 1997. This was primarily attributable to $3,646,000
raised by the Company pursuant to an offer for the early exercise of certain
warrants.

         The Company expects it will continue to incur substantial additional
costs in the foreseeable future, including, but not limited to, costs related to
clinical trials, preclinical studies, and research and development activities.
Over the next several years, the Company expects such costs will result in
additional operating losses and negative cash flows from operations. Increased
costs are anticipated as the Company's multi-center Phase II trial of rNAPc2
continues. Further, the Company expects that revenues in 1999 will decrease from
the current levels due to reaching the contractual end of the research program
on NIF in March of 1999, and the nine month extension of the Factor Xa funding.
However, management has determined that, in this difficult financing market, the
Company's burn rate should be reduced and is developing plans for various
alternatives that could include, among other things, restructuring its drug
discovery programs, reduction in facility costs and containment of external
expenditures. In addition, management is continuing to pursue strategic
financings, as well as additional collaborative relationships. As of December
31, 1998, the Company believes its existing capital resources and interest
earned thereon should be sufficient to satisfy its anticipated funding
requirements for at least the next 12 months, even continuing at the current
burn rate. In the future, the Company may also receive additional funds through
milestone payments and royalties on sales of products in connection with its
alliances. However, there is no assurance that the Company will receive any
additional amounts under existing or any future alliances, or that it will be
successful in raising additional capital through strategic or other financings
or through collaborative relationships.

                  In August 1998, the Company and Schering-Plough agreed to
terminate their oral thrombin inhibitor collaboration. Strategic collaborations
ongoing with Schering-Plough and Pfizer provide for payments to the Company if
and when certain milestones are met. In addition to future milestones, the
Company may also receive royalties on sales of products in connection with its
existing alliances, as well as from any future alliances. If all the milestones
on all of the Company's existing collaborations are met, Corvas could receive a
maximum of $72,425,000 in future milestone payments and research and development
funding over the next several years. There is no assurance that the Company's
existing collaborations will be successful, that the Company will receive any
future milestones or other payments pursuant to collaborative agreements, that
the collaborations will continue since the existing agreements are terminable at
the option of the collaborator upon certain events, or that the existing
collaborations will be commercially successful.


                                      -38-

<PAGE>


         In June 1997, the Company entered into an option agreement with VGI
pursuant to which the Company has the option through June 2000 to acquire all of
the stock of VGI in exchange for Corvas Common Stock or, in certain
circumstances, a combination of cash and Common Stock. The aggregate acquisition
price, which is based on the timing of option exercise, ranges from a minimum of
$13,782,000 as of December 31, 1998 to a maximum of $19,960,000. At present, the
Company does not anticipate that it will exercise the VGI option in 1999. If
Corvas elects not to, or is unable to, exercise its option, VGI may require the
Company to purchase 19.9% of its outstanding stock for $3,960,000 in Corvas
Common Stock, priced at then-current market rates. If VGI requires the Company
to purchase this 19.9% of its outstanding stock, substantial dilution to
existing stockholders could result. During the option period, Corvas is making
monthly option payments of approximately $83,000 to VGI. In addition, under a
research and development agreement, VGI is required to make monthly payments of
$80,000 to Corvas to be applied to research and development covering the VGI
technology. Although the net impact of these payments is not material, the
Company has incurred and may continue to incur substantial additional costs to
develop this technology. To date, Corvas has not demonstrated adequate proof of
principle with respect to the VGI technology and, therefore, has not been in a
position to enter into one or more collaborative relationships to develop and
commercialize this technology and fund its further development. The Company
cannot predict whether or when it will be able to establish proof of principle
or whether it will be able to establish collaborative relationships on
satisfactory terms, that such relationships will successfully reduce the costs
associated with the research and development of this technology, that the option
will be exercised, or that if the option is not exercised, that VGI would not
put 19.9% of its shares to Corvas.

         The Company's future capital requirements will depend on many factors,
including, but not limited to, the following: the scientific progress in and
magnitude of its drug discovery programs; the progress and results of
preclinical testing and clinical trials; the costs involved in regulatory
compliance; the costs of filing, prosecuting, maintaining and enforcing patents;
the progress of competing technology and other market developments; the changes
in its existing collaborative relationships; the Company's ability to establish
and maintain collaborative or licensing arrangements; the cost of manufacturing
scale-up; and the effectiveness of activities and arrangements of the Company or
its collaborative partners to commercialize the Company's products. In 1998, the
Company invested approximately $857,000 in capital equipment and leasehold
improvements, but anticipates significantly reduced capital spending in 1999.
The Company has recently executed an amendment to extend its lease for
laboratory and office space through September 2006. Rent paid under this
amendment will reflect a reduction over the amount currently paid.

         To continue its long-term product development efforts, the Company must
raise substantial additional funding either through collaborative arrangements
or through public or private financings. The Company's ability to raise
additional funds through such sales of securities depends in part on investors'
perceptions of the biotechnology industry, in general, and of the Company, in
particular. The market for securities of biotechnology companies, including
Corvas, has historically been highly volatile and, accordingly, there is no
assurance that additional funding will be available, or, if available, that it
will be available on acceptable terms. If additional funds are raised by issuing
securities, further dilution, possibly substantial, to existing stockholders
will likely result. The Company may enter into additional collaborative
relationships to develop and commercialize certain of its current or future
technologies or products. There is no assurance that the Company will be able to
establish such relationships on satisfactory terms, if at all, or that


                                      -39-

<PAGE>

agreements with collaborators will successfully reduce the Company's funding
requirements. In addition, the Company has not attempted to establish bank
financing arrangements, and there is no assurance that it would be able to
establish such arrangements on satisfactory terms, if at all. If adequate funds
are not available, the Company may be required to significantly delay, scale
back or discontinue one or more of its drug discovery programs, clinical trials
or other aspects of its operations, or obtain funds through arrangements with
collaborative partners or others which may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would not otherwise relinquish or at prices below what the Company would
otherwise choose to accept for relinquishing such rights.

         At December 31, 1998, the Company had available net operating loss
carryforwards of approximately $73,500,000 for federal income tax reporting
purposes that begin to expire in 2002. The net operating loss carryforwards for
state purposes, which expire five years after generation, are approximately
$34,500,000. The Company has unused research and development tax credits for
federal income tax reporting purposes of $3,600,000 at December 31, 1998. In
accordance with Internal Revenue Code Section 382, the annual utilization of net
operating loss carryforwards and credits existing prior to a change in control
may be limited.

NEW ACCOUNTING STANDARDS

         In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires companies to
recognize all derivatives as either assets or liabilities, with the instruments
measured at fair value. The accounting for changes in fair value gains and
losses depends on the intended use of the derivative and its resulting
designation. SFAS 133 becomes effective for the Company on January 1, 2000;
however the Company does not believe such adoption will have a material impact
on its financial statements.

YEAR 2000 COMPLIANCE

         Many of the world's computer systems are currently coded to accept only
two digit entries in the date field. Such systems will be unable to properly
interpret dates beyond the end of 1999, which could lead to business disruptions
commonly referred to as the "Year 2000" or "Y2K" issue.

         The Company has implemented a Y2K program to access the potential
exposure of its current information systems, desktop systems, laboratory
equipment and infrastructure. An internal task force, established to administer
this program, is in the process of investigating the Company's Y2K readiness.


                                      -40-

<PAGE>


         The task force has identified key vendors and suppliers, corporate
partners, governmental agencies, financial institutions and communication
providers to determine the extent to which the Company's systems are vulnerable
to failure by those third parties to remediate their own Y2K issues. The Company
has been assessing the Y2K readiness of these third parties through their public
statements and has requested information regarding readiness from third parties
deemed to be critical. There is no assurance that the systems of third parties
on which the Company relies will be Y2K ready, or that any system failure by
such a party would not have a material adverse effect on the Company. As of
December 31, 1998, the Company has not identified any material Y2K issues and
does not expect remediation costs, if any, to be material; however, this process
is ongoing. The Company believes that its most likely worst case scenario would
be if third parties do not adequately address their Y2K issues. The Company has
developed a contingency plan to address the material risks that it has
identified, which include power outages, clinical trial oversight and contract
manufacturing issues.

         As the Company continues its evaluation of the impact of the Y2K issue,
there is no assurance that a complete review will not identify additional costs
and efforts that will be required which may have a material adverse effect on
the Company's business, financial condition or results of operations.
Furthermore, the Y2K issue is complex and there is no assurance that the Company
will be able to address any problems that may arise from the Y2K issue without
incurring a material adverse effect on the Company's business, financial
condition or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         The Company has limited interest rate market risk related to its fixed
income investments consisting of short-term debt securities held to maturity and
time deposits. See Note 2 of the Notes to Financial Statements for information
about these financial instruments. Interest income earned on the Company's
short-term investment portfolio is affected by changes in the general level of
interest rates. The Company believes that it is not exposed to significant
changes in fair value because such investments are held to maturity. The fair
value of each investment approximates its amortized cost.

         The Company has assumed that the similar nature of its short-term
investments warrant aggregation of such securities for purposes of interest rate
sensitivity. The principal amount of held to maturity investments at December
31, 1998, which mature at various dates in 1999, is $17,002,000.
The related weighted-average interest rate is 5.2%.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                             INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----
Independent Auditors' Report ...............................................F-1

Balance Sheets as of December 31, 1998 and 1997.............................F-2

Statements of Operations for the three years ended December 31, 1998........F-3

Statements of Stockholders' Equity for the three years ended 
  December 31, 1998.........................................................F-4

Statements of Cash Flows for the three years ended December 31, 1998........F-5

Notes to Financial Statements...............................................F-6


                                      -41-



<PAGE>


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

         None

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information regarding the Directors and Executive Officers of the
Company as of March 15, 1999 is set forth below. Information regarding the
compliance with Section 16 filing requirements will be set forth under the
caption "Compliance with Section 16(a) of the Securities and Exchange Act of
1934" in the Company's 1999 Proxy Statement and is incorporated by reference
into this Report.

EXECUTIVE OFFICERS AND DIRECTORS

         The executive officers and directors of the Company, their ages as of
March 15, 1999, and certain other information about them is set forth below:

<TABLE>
<CAPTION>

                       NAME                          AGE                         POSITION
                       ----                          ---                         --------

<S>                                                  <C>    <C>                                                   
Randall E. Woods (1) ...........................     47     President, Chief Executive Officer and 
                                                            Director

George P. Vlasuk, Ph.D. ........................     43     Executive Vice President, Research and 
                                                            Development
                                                           
Carolyn M. Felzer ..............................     42     Senior Director of Finance, Assistant 
                                                            Corporate Secretary

John H. Fried, Ph.D.(1) ........................     69     Chairman of the Board

M. Blake Ingle, Ph.D. (1) (2) ..................     56     Director

R. Douglas Norby  (2) (3).......................     63     Director

Michael Sorell, M.D. (2) .......................     51     Director

W. Leigh Thompson, Jr., M.D., Ph.D. (3) ........     60     Director

Nicole Vitullo (3) .............................     41     Director

</TABLE>

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

(1)   Member of Executive Committee
(2)   Member of Audit Committee
(3)   Member of Compensation and Stock Option Committee

         RANDALL E. WOODS has served as President and Chief Executive Officer
and a director of Corvas since May 1996. Prior to joining Corvas, Mr. Woods
served as the President of the U.S. Operations, Boehringer Mannheim
Pharmaceuticals Corporation ("Boehringer"), a pharmaceutical company, from March
1994 to March 1996, and was Vice President of Marketing and Sales for Boehringer
from December 1993 to March 1994. From 1973 to December 1993, he served in

                                      -42-

<PAGE>

various capacities at Eli Lilly and Company ("Eli Lilly"), a pharmaceutical
company, where he was most recently responsible for the marketing of hospital
products. Mr. Woods received an M.B.A. from Western Michigan University.

         GEORGE P. VLASUK, PH.D. has served as the Company's Executive Vice
President, Research and Development since September 1996. Previously, Dr. Vlasuk
served as Vice President, Biological Research from January 1995 to September
1996, as Executive Director, Molecular Pharmacology from July 1993 to January
1995 and as Director, Molecular Pharmacology from July 1991 to July 1993. Before
joining Corvas, he was employed for six years at Merck Sharp & Dohme Research
Laboratories, a pharmaceutical company, most recently as Associate Director of
Hematology Research. Dr. Vlasuk received his Ph.D. in biochemistry from Kent
State University.

         CAROLYN M. FELZER has served as Senior Director of Finance and
Assistant Corporate Secretary since December 1997. Previously, Ms. Felzer served
as the Company's Controller from January 1993 through December 1997 and as
Accounting Manager from July 1991 through January 1993. Prior to joining Corvas,
Ms. Felzer held various financial positions with private companies since
beginning her career at Peat, Marwick, Mitchell & Co., an accounting firm now
known as KPMG LLP. She received a B.S. in accounting from The Pennsylvania State
University and is a Certified Public Accountant.

         JOHN H. FRIED, PH.D. was elected Chairman of the Board in February
1997, and has served as a director of the Company since May 1992. He has been
President of Fried & Company, Inc., a biopharmaceutical consulting firm, since
March 1992. Dr. Fried served in various executive capacities at Syntex
Corporation ("Syntex"), a pharmaceutical company, from April 1964 to March 1992.
He served as President of Syntex Research, a subsidiary of Syntex, from 1976 to
March 1992, Senior Vice President of Syntex from 1981 to 1985, and Vice Chairman
of Syntex from 1985 to January 1993. Dr. Fried is also Chairman of the Board of
Alexion Pharmaceuticals, Inc.

         M. BLAKE INGLE, PH.D. has served as a director of the Company since
January 1994. Dr. Ingle was the President and Chief Executive Officer of Canji,
Inc., a biopharmaceutical company, from March 1993 to his retirement in February
1996, when it was acquired by Schering-Plough. Prior to that, he was employed in
a variety of capacities with the IMCERA Group, Inc., a healthcare company,
consisting of Mallinckrodt Medical, Mallinckrodt Specialty Chemicals and Pitman
Moore, from 1980 to 1993, most recently serving as President and Chief Executive
Officer. Dr. Ingle was a director of Telios Pharmaceuticals, Inc. ("Telios"), a
biotechnology company, and was its Chief Executive Officer from December 1994 to
January 1995. Telios filed for protection under Chapter 11 in the Federal
Bankruptcy Court in January 1995 and was subsequently acquired by Integra
LifeSciences Corporation. He currently serves on the Boards of Directors of
Synbiotics Corporation, Vical, Inc. and Inex Pharmaceuticals Corp., and is a
member of the Board of Trustees at The Burnham Institute.

         R. DOUGLAS NORBY has served as a director of the Company since December
1997. Since October 1996, he has served as Executive Vice President and Chief
Financial Officer of LSI Logic Corporation ("LSI"), a semiconductor company, and
also serves on the Board of Directors of LSI. He served as Senior Vice President
and Chief Financial Officer at Mentor Graphics Corporation, a software company,


                                      -43-

<PAGE>

from July 1993 to November 1996, and as President of Pharmetrix Corporation, a
drug delivery company, from July 1992 to September 1993. Previously, Mr. Norby
held several positions including Senior Vice President and Chief Financial
Officer of Syntex, President and Chief Operating Officer with Lucasfilm, and in
various consulting capacities for McKinsey & Company.

         MICHAEL SORELL, M.D. has served as a director of the Company since
April 1996. Since March 1996, he has been the Managing Partner of MS Capital,
LLC, an advisement firm based in New York. From July 1986 to February 1992, he
was associated with Morgan Stanley & Co. ("Morgan Stanley"), an investment
banking firm, in various capacities, the last being principal. From March 1992
to July 1994, he was a partner in a joint venture with Essex Investment
Management of Boston, an investment management firm. In August 1994, he rejoined
Morgan Stanley as the emerging growth strategist and principal where he served
until February 1996. Prior to that, he was on the staff of Memorial
Sloan-Kettering Cancer Center and worked in clinical development at
Schering-Plough.

         W. LEIGH THOMPSON, JR., M.D., PH.D. has served as a director of the
Company since January 1996. Dr. Thompson retired in December 1994 as Chief
Scientific Officer of Eli Lilly, where he had served in various capacities since
1982. He has been President and Chief Executive Officer of Profound Quality
Resources, Ltd., a consulting company, since January 1995 and serves on the
Boards of Directors of Chrysalis International Corporation (formerly DNX
Corporation), Guilford Pharmaceuticals, Inc., Orphan Medical, Inc., La Jolla
Pharmaceutical Company, Medarex, Inc., BAS, Inc., DepoMed, Inc. and Ontogeny,
Inc.

         NICOLE VITULLO has served as a director of the Company since April
1996. She was a Vice President from November 1992 to November 1996, and has been
a Senior Vice President since November 1996, of Rothschild Asset Management
Inc., which manages two publicly traded funds, International Biotechnology Trust
and Biotechnology Investments, Limited. She served as Director of Corporate
Communications at Cephalon, Inc., a neuropharmaceutical company, from July 1991
to November 1992. Prior to that, she was Manager, Healthcare Investments at
Eastman Kodak Company. She also serves on the Boards of Directors of Cytel
Corporation, Anergen, Inc., Onyx Pharmaceuticals Inc. and Cadus Pharmaceutical
Corporation.

ITEM 11.  EXECUTIVE COMPENSATION

         The information required by this item is incorporated by reference into
this Report from the information set forth under the caption "Executive
Compensation" in the 1999 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item is incorporated by reference into
this Report from the information set forth under the caption "Stock Ownership of
Management and Certain Beneficial Owners" in the 1999 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item is incorporated by reference into
this Report from the information set forth under the caption "Certain
Transactions" in the 1999 Proxy Statement.


                                      -44-

<PAGE>


                                     PART IV

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

(a) 1.   Financial Statements:

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

     2.  Financial Statement Schedules:

         Schedules are omitted because they are not required or are inapplicable
         or because the information called for is included in the financial
         statements or the notes thereto.

     3.  Exhibits -- See (c) below

(b)      Reports on Form 8-K:

         No reports on Form 8-K were filed during the last quarter of the period
         covered by this Report.

(c)      Exhibits

         The following documents are exhibits to this Form 10-K:

EXHIBIT
NUMBER                        DESCRIPTION OF DOCUMENT
-------                       -----------------------

3.1           Amended and Restated Certificate of Incorporation.(7)

3.2           Bylaws.(7)

3.3           Certificate of Designation of the Series A Convertible Preferred
              Stock, dated as of December 14, 1994 (Filed as part of Exhibit
              10.24).

3.4           Certificate of Designation of the Series B Convertible Preferred
              Stock, dated as of December 20, 1996. (16)

3.5           Certificate of Designation of the Series C Junior Participating
              Preferred Stock, dated as of October 6, 1997.(19)

4.1           Reference is made to exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 10.15,
              10.16, 10.26, 10.28 and 10.52. 

4.2           Specimen stock certificate.(1)

10.1*         Form of Indemnification Agreement between the Company and each
              director and executive officer.(1)

10.2*         Stock Option Plan of the Company, as amended.(1)

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

10.4*         Form of Non-Incentive Stock Option Agreement under the Stock
              Option Plan.(1)


                                      -45-

<PAGE>


EXHIBIT
NUMBER                        DESCRIPTION OF DOCUMENT
-------                       -----------------------

10.5*         Non-Statutory Stock Option Agreement of Theodor H. Heinrichs,
              dated October 17, 1991.(2)

10.6*         Form of Employee Stock Purchase Plan.(1)

10.7*         1991 Incentive and Compensation Plan of the Company, as
              amended.(1) (15)

10.8*         Form of Incentive Stock Option Agreement under the 1991 Incentive
              and Compensation Plan of the Company.(2)

10.9*         Form of Non-Qualified Stock Option Agreement under the 1991
              Incentive and Compensation Plan of the Company.(2)

10.10*        Form of Restricted Stock Purchase Agreement between the Company
              and certain individuals or entities, and attached schedule.(1)

10.11         Second Amended and Restated Stock Registration Rights Agreement
              between the Company and certain investors and warrantholders named
              therein, dated as of February 14, 1991, as amended on March 19,
              1991, November 13, 1991 and December 4, 1991, and supplemental
              letter agreement dated December 12, 1991.(1)

10.12         Antibody Option Agreement between the Company and Centocor, Inc.,
              dated as of November 7, 1991, with exhibit.(1) (4)

10.13         Research and License Agreement for Human Tissue Factor for
              Diagnostic Purposes between the Company and Scripps Clinic and
              Research Foundation, dated May 19, 1988, as amended, including
              exhibits.(1) (4)

10.14         Agreement for International Business Combination (Series C and D
              Preferred Stock (subsequently converted to Common Stock)) between
              the Company and Plant Genetic Systems, N.V. and Take Off Fonds,
              N.V., dated as of March 6, 1991.(1)

10.15         Warrant to purchase Series B Preferred Stock of the Company
              (subsequently converted to Common Stock) issued to Comdisco, Inc.
              on June 19, 1990, as amended on January 2, 1992.(1)

10.16         Warrant to purchase Series B Preferred Stock of the Company
              (subsequently converted to Common Stock) issued to Praktikerfinans
              AB on November 30, 1990, as amended on January 15, 1992.(1)

10.17         Lease Agreement for 3030 Science Park Road, San Diego, California
              between the Company and Hartford Accident and Indemnity Company,
              dated as of March 28, 1989, as amended on March 23, 1990, May 18,
              1990 and May 16, 1991.(1)

10.18         Fourth Lease Amendment to Lease Agreement for 3030 Science Park
              Road, San Diego, California between the Company and Hartford
              Accident and Indemnity Company, dated as of January 21, 1992.(1)

10.19         Supply Agreement and License Agreement between the Company and
              Ortho Diagnostic Systems, Inc., dated June 8, 1992, amended as to
              confidential treatment pursuant to a Form 8 filed March 18,
              1993.(3) (5)


                                      -46-

<PAGE>


EXHIBIT
NUMBER                        DESCRIPTION OF DOCUMENT
-------                       -----------------------

10.20         Fifth Lease Amendment to Lease Agreement for 3030 Science Park
              Road, San Diego, California between the Company and Hartford
              Accident and Indemnity Company, dated as of April 15, 1992, Sixth
              Lease Amendment dated as of July 16, 1992, Seventh Lease Amendment
              dated as of January 18, 1993.(6)

10.21         Assignment of Lease Agreement for 3030 Science Park Road, San
              Diego, California from Corvas International, Inc., a California
              corporation, to Corvas International, Inc., a Delaware
              corporation, dated September 14, 1993.(7)

10.22*        Corvas International, Inc. 401(k) Compensation Deferral Savings
              Plan and Trust Agreement (Amended and Restated as of January 1,
              1989) (Revised to incorporate amendments to plan).(8)

10.23         Research and License Agreement for Oral Thrombin Inhibitor Drugs
              between the Company and Schering Corporation and Schering-Plough
              LTD., dated as of December 14, 1994.(8)(9)

10.24         Series A Preferred Stock Purchase Agreement between the Company
              and Schering Corporation, dated as of December 14, 1994 (Covers 
              the issuance of Series A and Series B).(8)(9)

10.25         Eighth Lease Amendment to Lease Agreement for 3030 Science Park
              Road, San Diego, California between the Company and Hartford
              Accident and Indemnity Company, dated as of July 7, 1995.(10)

10.26         Form of Warrant Agreement to purchase Common Stock of the Company
              issued to certain individuals affiliated with Ventana Leasing,
              Inc. on June 16, 1995.(11)

10.27         Collaborative Research and Option Agreement between the Company
              and Pfizer Inc. and Pfizer Limited, dated as of October 14,
              1995.(11)(13)

10.28         Common Stock and Warrant Purchase Agreement between the Company
              and certain purchasers, dated as of February 2, 1996, with
              exhibits.(11)

10.29         Ninth Lease Amendment to Lease Agreement for 3030 Science Park
              Road, San Diego, California between the Company and Hartford
              Accident and Indemnity Company, dated as of March 15, 1996.(12)

10.30*        Consulting Agreement between the Company and David S. Kabakoff,
              dated as of May 1, 1996.(14)

10.31*        Extension of Consulting Agreement between the Company and David S.
              Kabakoff, dated as of February 20, 1997. (15)

10.32*        Employment Agreement by and between the Company and John E.
              Crawford, dated as of March 18, 1997. (15)

10.33*        Employment Agreement by and between the Company and William C.
              Ripka, dated as of March 18, 1997. (15)

10.34*        Employment Agreement by and between the Company and George P.
              Vlasuk, dated as of March 18, 1997. (15)

10.35*        Employment Agreement by and between the Company and Randall E.
              Woods, dated as of March 18, 1997. (15)


                                      -47-

<PAGE>


EXHIBIT
NUMBER                        DESCRIPTION OF DOCUMENT
-------                       -----------------------

10.36         Tenth Lease Amendment to Lease Agreement for 3030 Science Park
              Road, San Diego, California between the Company and Hub Properties
              Trust, dated as of May 12, 1997.(16)

10.37         License and Collaboration Agreement between the Company and
              Schering Corporation, dated as of June 11, 1997. (17) (20)

10.38         License and Collaboration Agreement between the Company and
              Schering-Plough Ltd., dated as of June 11, 1997. (17) (20)

10.39         Option Agreement between the Company and Vascular Genomics Inc.,
              dated as of June 29, 1997, with exhibits. (17) (26)

10.40         Research and Development Agreement between the Company and
              Vascular Genomics Inc., dated as of June 29, 1997, with exhibits.
              (17) (26)

10.41*        Amended and Restated Secured Promissory Note between the Company
              and Randall E. Woods, dated as of August 28, 1997. (18)

10.42         Rights Agreement between the Company and American Stock Transfer
              and Trust Company, dated as of September 18, 1997. (18)

10.43*        Separation Agreement between the Company and William C. Ripka,
              dated as of September 23, 1997. (19)

10.44*        Separation Agreement between the Company and John E. Crawford,
              dated as of March 24, 1998. (21)

10.45         Letter of Agreement between the Company and Schering Corporation
              and Schering-Plough Ltd., dated as of April 16, 1998 (see Exhibit
              10.38). (22) (23)

10.46         Eleventh Amendment to Lease Agreement for 3030 Science Park Road,
              San Diego, California between the Company and Hub Properties
              Trust, dated as of April 23, 1998. (22)

10.47         Offer to Amend Warrants to Purchase Shares of Common Stock of the
              Company, dated as of June 5, 1998, with certain exhibits thereto.
              (24)

10.48         Termination of Supply Agreement between the Company and
              Ortho-Clinical Diagnostics, Inc., ("OCD"), dated as of June 15,
              1998 (see Exhibit 10.19). (25)

10.49         License Agreement between the Company and OCD, dated as of July
              22, 1998. (25) (26)

10.50         License Agreement between the Company and LifeScan, Inc., dated as
              of July 22, 1998. (25) (26)

10.51         Agreement for Corvas to Maintain Antibody Agreements, dated as of
              July 22, 1998. (25)

10.52         Form of Warrant to Purchase Common Stock of the Company issued to
              Biotechnology Value Fund, L.P. and affiliates, dated as of August
              3, 1998. (25)

10.53         Termination of Research and License Agreement for Thrombin
              Research Program between the Company and Schering Corporation and
              Schering-Plough, Ltd., effective August 14, 1998 (see Exhibit
              10.23). (25)


                                      -48-

<PAGE>

EXHIBIT
NUMBER                        DESCRIPTION OF DOCUMENT
-------                       -----------------------

10.54*        First Amendment to Amended and Restated Secured Promissory Note
              between the Company and Randall E. Woods and Nancy Saint Woods,
              dated as of September 17, 1998 (see Exhibit 10.41). (25)

10.55         Letter of Agreement between the Company and Schering Corporation
              and Schering-Plough Ltd., dated as of December 15, 1998 (see
              Exhibits 10.23 and 10.56). (26)

10.56         Amendment Agreement between the Company and Schering Corporation
              and Schering-Plough Ltd., effective as of February 18, 1999 (see
              Exhibits 10.23 and 10.55). (26)

10.57         Twelfth Amendment to Lease Agreement for 3030 Science Park Road,
              San Diego, California between the Company and Hub Properties
              Trust, dated as of March 9, 1999.

21.1          Subsidiary of the Company.(1)

23.1          Independent Auditors' Consent.

24.1          Power of Attorney. Reference is made to page 51.

27.1          Financial Data Schedule.

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

     (1)  Incorporated by reference to Registration Statement on Form S-1 (No.
          33-44555), as amended, filed December 13, 1991.

     (2)  Incorporated by reference to Registration Statement on Form S-8 (No.
          33-45607), as amended, filed February 10, 1992.

     (3)  Incorporated by reference to Quarterly Report on Form 10-Q, filed
          August 14, 1992.

     (4)  Portions of this exhibit have been granted confidential treatment
          pursuant to an order granted by the Securities and Exchange Commission
          on January 30, 1992.

     (5)  Portions of this exhibit have been granted confidential treatment
          pursuant to an order granted by the Securities and Exchange Commission
          on December 10, 1992.

     (6)  Incorporated by reference to Annual Report on Form 10-K, filed March
          30, 1993.

     (7)  Incorporated by reference to Annual Report on Form 10-K, filed
          February 23, 1994.

     (8)  Incorporated by reference to Annual Report on Form 10-K, filed March
          30, 1995.

     (9)  Portions of this exhibit have been granted confidential treatment
          pursuant to an order granted by the Securities and Exchange Commission
          on May 11, 1995.

     (10) Incorporated by reference to Quarterly Report on Form 10-Q, filed
          November 13, 1995.

     (11) Incorporated by reference to Annual Report on Form 10-K, filed 
          February 28, 1996.

     (12) Incorporated by reference to Registration Statement on Form S-1 (No.
          333-2644), filed March 25, 1996.

     (13) Portions of this exhibit have been granted confidential treatment
          pursuant to an order granted by the Securities and Exchange Commission
          on April 26, 1996.

     (14) Incorporated by reference to Quarterly Report on Form 10-Q, filed May
          13, 1996.



     (15) Incorporated by reference to Annual Report on Form 10-K, filed March
          28, 1997.

     (16) Incorporated by reference to Quarterly Report on Form 10-Q, filed May
          14, 1997.


                                      -49-

<PAGE>


     (17) Incorporated by reference to Quarterly Report on Form 10-Q, filed
          August 13, 1997.

     (18) Incorporated by reference to Current Report on Form 8-K, filed October
          8, 1997.

     (19) Incorporated by reference to Quarterly Report on Form 10-Q, filed
          November 12, 1997.

     (20) Portions of this exhibit have been granted confidential treatment
          pursuant to an order granted by the Securities and Exchange Commission
          on August 26, 1997.

     (21) Incorporated by reference to Annual Report on Form 10-K, filed March
          31, 1998.

     (22) Incorporated by reference to Quarterly Report on Form 10-Q, filed May
          14, 1998.

     (23) Portions of this exhibit have been granted confidential treatment
          pursuant to an order granted by the Securities and Exchange Commission
          on July 10, 1998.

     (24) Incorporated by reference to Quarterly Report on Form 10-Q, filed
          August 12, 1998.

     (25) Incorporated by reference to Quarterly Report on Form 10-Q, filed
          November 13, 1998.

     (26) Confidential treatment has been requested from the Securities and
          Exchange Commission for portions of this exhibit.



*        Indicates executive compensation plan or arrangement.


                                      -50-

<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.

                                         CORVAS INTERNATIONAL, INC.


Date: March 26, 1999                     By:  /s/ RANDALL E. WOODS              
                                              ----------------------------------
                                                  Randall E. Woods
                                                  President and Chief Executive
                                                  Officer


                                POWER OF ATTORNEY

         KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Randall E. Woods and Carolyn M.
Felzer, or either of them, his attorney-in-fact, with the full power of
substitution for him in any and all capacities, to sign any amendments to this
Report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>

         Signatures                                             Titles                           Date
         ----------                                             ------                           ----


<S>                                                    <C>                                  <C> 
/s/ RANDALL E. WOODS                                   President, Chief Executive           March 26, 1999
---------------------------------------                Officer and Director
    Randall E. Woods                                   (Principal Executive Officer)
                                                       



/s/ CAROLYN M. FELZER                                  Senior Director of Finance           March 26, 1999
---------------------------------------                (Principal Financial and
    Carolyn M. Felzer                                  Accounting Officer)
                                                       



/s/ JOHN H. FRIED, PH.D.                               Chairman of the Board of             March 26, 1999
---------------------------------------                Directors
    John H. Fried, Ph.D.                        



/s/ M. BLAKE INGLE, PH.D.                              Director                             March 26, 1999
--------------------------------------- 
    M. Blake Ingle, Ph.D.



/s/ R. DOUGLAS NORBY                                   Director                             March 26, 1999
---------------------------------------
    R. Douglas Norby



/s/ MICHAEL SORRELL, M.D.                              Director                             March 26, 1999
--------------------------------------- 
    Michael Sorell, M.D.



/s/ W. LEIGH THOMPSON, JR., M.D., PH.D.                Director                             March 26, 1999
---------------------------------------         
    W. Leigh Thompson, Jr., M.D., Ph.D.



/s/ NICOLE VITULLO                                     Director                             March 26, 1999
------------------------------------ 
    Nicole Vitullo



                                      -51-

</TABLE>

<PAGE>
                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------



The Board of Directors
Corvas International, Inc.:


We have audited the accompanying balance sheets of Corvas International, Inc. as
of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
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 Corvas International, Inc. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.



                                                                        KPMG LLP

San Diego, California
February  4, 1999, except as to Notes 10 and 11, which are as of March 11, 1999



                                       F-1



<PAGE>
<TABLE>

                           CORVAS INTERNATIONAL, INC.

                                 BALANCE SHEETS
                 (In thousands, except share and per share data)
<CAPTION>

                                                                    December 31,       
                                                             -------------------------          
                                                                 1998          1997
                                                             -----------   -----------
ASSETS
------

<S>                                                          <C>           <C>
Current assets:
   Cash and cash equivalents                                 $      611    $    2,044
   Short-term debt securities held to maturity and time
     deposits, partially restricted (notes 2 and 6)              17,002        24,076
   Receivables                                                      251           289
   Note receivable from related party (note 9)                      153           153
   Other current assets                                             411           340
                                                             -----------   -----------

              Total current assets                               18,428        26,902
                                                             -----------   -----------

Property and equipment, net (note 3)                              1,484         1,312
                                                             -----------   -----------

                                                             $   19,912    $   28,214
                                                             ===========   ===========


LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
   Accounts payable                                          $      326    $      299
   Accrued expenses                                                 993           623
   Accrued vacation                                                 207           191
   Deferred revenue (note 7)                                        ---         4,656
                                                             -----------   -----------

              Total current liabilities                           1,526         5,769
                                                             -----------   -----------

Stockholders' equity (notes 4 and 7):
   Preferred stock, $0.001 par value, 10,000,000 shares
     authorized; issued and outstanding:
       Series A Convertible: 1,000,000 shares in 1998 and
         1997 (liquidating preference $5 per share)                   1             1
       Series B Convertible: 250,000 shares in 1998 and 1997
         (liquidating preference $8 per share)                      ---           ---
   Common stock, $0.001 par value, 50,000,000 shares
     authorized;  issued and outstanding 15,098,000 shares
     in 1998 and 13,950,000 shares in 1997                           15            14
   Additional paid-in capital                                    96,223        92,179
   Accumulated deficit                                          (77,853)      (69,749)
                                                             -----------   -----------

              Total stockholders' equity                         18,386        22,445

Commitments and contingencies (notes 6, 7, 10 and 11)        -----------   -----------

                                                             $   19,912    $   28,214
                                                             ===========   ===========
</TABLE>

See accompanying notes to financial statements.


                                      F-2

<PAGE>
<TABLE>

                           CORVAS INTERNATIONAL, INC.

                            STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
<CAPTION>

                                                              Years Ended December 31, 
                                                    ---------------------------------------------
                                                         1998            1997           1996
                                                    -------------   -------------   -------------
<S>                                                 <C>             <C>             <C>
REVENUES (note 7):
 Revenue from collaborative
    agreements                                      $      6,985    $      5,811    $      5,480
 License fees and milestones                               2,795           4,100             400
 Net product sales                                            44             374             224
 Royalties                                                   145             120             161
                                                    -------------   -------------   -------------
     Total revenues                                        9,969          10,405           6,265
                                                    -------------   -------------   -------------

COSTS AND EXPENSES:
 Research and development (note 7)                        15,800           9,705          10,901
 General and administrative                                3,670           4,469           3,181
 Cost of products sold (note 7)                               18             194             134
                                                    -------------   -------------   -------------
     Total costs and expenses                             19,488          14,368          14,216 
                                                    -------------   -------------   -------------

     Loss from operations                                 (9,519)         (3,963)         (7,951)
                                                    -------------   -------------   -------------

OTHER INCOME:
 Interest income, net                                      1,201           1,510           1,191
 Other income                                                214               1              51
                                                    -------------   -------------   -------------
                                                           1,415           1,511           1,242 
                                                    -------------   -------------   -------------

     Net loss and other comprehensive loss          $     (8,104)   $    (2, 452)   $     (6,709)
                                                    =============   =============   =============

     Basic and diluted net loss per share           $      (0.56)   $      (0.18)   $      (0.52)
                                                    =============   =============   =============

     Shares used in calculation of basic
       and diluted net loss per share                     14,460          13,873          12,882
                                                    =============   =============   =============

</TABLE>

See accompanying notes to financial statements.


                                       F-3



<PAGE>
<TABLE>

                           CORVAS INTERNATIONAL, INC.
                       Statements of Stockholders' Equity
                   For the Three Years Ended December 31, 1998
                                 (In thousands)
<CAPTION>

                                                                Series A                Series B
                                                               Convertible             Convertible                                
                                                             Preferred Stock         Preferred Stock           Common Stock       
                                                         -----------------------------------------------------------------------
                                                            Shares      Amount      Shares      Amount      Shares      Amount    
                                                         ----------- ----------- ----------- ----------- ----------- ----------- 

      <S>                                                     <C>    <C>                <C>  <C>             <C>     <C>         
           Balance as of December 31, 1995                    1,000  $        1         ---  $      ---       9,448  $        9  

      Common stock issued for cash, net of issuance costs       ---         ---         ---         ---       4,000           4  
      Common stock issued upon exercise of
        stock options                                           ---         ---         ---         ---         133           1  
      Common stock issued pursuant to employee stock
        purchase plan                                           ---         ---         ---         ---          11         ---
      Common stock issued pursuant to litigation
        settlement                                              ---         ---         ---         ---         125         --- 
      Series B preferred stock issued for cash, net of
        issuance costs                                          ---         ---         250         ---         ---         ---
      Net loss                                                  ---         ---         ---         ---         ---         ---
                                                         ----------- ----------- ----------- ----------- ----------- -----------

           Balance as of December 31, 1996                    1,000           1         250         ---      13,717          14

      Common stock issued upon exercise of
        stock options                                           ---         ---         ---         ---         203         ---
      Common stock issued pursuant to employee stock
        purchase plan                                           ---         ---         ---         ---          15         ---
      Common stock issued in exchange for services              ---         ---         ---         ---          15         ---
      Net loss                                                  ---         ---         ---         ---         ---         ---
                                                         ----------- ----------- ----------- ----------- ----------- -----------

           Balance as of December 31, 1997                    1,000           1         250         ---      13,950          14  

      Common stock issued upon exercise of
        stock options                                           ---         ---         ---         ---          95         ---   
      Compensation expense recognized pursuant to 
        issuance of certain stock options for services          ---         ---         ---         ---         ---         ---
      Common stock issued pursuant to employee stock
        purchase plan                                           ---         ---         ---         ---          28         --- 
      Common stock issued pursuant to exercise of
        warrants, net of issuance costs                         ---         ---         ---         ---       1,025           1  
      Net loss                                                  ---         ---         ---         ---         ---         ---
                                                         ----------- ----------- ----------- ----------- ----------- -----------

           Balance as of December 31, 1998                    1,000  $        1         250  $      ---      15,098  $       15
                                                         =========== =========== =========== =========== =========== ===========
</TABLE>



      See accompanying notes to financial statements.


                                      F-4

<PAGE>
<TABLE>

                           CORVAS INTERNATIONAL, INC.
                       Statements of Stockholders' Equity (Continued)
                   For the Three Years Ended December 31, 1998
                                 (In thousands)

<CAPTION>

                                                             Additional                Total
                                                              Paid-in   Accumulated Stockholders'
                                                              Capital     Deficit     Equity
                                                            ----------- ----------- -----------
      <S>                                                   <C>         <C>         <C>       
           Balance as of December 31, 1995                  $   69,346  $  (60,588) $    8,768

      Common stock issued for cash, net of issuance costs       19,710         ---      19,714
      Common stock issued upon exercise of
        stock options                                              248         ---         249
      Common stock issued pursuant to employee stock
        purchase plan                                               27         ---          27
      Common stock issued pursuant to litigation
        settlement                                                 298         ---         298
      Series B preferred stock issued for cash, net of
        issuance costs                                           2,000         ---       2,000
      Net loss                                                     ---      (6,709)     (6,709)
                                                            ----------- ----------- -----------
           Balance as of December 31, 1996                      91,629     (67,297)     24,347

      Common stock issued upon exercise of
        stock options                                              411         ---         411
      Common stock issued pursuant to employee stock
        purchase plan                                               71         ---          71
      Common stock issued in exchange for services                  68         ---          68
      Net loss                                                     ---      (2,452)     (2,452)
                                                            ----------- ----------- -----------
           Balance as of December 31, 1997                      92,179     (69,749)     22,445

      Common stock issued upon exercise of
        stock options                                              190         ---         190
      Compensation expense recognized pursuant to 
        issuance of certain stock options for services             109         ---         109
      Common stock issued pursuant to employee stock
        purchase plan                                               99         ---          99
      Common stock issued pursuant to exercise of
        warrants, net of issuance costs                          3,646         ---       3,647
      Net loss                                                     ---      (8,104)     (8,104)
                                                            ----------- ----------- -----------   
           Balance as of December 31, 1998                  $   96,223  $  (77,853) $   18,386
                                                            =========== =========== ===========
</TABLE>

      See accompanying notes to financial statements.

                                      F-4


<PAGE>
<TABLE>

                           CORVAS INTERNATIONAL, INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<CAPTION>
                                                                                       Years ended December 31,
                                                                             ---------------------------------------------
                                                                                  1998            1997            1996
                                                                             -------------   -------------   -------------

<S>                                                                          <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
         Net loss                                                            $     (8,104)   $     (2,452)   $     (6,709)
         Adjustments to reconcile net loss to
           net cash used in operating activities:
               Depreciation and amortization                                          604             618             767
               Amortization of premiums and discounts on investments                 (819)           (419)           (160)
               Stock compensation expense                                             124              68               4
               Gain on disposal of property and equipment                            (128)            ---             ---
               Change in assets and liabilities:
                       (Increase) decrease in receivables                              38             149            (100)
                       Increase in other current assets                               (71)            (28)            (62)
                       Increase (decrease) in accounts payable, accrued
                          expenses and accrued vacation                               413            (152)            314
                       Decrease in deferred rent                                      ---             ---             (34)
                       Increase (decrease) in deferred revenue                     (4,656)           (344)            695
                                                                             -------------   -------------   -------------

                           Net cash used in operating activities                  (12,599)         (2,560)         (5,285)
                                                                             -------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchases of investments held to maturity                                (39,462)        (43,518)        (39,195)
         Proceeds from maturity of investments held to maturity                    47,355          46,255          23,985
         Purchases of property and equipment                                         (857)           (837)           (437)
         Proceeds from sale of property and equipment                                 209             ---             ---
         Repayments from (loans to) related parties                                   ---              47            (200)
                                                                             -------------   -------------   -------------

                           Net cash provided by (used in) investing activities      7,245           1,947         (15,847)
                                                                             -------------   -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
         Principal payments under capital lease obligation                            ---             (27)            (77)
         Net proceeds from issuance of preferred stock                                ---             ---           2,000
         Net proceeds from issuance of common stock                                 3,921             482          19,984
                                                                             -------------   -------------   -------------

                           Net cash provided by financing activities                3,921             455          21,907
                                                                             -------------   -------------   -------------

Net increase (decrease) in cash and cash equivalents                               (1,433)           (158)            775

Cash and cash equivalents at beginning of period                                    2,044           2,202           1,427
                                                                             -------------   -------------   -------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                   $        611    $      2,044    $      2,202
                                                                             =============   =============   =============

SUPPLEMENTAL DISCLOSURES:
         Interest paid                                                       $        ---    $        ---    $          6
         Noncash financing activities -
         Common stock issued under litigation settlement agreement           $        ---    $        ---    $        298

</TABLE>


See accompanying notes to financial statements.


                                       F-5


<PAGE>


                           CORVAS INTERNATIONAL, INC.

                          Notes to Financial Statements
                           December 31, 1998 and 1997

(l)    The Company
       -----------

       Corvas International, Inc. (the "Company") was incorporated on March 27,
       1987 under the laws of the State of California. In July 1993, the Company
       reincorporated in the State of Delaware. The Company is engaged in the
       design and development of a new generation of therapeutic agents for
       cardiovascular, cancer and other major diseases.

(2)    Summary of Significant Accounting Policies
       ------------------------------------------

       (a)    Cash Equivalents:
              -----------------

              Cash equivalents consist of investments in a short-term government
              fund and are stated at cost, which approximates market value.

       (b)    Short-term Debt Securities Held to Maturity and Time Deposits:
              --------------------------------------------------------------

              Short-term debt securities consist primarily of government-backed
              debt instruments, as well as debt instruments of corporations with
              strong credit ratings. Short-term debt securities are carried at
              amortized cost which approximates market value and mature at
              various dates through September 14, 1999. At both December 31,
              1998 and 1997, a $60,000 time deposit was restricted related to
              the facility lease. See Note 6.

              The Company has the ability and intent to hold its investments
              until their maturity and, therefore, records its investments at
              amortized cost, adjusted for the amortization or accretion of
              premiums or discounts.

       (c)    Depreciation and Amortization:
              ------------------------------

              Depreciation is provided using the straight-line method over
              estimated useful lives of three to five years. Leasehold
              improvements are amortized on a straight-line basis over the
              shorter of the lease term or estimated useful life of the asset.

       (d)    Research and Development Costs:
              -------------------------------

              Research and development costs are expensed in the period
              incurred.

       (e)    Patents:
              --------

              Costs to obtain and maintain patents are expensed as incurred.

       (f)    Net Loss per Share:
              -------------------

              Under Statement of Financial Accounting Standards No. 128,
              "Earnings per Share" ("SFAS 128"), basic and diluted net loss per
              share are required to be presented. Basic loss per share is
              calculated using the weighted-average number of common shares
              outstanding during the period, while diluted loss per share also
              includes common equivalent shares outstanding. Common equivalent
              shares from convertible preferred stock, stock options and
              warrants are excluded from the calculation of diluted loss per
              share because their effect is antidilutive.



                                       F-6

<PAGE>

                           CORVAS INTERNATIONAL, INC.

                    Notes to Financial Statements, Continued


       (g)    Revenue Recognition:
              --------------------

              Revenue from collaborative agreements is generally recognized over
              the term of the agreement; any advance payments received in excess
              of amounts earned are classified as deferred revenue. License fees
              and milestones are generally recognized upon receipt of license
              fees or achievement of certain milestones. Revenue on product
              sales is recorded at the time of shipment.

       (h)    Accounting for Stock-Based Compensation:
              ----------------------------------------

              As permitted by Statement of Financial Accounting Standards No.
              123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
              Company has elected to retain its current intrinsic value-based
              method as prescribed in Accounting Principles Board ("APB")
              Opinion No. 25, "Accounting for Stock Issued to Employees" and
              related interpretations. The Company discloses the pro forma
              effects of using the fair value-based method to account for its
              stock-based compensation in its financial statements.

       (i)    Income Taxes:
              -------------

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

       (j)    Use of Estimates:
              -----------------

              The preparation of financial statements in conformity with
              generally accepted accounting principles requires management of
              the Company to make a number of estimates and assumptions that
              affect the amounts reported in the financial statements and
              accompanying footnotes. Actual results could differ from those
              estimates.

       k)     Fair Value of Financial Instruments:
              ------------------------------------

              Statement of Financial Accounting Standards No. 107, "Disclosures
              about Fair Value of Financial Instruments" ("SFAS 107"), defines
              the fair value of a financial instrument as the amount at which
              the instrument could be exchanged in a current transaction between
              willing parties. The carrying amount of cash and cash equivalents,
              short-term debt securities held to maturity and time deposits,
              receivables, other current assets, accounts payable, accrued
              expenses and accrued vacation, included in the accompanying
              balance sheets, approximate the estimated fair value of those
              instruments because of their short-term nature. The fair value of
              the note receivable from related party cannot be determined due to
              its related party nature.

       l)     Impairment and Disposition of Long-Lived Assets: 
              -------------------------------------------------

              Statement of Financial Accounting Standards No. 121, "Accounting
              for the Impairment of Long-Lived Assets and for Long-Lived Assets
              to be Disposed Of" ("SFAS 121") requires losses from impairment of
              long-lived assets used in operations to be recorded when
              indicators of impairment are present and the undiscounted cash
              flows estimated to be generated by those assets before interest
              are less than the assets' carrying amount. The Company
              periodically evaluates the carrying value of long-lived assets to
              be held and used when events and circumstances indicate that the
              carrying amount of an asset may not be recovered.


                                      F-7

<PAGE>


                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued


       (m)    Comprehensive Income: 
              ----------------------

              As of January 1, 1998, the Company adopted Statement of Financial
              Accounting Standards No. 130, "Reporting Comprehensive Income"
              ("SFAS 130"). SFAS 130 requires that all components of
              comprehensive income, including net income (loss), be reported in
              the financial statements in the period in which they are
              recognized. The adoption of SFAS 130 did not have an impact on the
              Company, as the Company's net loss is the same as comprehensive
              loss for the years ended December 31, 1998, 1997 and 1996.


(3)    Property and Equipment
       ----------------------

       Property and equipment are recorded at cost and are summarized as follows
       (in thousands).

                                                             December 31,       
                                                      --------------------------
                                                         1998             1997
                                                      ---------        ---------
           Machinery and equipment                    $  4,339         $  3,885
           Furniture and fixtures                          143              143
           Leasehold improvements                          838              833
                                                      ---------        --------

                  Total property and equipment           5,320            4,861

           Less accumulated depreciation                (3,836)          (3,549)
                                                      ---------        ---------

                                                      $  1,484         $  1,312
                                                      =========        =========


 (4)   Stockholders' Equity
       --------------------

       (a)    Preferred Stock:
              ----------------

              In December 1996, in conjunction with a strategic alliance with
              Schering-Plough Corporation ("Schering-Plough") (See Note 7), the
              Company issued 250,000 shares of Series B Convertible Preferred
              Stock, resulting in net proceeds of $2,000,000. Each share of
              Series B Preferred Stock is convertible into one share of the
              Company's Common Stock, and will automatically convert if the
              market price of the Company's Common Stock for 10 consecutive
              trading days exceeds $12.00 per share. As a result, 250,000 shares
              of Common Stock have been reserved for the potential conversion of
              Series B Preferred Stock. Each share of Series B Preferred Stock
              is entitled to a fixed, cumulative dividend of $0.64 per share per
              annum, when and if declared by the Board of Directors. No such
              dividends have been declared. In addition, each share is entitled
              to one vote and has a liquidating preference of $8 plus any
              declared and unpaid dividends.



              Also in conjunction with its strategic alliance with
              Schering-Plough, the Company issued 1,000,000 shares of Series A
              Convertible Preferred Stock in December 1994, resulting in net
              proceeds of $4,864,000. Each share of Series A Preferred Stock is
              convertible into one share of the Company's Common Stock, and will
              automatically convert if the market price of the Company's Common
              Stock for 10 consecutive trading days exceeds $7.50 per share. As
              a result, 1,000,000 shares of Common Stock have been reserved for
              the potential conversion of Series A Preferred Stock. Each share
              of Series A Preferred Stock is entitled to a fixed, cumulative
              dividend of $0.40 per share per annum, when and if declared by the
              Board of Directors. No such dividends have been declared. In
              addition, each share is entitled to one vote and has a liquidating
              preference of $5 plus any declared and unpaid dividends.

                                       F-8

<PAGE>


                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued


       (b)    Common Stock:
              -------------

              In July 1998, the Company issued a total of 1,025,000 shares of
              Common Stock pursuant to the exercise of certain warrants that
              were acquired in February 1996 by a group of institutional
              investors, resulting in net proceeds of $3,647,000.

              In July 1996, the Company completed a public offering of 1,000,000
              shares of Common Stock, resulting in net proceeds of $4,885,000.

              In February 1996, the Company completed a private placement of
              equity securities consisting of 3,000,000 units to a group of
              institutional investors, resulting in net proceeds of $14,829,000.
              Each unit consisted of one share of Common Stock and one callable
              warrant to purchase one additional share of Common Stock.

       (c)    Stock Option Plans:
              -------------------

              The Company has several plans and agreements under which incentive
              stock options, non-statutory stock options, stock appreciation
              rights, restricted stock awards, dividend equivalents, performance
              awards and stock payments can be granted to key personnel,
              including officers, directors and outside consultants. The grants
              are authorized by the Compensation and Stock Option Committee of
              the Board of Directors. A total of 2,718,000 options are
              authorized for issuance as of December 31, 1998, and 698,000
              shares are reserved for future grant.

              Generally options have a term of 10 years and become exercisable
              over a four-year period beginning one year from the date of grant
              at a price per share equal to the fair market value on the date of
              grant, except for annual grants to outside directors which have an
              exercise price equal to 85% of the fair market value on the date
              of grant. Most options granted after December 1, 1994 vest 25% at
              the end of the first year and 6.25% each quarter thereafter.
              Activity under these plans and agreements from 1996 through 1998
              is as follows (in thousands, except per share data):
              <TABLE>
              <CAPTION>

                                                        Number of Shares          Weighted-Average
                                                          Under Option       Exercise Price per Share
                                                        ----------------     ------------------------

            <S>                                              <C>                     <C>   
            Outstanding, December 31, 1995                   1,058                   $ 2.44
                  Granted                                    1,079                   $ 4.56
                  Exercised                                   (133)                  $ 1.86
                  Cancelled                                   (350)                  $ 4.17
                                                           --------

            Outstanding, December 31, 1996                   1,654                   $ 3.51
                  Granted                                      648                   $ 4.70
                  Exercised                                   (203)                  $ 2.03
                  Cancelled                                    (34)                  $ 4.54
                                                           --------

            Outstanding, December 31, 1997                   2,065                   $ 4.01
                  Granted                                      178                   $ 4.10
                  Exercised                                    (95)                  $ 1.99
                  Cancelled                                   (205)                  $ 4.73
                                                           --------

            Outstanding, December 31, 1998                   1,943                   $ 4.04
                                                           ========
            </TABLE>


                                       F-9

<PAGE>


                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued


              As of December 31, 1998, the range of exercise prices of options
              outstanding was $0.70 - $7.06 and the weighted-average remaining
              contractual life of these options was 5.8 years. The number of
              options exercisable at December 31, 1998, 1997 and 1996 was
              1,234,000, 875,000 and 615,000, respectively, and the
              weighted-average exercise price of those options was $3.80, $3.36
              and $2.47, respectively.

        (d)   Stock-Based Compensation:
              -------------------------

              The Company accounts for its stock option plans in accordance with
              the recognition provisions of APB 25 and related interpretations.
              Accordingly, stock compensation expense is recorded on the date of
              grant only when options are granted to consultants or when the
              current market price of the underlying stock exceeds the exercise
              price.

              The Company has adopted the disclosure-only provisions of SFAS
              123. If the Company had determined compensation cost based on the
              fair value at the grant date for its stock options under SFAS 123,
              the Company's net loss and net loss per share would have been
              increased to the pro forma amounts indicated below (in thousands,
              except per share data).

              <TABLE>
              <CAPTION>

                                                                      1998          1997          1996
                                                                   ---------     ---------     ---------
              <S>                                                  <C>           <C>           <C>      
              Net loss - As reported                               $ (8,104)     $ (2,452)     $ (6,709)

              Net loss - Pro forma                                 $ (9,832)     $ (4,398)     $ (8,149)

              Basic and diluted net loss per share - As reported   $  (0.56)     $  (0.18)     $  (0.52)

              Basic and diluted net loss per share - Pro forma     $  (0.68)     $  (0.32)     $  (0.63)
              </TABLE>


              The full impact of calculating compensation cost for stock options
              under SFAS 123 is not reflected in all of the pro forma net loss
              amounts presented above because compensation cost is expensed over
              the options' vesting period of four years, and compensation cost
              for options granted prior to January 1, 1995 is not considered.

              The per share weighted-average fair market value of stock options
              granted during 1998, 1997 and 1996 at an exercise price equal to
              the fair market value on the date of grant was $4.24, $3.23 and
              $4.17, respectively, using the Black-Scholes option-pricing model.
              The per share weighted-average fair market value of stock options
              granted during 1998, 1997 and 1996 at an exercise price less than
              the fair market value on the date of grant was $3.61, $4.97 and
              $3.95 on the date of grant.

              The following weighted-average assumptions were used in
              calculating compensation cost for stock options under SFAS 123.



              <TABLE>
              <CAPTION>
                                                                      1998          1997          1996
                                                                   ---------     ---------     ---------
              <S>                                                  <C>           <C>           <C>
              Expected dividend yield                                    0%            0%            0%

              Risk-free interest rate                                 5.55%         6.24%         5.86%

              Expected life                                        8.29 years    7.47 years    7.64 years

              Expected volatility                                    75.07%        87.63%        92.67%

              </TABLE>


                                      F-10

<PAGE>
                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued

        (e)   Stock Purchase Plan:
              --------------------

              In December 1991, the Company adopted an employee stock purchase
              plan that provides for the issuance of up to 150,000 shares of
              Common Stock. The plan is intended to qualify under Section 423 of
              the Internal Revenue Code and is for the benefit of qualifying
              employees, as designated by the Compensation and Stock Option
              Committee of the Board of Directors. Under the terms of the plan,
              participating employees are eligible to have a maximum of 10% of
              their compensation withheld through payroll deductions to purchase
              shares of Common Stock at the lower of 85% of (i) the fair market
              value at the beginning of each offering period or (ii) the fair
              market value on predetermined dates. As of December 31, 1998,
              101,000 shares of Common Stock have been issued pursuant to this
              plan.

       (f)    Warrants:
              ---------

              In conjunction with a private placement of equity securities in
              February 1996, the Company issued 3,000,000 warrants to purchase
              an equal number of shares of Common Stock. The warrants are
              exercisable at $6.00 per share over a six-year period from the
              date of purchase. In July 1998, the Company issued a total of
              1,025,000 shares of Common Stock pursuant to an offer for the
              early exercise of these warrants at an exercise price of $3.59 per
              share. As of December 31, 1998, 1,975,000 of these warrants remain
              outstanding.

              In conjunction with the negotiation of equipment leases entered
              into in 1990, the Company issued warrants to purchase 9,000 shares
              of Preferred Stock (subsequently converted to Common Stock) to the
              lessors in lieu of security deposits. The warrants are exercisable
              at $6.13 or $7.00 per share over a period of ten years from the
              inception of the leases. As of December 31, 1998, none of these
              warrants had been exercised. The lease agreements are described in
              Note 6.

        (g)   Stock Award:
              ------------

              In November 1997, the Company issued 15,000 shares of Common Stock
              to an employee in exchange for services rendered, for which a
              charge of $68,000 was recorded in the accompanying statements of
              operations.

       (h)    Stockholder Rights Plan:
              ------------------------

              In September 1997, the Company adopted a stockholder rights plan
              and declared a dividend distribution of one preferred share
              purchase right (a "Right") for each outstanding share of Common
              Stock ("Common Shares"), effective for stockholders of record as
              of October 15, 1997 ("Record Date"). The Rights also attach to new
              Common Shares issued after the Record Date. Each Right entitles
              the registered holder to purchase from the Company one
              one-hundredth of a share of Series C Junior Participating
              Preferred Stock, par value $0.001, at an exercise price of $50
              (the "Purchase Price"). The Rights will become exercisable only if
              a person or group acquires 20% or more of the Corvas Common Stock
              or announces a tender offer for 20% or more of the Common Stock.
              If the Rights become exercisable, all holders of Rights, except
              the acquirer, will be entitled to acquire for the Purchase Price
              that number of Common Shares having a market value of two times
              the Purchase Price of the Right, in lieu of purchasing Series C
              Junior Participating Preferred Stock. This Right will commence on
              the date of public announcement that a person has become an
              Acquiring Person (as defined in the Rights Agreement) or the
              effective date of a registration statement relating to
              distribution of the Rights, if later, and terminate 60 days later
              (subject to certain provisions in the Rights Agreement).

                                      F-11

<PAGE>


                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued


              The Rights will expire on September 18, 2007, unless exchanged or
              redeemed prior to that date. Until a Right is exercised, the
              holder will have no rights as a stockholder of the Company,
              including, without limitation, the right to vote or to receive
              dividends.

(5)    Income Taxes
       ------------

       The Company has no net, taxable temporary differences that would require
       recognition of deferred tax liabilities and, due to the uncertainty of
       future realizability, has recorded a valuation allowance against any net
       deferred tax assets for deductible temporary differences, tax operating
       loss carryforwards and tax credits. The Company increased its valuation
       allowance by approximately $4,160,000, $1,100,000 and $2,100,000 for the
       years ended December 31, 1998, 1997 and 1996, respectively, primarily as
       a result of the increase in tax operating loss carryforwards.

       At December 31, 1998, the Company had available net operating loss
       carryforwards of approximately $73,500,000 for federal income tax
       reporting purposes that begin to expire in 2002. The net operating loss
       carryforwards for state purposes, which expire five years after
       generation, are approximately $34,500,000. The Company has unused
       research and development tax credits for federal income tax purposes of
       $3,600,000 at December 31, 1998.

       In accordance with Internal Revenue Code Section 382, the annual
       utilization of net operating loss carryforwards and credits existing
       prior to a change in control may be limited.


(6)    Commitments
       -----------

       (a)    Lease Commitments:
              ------------------

              The Company currently leases its principal facility under an
              operating lease that expires in September 1999. Total rent expense
              recognized under this lease for the years ended December 31, 1998,
              1997 and 1996 was $970,000, $924,000 and $846,000, respectively.
              The total future minimum commitment under the facility lease as of
              December 31, 1998 is $754,000. See Note 11.

              In 1994, the Company entered into a capital equipment lease for
              certain equipment in the amount of $221,000, to be paid over 36
              months. The amortization expense on this lease for the years ended
              December 31, 1997 and 1996 was $15,000 and $44,000, respectively.

       (b)    Letter of Credit:
              -----------------

              The Company has an unused standby letter of credit of $60,000 that
              bears interest at the prime rate plus 1% and expires on September
              30, 1999, with provisions for annual renewal. This letter of
              credit, collateralized by a $60,000 time deposit, is pledged in
              lieu of a security deposit against the principal facility lease.


                                      F-12

<PAGE>


                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued


(7)    Collaborative Agreements
       ------------------------

       In June 1997, the Company entered into an option agreement with Vascular
       Genomics Inc. ("VGI"), a private company with a proprietary position in a
       novel vascular targeting technology. Pursuant to the three-year option
       agreement, the Company has the option to acquire all of the stock of VGI
       in exchange for Corvas Common Stock or, in certain circumstances, a
       combination of cash and Common Stock. The aggregate acquisition price,
       which is based on the timing of option exercise, ranges from a minimum as
       of December 31, 1998 of $13,782,000 to a maximum of $19,960,000. Exercise
       of the option would be automatically triggered if the Company entered
       into a partnering agreement that covered any portion of this technology
       and had an aggregate value equal to the dollar value of the acquisition
       price applicable to that date. If Corvas elects not to, or is unable to,
       exercise its option, VGI may require the Company to purchase 19.9% of its
       outstanding stock for $3,960,000 in Corvas Common Stock. During the
       option period, Corvas is making monthly option payments of approximately
       $83,000 to VGI, which are recorded as research and development expenses
       on the accompanying statements of operations. Under the terms of a
       research and development agreement executed as part of this transaction,
       VGI is required to make monthly payments of $80,000 to Corvas to be
       applied to research and development covering the VGI technology. The
       accompanying statements of operations include $960,000 and $480,000 of
       revenue from collaborative agreements in 1998 and 1997, respectively,
       attributable to VGI. Pursuant to these agreements, the Company received
       an exclusive, fully-paid, royalty-free worldwide license to the VGI
       technology, with the right to grant sublicenses.

       Also in June 1997, the Company entered into a license and collaboration
       agreement with Schering-Plough that covers the design and development of
       orally-active inhibitors of a key protease necessary for hepatitis C
       virus replication. Under the terms of this agreement, Schering-Plough
       received an exclusive worldwide license for products developed from
       Corvas compounds under the agreement. Schering-Plough is responsible for
       all development, manufacturing and marketing of any resultant products.
       In 1998, the Company recognized $1,575,000 of revenue from collaborative
       agreements attributable to this collaboration. Revenue recognized in 1997
       included $250,000 of license fees and $919,000 of revenue from
       collaborative agreements; $656,000 of prepaid research funding was
       included as deferred revenue on the balance sheet as of December 31,
       1997. The initial term of the research program was one year;
       Schering-Plough has exercised the first of its options to extend funding
       through May 1999, and has one option remaining to extend the program for
       an additional one-year period. The funding for each extension year will
       be dependent on the manpower applied to the program, within an
       established minimum and maximum. The Company may also receive milestone
       payments as well as royalty payments on product sales if products are
       successfully commercialized from this agreement.



                                      F-13


<PAGE>


                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued


       In October 1995, the Company entered into a research and option agreement
       of up to eighteen months with Pfizer Inc. ("Pfizer") to collaborate on
       the development of neutrophil inhibitory factor ("NIF"), an
       anti-inflammatory agent with therapeutic potential for stroke and other
       indications. The option period concluded in October 1996, but Pfizer
       extended its option and began to make monthly payments of $125,000
       through January 1997 to retain its option rights. In February 1997,
       Pfizer exercised its option to enter into an exclusive license and
       development agreement on this program. The accompanying statements of
       operations reflect 1998 revenue from collaborative agreements pursuant to
       this collaboration of $450,000 and a $1,000,000 milestone earned upon
       commencement of a Phase I trial for NIF. Upon exercise of the option in
       1997, Pfizer paid the Company $1,000,000 due upon execution of the
       agreement, less $200,000 applied from amounts paid to extend the option
       period from October 1996 to January 1997. Revenue recognized in 1997
       included license fees of $850,000, $800,000 of which was paid upon
       exercise of the option and $50,000 which was applied from the January
       1997 payment to extend the option period. Also included in the 1997
       statements of operations was $412,000 of revenue from collaborative
       agreements recognized as a result of a portion of the option extension
       payment from January and the research funding earned in 1997. Revenue
       recognized in 1996 included $480,000 of revenue from collaborative
       agreements, $150,000 of license fees and $50,000 of other income. Pfizer
       received an exclusive, worldwide license to further develop, manufacture
       and market NIF as a therapeutic agent, and is responsible for funding all
       further development of NIF, including costs associated with clinical
       trials and limited activities at Corvas. Pfizer agreed to compensate the
       Company for certain costs of research and preclinical development of NIF
       over a two-year period ending March 31, 1999. The Company may also
       receive additional milestone payments as well as royalty payments on
       product sales if products are successfully commercialized from this
       agreement.

       In December 1994, the Company entered into a strategic alliance agreement
       with Schering-Plough to collaborate on the discovery and
       commercialization of orally-active thrombin inhibitor drugs for the
       prevention and treatment of chronic cardiovascular disorders. Under the
       terms of the agreement, Schering-Plough compensated the Company for
       certain costs of research and preclinical development of thrombin
       inhibitors over a two-year period that ended December 31, 1996. In June
       1998, the Company recognized a $1,000,000 milestone payment from
       Schering-Plough upon commencement of a Phase I trial for an oral thrombin
       inhibitor. In January 1997, the Company received a $3,000,000 milestone
       payment upon selection of a clinical development compound in this
       program. Revenue from collaborative agreements of $4,000,000 was
       recognized in 1996 pursuant to this agreement. In August 1998, the
       Company and Schering-Plough agreed to terminate this collaboration.

       Under a separate agreement also completed in December 1994,
       Schering-Plough purchased 1,000,000 shares of Series A Convertible
       Preferred Stock of the Company, which resulted in net proceeds of
       $4,864,000.



                                      F-14


<PAGE>

                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued


       In conjunction with the agreements completed in December 1994,
       Schering-Plough acquired an exclusive one-year option (renewable for one
       additional year) to expand the alliance to include a second blood
       clotting enzyme, Factor Xa. In January 1996, Schering-Plough renewed this
       option, which was exercised in December 1996. A $1,000,000 fee paid to
       extend the option was recorded as revenue from collaborative agreements
       in 1996. Under the terms of this agreement, Schering-Plough agreed to
       compensate the Company for certain costs of research and preclinical
       development of coagulation Factor Xa inhibitors over a minimum two-year
       period that ended December 31, 1998. In December 1998, Schering-Plough
       extended funding of this program through September 1999. The accompanying
       statements of operations reflect revenue from collaborative agreements
       pursuant to this collaboration of $4,000,000 in both of the years 1998
       and 1997. At December 31, 1997, all of the $4,000,000 recognized as
       revenue in 1998 was recorded as deferred revenue. Exercise of this option
       also resulted in the purchase of 250,000 shares of Series B Convertible
       Preferred Stock in 1996, which yielded net proceeds of $2,000,000. The
       Company may also receive milestone payments as well as royalty payments
       on product sales if products are successfully commercialized from this
       agreement. Schering-Plough, which is responsible for preclinical
       development, all clinical trials and regulatory activities, received
       exclusive worldwide marketing rights for any resulting Factor Xa
       inhibitors. The Company retained certain manufacturing rights.

       In November 1998, the Company entered into license agreements with two
       Johnson & Johnson companies related to recombinant tissue factor,
       superceding earlier agreements entered in June 1992. In addition to
       transferring the Company's manufacturing activities to these Johnson &
       Johnson companies, certain specialized equipment was also sold. The
       accompanying statements of operations reflect 1998 license fee revenue of
       $795,000 and other income of $209,000 pursuant to these agreements. Net
       product sales attributable to Johnson & Johnson companies for the years
       ended December 31, 1998, 1997 and 1996 were $26,000, $285,000 and
       $130,000, respectively. The new agreements continue to provide for
       royalties to be paid based on unit sales of tissue factor. For the years
       ended December 31, 1998, 1997 and 1996, these royalties amounted to
       $145,000, $120,000 and $161,000, respectively. A $250,000 milestone
       payment attributable to the original agreements was recorded as revenue
       in 1996.

       The Company has also entered into research and licensing agreements with
       universities and other research institutions which have required the
       Company to make royalty payments for the years ended December 31, 1998,
       1997 and 1996 of $11,000, $16,000 and $17,000, respectively.

(8)    Employee Benefits Plan 
       ----------------------

       Effective January 1, 1988, the Board of Directors approved the Corvas
       401(k) Compensation Deferral Savings Plan ("The Plan"), adopting
       provisions of the Internal Revenue Code Section 401(k). The Plan was
       approved by the IRS in 1989, and was amended and restated in 1995. The
       Plan is for the benefit of all qualifying employees, and permits employee
       voluntary contributions, qualified nonelective contributions and company
       profit-sharing contributions. No employer contributions have been
       approved by the Board of Directors through December 31, 1998.

(9)    Related Party Transaction
       -------------------------

       The note receivable from related party as of December 31, 1998 and 1997
       consists of a loan, evidenced by a promissory note, granted to an
       executive officer of the Company in connection with the officer's
       relocation to San Diego. The original loan, in the amount of $200,000,
       was made in 1996. In August 1997, $47,000 was paid, leaving a balance of
       $153,000 as of December 31, 1998 and 1997. This note bears no interest
       and is due and payable in full on the earlier of (i) August 28, 1999,
       (ii) the settlement or other final determination of a lawsuit related to
       such executive officer's residence, or (iii) within 90 days of such
       executive officer's termination of employment with the Company.

                                      F-15

<PAGE>


                          CORVAS INTERNATIONAL, INC.

                   Notes to Financial Statements, Continued


(10)   Legal Matters
       -------------

       In March 1999, the Company was served with a Complaint in the Superior
       Court of California, County of San Diego, by a former employee of the
       Company who is also a principal shareholder of VGI. The Complaint
       consists of several allegations including, among others, violation of the
       Labor Code and breach of contract. As the Complaint was only recently
       filed, the Company cannot yet estimate its financial impact, if any. The
       Company denies all of the claims alleged and intends to vigorously defend
       itself in this lawsuit.

(11)   Subsequent Event
       ----------------

       In March 1999, the Company executed an amendment to extend its facility
       lease through September 2006.



                                      F-16